Digital transformation _a_road-map_for_billion-dollar_organizations

MITSloan
MANAGEMENT

DIGITAL TRANSFORMATION: A ROADMAP
FOR BILLION-DOLLAR ORGANIZATIONS

FINDINGS FROM PHASE 1 OF THE DIGITAL TRANSFORMATION
STUDY CONDUCTED BY THE MIT CENTER FOR DIGITAL
BUSINESS AND CAPGEMINI CONSULTING

Contents

2 © 2011 MIT Center for Digital Business and Capgemini Consulting

1 The Study 06
2 Common pressures; different results 08
••Common pressures to begin digital transformation
••Different digital transformation speeds and different results
Case Study: Finding new opportunities for digital transformation
across a hospitality company
Case Study: Digital transformation in India

3 The shape of digital transformation 16
••Transforming customer experience
••Transforming operational processes
••Transforming business models
••Digital capabilities
Case Study: Digital transformation in an international banking group
Case Study: Moving from separate to integrated digital initiatives in
an apparel manufacturer

4 Digital technology usage 28
5 Challenges on the road to transformation 34
••Initiation challenges
••Execution challenges
••Governance challenges
Case Study: Evolving as a value chain orchestrator in mortgages
Case Study: Digital transformation in an international airport

6 How can you make your digital journey successful? 46
••Envision the digital future for your firm
••Invest in digital initiatives and skills
••Lead the change from the top
Case Study: Driving digital transformation across a global media company

7 What is digital transformation maturity? 58
••The What and the How
••Digital Maturity Matrix
••How to assess your digital maturity
Case Study: Capitalizing on digital opportunities for a business directory

8 Conclusion 65

© 2011 MIT Center for Digital Business and Capgemini Consulting 3

EXECUTIVE
SUMMARY


Digital transformation (DT) – the use of technology to radically that new technologies provide. Major digital
improve performance or reach of enterprises – is becoming transformation initiatives are centered on re-envisioning
a hot topic for companies across the globe. Executives in customer experience, operational processes and
all industries are using digital advances such as analytics, business models. Companies are changing how
mobility, social media and smart embedded devices – and functions work, redefining how functions interact, and
improving their use of traditional technologies such as ERP even evolving the boundaries of the firm.
– to change customer relationships, internal processes, and
value propositions. Other executives, seeing how fast digital • Successful DT does not happen bottom up. It must be
technology disrupted media industries in the past decade, driven from the top.
know they need to pay attention to changes in their industries
now. • Focus on the “how” more than the “what.” The most
successful transformations we have seen focus as much
How can senior executives successfully lead digital transformation? (or more) on how to drive change as on the detailed
While many experts urge companies to get started on the digital content of the change. A compelling transformative
transformation journey, few tell how to do it. In this report we vision, with related engagement, governance and KPIs
share the findings from a global study of how 157 executives in will allow people throughout the enterprise to identify
50 large traditional companies are managing – and benefiting new “whats” to meet or extend the vision.
from – digital transformation. We will describe the elements of
successful digital transformation and show how to assess your • Successful DT comes not from creating a new
firm’s digital maturity. organization, but from reshaping the organization to take
advantage of valuable existing strategic assets in new
Our research shows that, although large traditional firms ways.
are truly different from digital entrants, many are starting
to transform their businesses successfully through digital • Companies can do much more to gain value from
technology. Specifically, investments they have already made, even as they
envision radically new ways of working.
• Companies face common pressures from customers,
employees and competitors to begin or speed up their Despite the hype around innovative digital technologies, most
digital transformation. However they are transforming at companies still have a long way to go in their digital transformation
different paces with different results. journeys. Leadership is essential. Whether using new or
traditional technologies, the key to digital transformation
• Successful digital transformation comes not from is re-envisioning and driving change in how the company
implementing new technologies but from transforming operates. That’s a management and people challenge, not just
your organization to take advantage of the possibilities a technology one.


1 THE STUDY

Many popular stories of digital – and benefiting from – Digital
transformation involve digital start- Transformation. We are working to
ups or high-tech firms such as understand how digital technology is
Amazon, Apple, or Google. Executives changing the business of large leading
in traditional companies often find firms.
these examples hollow. Big traditional
companies, with decades of history Phase 1 of this multi-year study is an
and legacy, are simply different from exploratory investigation involving
these newer digital entrants. Other 157 executive-level interviews in
stories focus on exciting initiatives 50 companies in 15 countries (see
by traditional companies, but are Figure 1). These companies are large,
anecdotal and do not show how those with typically $1 billion or more in
companies implemented the change. annual sales. We conducted in-depth
These examples may be good triggers interviews to qualitatively explore the
for other companies to take action, but nature of the digital transformation
they give no advice on how or whether phenomenon with real executives in
to do so. real companies. To provide balanced
perspectives, approximately half of
With that in mind, MIT Center for the interviewees are business leaders
Digital Business and Capgemini such as CEOs, line of business
Consulting set out investigate the ways managers, marketing heads, or
in which large traditional companies COOs, while the other half are IT and
around the world are managing technology leaders.

