I’ve just finished reading an excellent report form MIT Sloan and Capgemini looking at how firms that “get digital” are massively outperforming their peers.
The report, titled “The Digital Advantage: How digital leaders outperform their peers in every industry” has been 2 years in the making, with some 391 large companies surveyed.
Importantly, this report is more than just theory. The MIT and Capgemini team has looked at the actual financial performance of the companies studied, and linked this back to where they are on the digital adoption curve.
The report is quite comprehensive, so I am going to break my analysis up into several posts.
The report looks at 391 large firms across multiple industries to see where digital is having an impact.
To summarise the report in a sentence – “Digital maturity matters, it matters in every industry.”
Importantly, the report proves that there is a significant financial benefit from adopting digital strategies, technologies as well as re-engineering processes and people to take advantage of the digital shifts we are seeing as a result of social media driving social business.
Two types of digital transformation
The research splits the two types of digital transformation areas, namely:
1) Digital intensity: an investment in technology-enabled initiatives to change how the company operates (customer engagements, internal operations and business models)
2) Transformation management intensity: – while it is a mouthful to say, it describes the leadership capabilities required to drive digital transformation in the organisation. This is not about technology, instead the focus must be on future growth areas, governance and engagement to make the transition happen.
The report explains how some companies only operate with one of these types of digital maturity traits, but those who operate in both are not only well positioned for the future, they are actually outperforming their peers on a massive scale.
Transformation management works best with both a top-down leadership approach, coupled with bottom up innovation. The key here is to have a leader, and a board and management team who absolutely want the company to change and are prepared to drive this change through.
The challenge is that there are not many of these “digital CEOs” about, meaning that some of this change may be delayed until the next breed of digital savvy leaders are promoted. For some companies, this will be too late.
Looking at what has happened recently in the UK with the failure of camera retailer Jessops, and music retailer HMV, boards cannot wait to have their CEO “get digital”. I would argue that if people are debating about diversity on boards, not only should there be a better representation of women, we should also see stronger representation of digital experts, male or female. Without digital experience driving future growth, we will see more companies get hit by digital disruption.
Four types of digital maturity
For me, the most interesting part of the analysis was the splitting up of the two types of digital transformation into 4 types of digital maturity – see the diagram below from the report (click for a larger view).
The four areas are as follows
Beginners: These firms do very little with advanced digital capabilities, but may be using more traditional systems such as ERP or e-commerce. Probably have a twitter account and a facebook page but not much in the way of real social business. They are also unlikely to have a digital savvy leadership team in place so are not planning any type of transformation management.
Fashionistas: Companies in this quadrant have implemented or experimented with many “sexy” digital applications – some creating value and others not. They most likely have not implemented these digital initiatives with a real strategy linking them all together because most are experiments or pilots – or perhaps are just “ticking the boxes” that they are “doing social media”
Conservatives: Digital conservatives favour prudence over innovation. While they understand the need for a strong digital vision and a governance and culture to match, they are not there yet. While they spend wisely, they are missing the advantages that can be realised from digital.
Digerati: These companies are our digital stars! They understand not only how to drive value with digital transformation, they combine this with the right leadership, governance and culture to accelerate their work with digital technologies. In short, these companies have a strong digital culture that as the next section proves, actually drives real revenue.
Digital maturity varies widely
When each of the 391 companies position on the digital maturity quadrant was plotted, a wide spread emerges (click to enlarge).
As mentioned in my introduction, the report is unique, because it has looked at the financial performance of the 184 publicly traded companies surveyed. As shown in the graph below, companies that are mature in either of the two dimensions outstrip industry competitors along different dimensions of financial performance.
In every one of the three areas below – revenue generation, profitability, and market valuation, Digerati companies are clear winners. (click to enlarge)
The clear message here is that digerati firms (those 25% of companies studied) that are more mature in both dimensions far outperform their peers.
The research shows that Digerati are:
- 26% more profitable than their competitors
- Generate 9% more revenue through their employees & physical assets
- Generate 12% higher market valuation rations
Simply put, digerati combine digital intensity and transformation intensity to achieve performance that is greater than either dimension can deliver on their own.
What does this mean for your company?
In 2013, many companies are still at the digital beginner stage. If your CEO, CMO or board is still fixated by the number of “likes” or “followers” they have on social media, then it is time for a shake-up.
Social media has brought us the tools, platforms and consumer adoption required to take digital transformation to the next stage via social business.
Social business (represented below) is the mix of people, process and technology to bring about the radical changes described above to completely transform a business and allow it to grow into new areas and fight new challenges. Jessops and HMV have been casualties because they were digital conservatives.
Companies such as Burberry and L’Oreal continue to enjoy success because they have the leadership and drive to become a digerati company.
If you are a C-level executive or a non-executive board member of a company of any size, I encourage you to download and read the report and set aside some considerable time at your next management or board meeting to discuss what your plans are.
Do you want to be a digital beginner or conservative and get left behind, or aspire to be a digerati?
I know what sort of firm I’d rather work for or invest in.
Coming up in a future post, I will be looking further into the report to see where particular industries are placed on the digital maturity matrix.