Figure 1: Interviews cover a broad range of countries and industries

Transport Retail & Energy, Utilities
Americas Food services and Chemical
& Canada
Telecom,
Media, and
Entertainment
12%
30% 6% 12%
Services

20%
54% 22%
16%
8% 12% 8%

Europe Asia Paciﬁ c
Pharmaceuticals Manufacturing Government Financial
& Medical & distribution Services


2 COMMON PRESSURES; DIFFERENT RESULTS

2.1 Common pressures to Customers, too, are becoming more
begin digital transformation demanding. An airport executive
described an “ever-rising tide of
The executives we interviewed customer expectations” for service and
report feeling pressure to transform convenience. For a manufacturer/
from forces inside and outside the retailer, “People’s expectations have
company. Figure 2 shows that most changed. They want to be more in charge.
executives expressed at least moderate They expect that we know them more...
pressure to change. Employees are their online behavior is developing
asking why they cannot collaborate expectations and behaviors that they apply
with coworkers the way they can in other contexts as well.”
with friends. One executive quoted
younger employees as saying “Come Nearly every executive (72 percent)
on. I know the company’s more than cited competitive pressures to change.
100 years old, but our IT capabilities This relates closely to increases in the
don’t have to match the age of the pace of business. Respondents rated
company.” Other employees are the current pace of business relative
Executives rated incorporating their personal practices to five years ago as 5.6 on a scale from
into their work lives without waiting
the pace of business for corporate practices to catch up.
1=very much slower to 7=very much
faster. Most indicated the pace will
compared to five According to one CIO, “Officially iPads continue to increase, leading to further
are prohibited by our policies. Yet 50
years ago as percent of our employees are using them
pressure to transform their businesses.
While several executives indicated
5.6 out of 7* at work.” this was “the new normal” for their
*Scale: 1=very much slower than 5 years
ago, 7=very much faster than 5 years ago Figure 2: Pressures for change*

High Medium

72%
70%

M M

32%

H H M

H

Customers Competitors Employees
* Percentage of companies experiencing moderate or high pressure to transform from customers, competition,
or employees as mentioned by their executives. Some ﬁrms mentioned more than one pressure.


industries, others expressed concern or other technology-enabled changes,
that the acceleration would not be but obtained only basic levels of value
sustainable. from the investments. They can obtain
much more value by continuing the
Executives on average rated their effort – envisioning new capabilities and
innovation culture at only 4.2 on a process changes to reap larger returns
7-point scale. Although few companies from their foundational investments.
strive to be as high as seven on the Manufacturers’ ERP systems have
scale, none of the executives felt their improved process efficiency and are
innovation culture was as strong as it providing better financial data for
should be. strategic decisions, but companies have
not yet retrained buyers in how to use
Some executives expressed other, less the information in negotiating with
common, pressures. Globalization suppliers. Retailers and other service
is a driver for seven firms. These firms are gathering detailed information
companies have a strategic need on buyer behavior, but lack the analytics
to expand globally or are facing capabilities to truly understand the
pressures to generate information and power of the data. A hospitality
process synergies across their global company is conducting experiments
enterprises. Executives in three firms in mobile marketing in two different
mentioned M&A as a pressure to business units, and building digitally-
transform. enhanced customer service apps in
Executives rated another, but is not conducting a unified
2.2 Different digital digital transformation of the customer
their innovation transformation speeds and experience.
culture as 4.2 on a different results These companies are gaining some
7-point scale. A few companies in our study are using value from transforming parts of their
digital technologies, old and new, to truly businesses, but are only part of the way
transform their businesses. However, toward achieving the potential of digital
these companies are in the minority. transformation. Still others have not
yet begun their digital transformation
Despite internal and external pressures, journeys.
very few businesses are gaining the full
value of technologically-enabled change, In the following sections, we will
even with technologies they already describe how firms are digitally
own. Many companies we interviewed transforming, the challenges they are
took on the significant effort and facing, and the levers executives can use
expense of implementing ERP, CRM to drive digital transformation.


Case Study
HOTELCO: FINDING NEW OPPORTUNITIES
FOR DIGITAL TRANSFORMATION
ACROSS THE ENTERPRISE

H
otelCo is one of the world’s ten largest hospitality
companies. The firm constantly strives to improve
operational efficiencies and customer service both within
and across properties. The firm’s loyalty program is the
centerpiece of the company’s approach to understanding,
serving, and selling to customers.

HotelCo executives, who have always believed in
the power of technology to improve processes and
increase customer intimacy, see further opportunity for digital transformation.
Opportunities exist not only in new technologies such as social media and
mobile, but also in the firm’s more traditional areas like transactional IT and
analytics. HotelCo is actively pursuing digital transformation in many areas and
is working to innovate further. Because HotelCo experiences organizational and
IT challenges common to many large global enterprises, it seeks to take a rational,
well-defined approach to its digital transformation initiatives wherever possible.

HotelCo has created opportunities for digital transformation in three areas: online
presence, mobile customer engagement, and internal operational processes.

Online: HotelCo continually evolves its online presence. It has integrated the
website presence of all its properties on a common platform, enabling marketing
across properties within a market. It also added new capabilities. For example,
property managers using the firm’s corporate digital marketing tools can control
their property content, e.g., events, independently of other properties, while not
having to build and maintain their own online capabilities. Further extending
online capabilities, HotelCo has begun to implement social media and mobile
marketing capabilities. Employees actively monitor social media for negative
information and can respond. However, organizational questions remain about
how to improve the response capability as volumes continue to grow: “Who
handles it? Marketing? Product support? Customer support?”

In addition, HotelCo is integrating social media information onto its websites.
The website allows user comments on select pages, and the firm is working to
extend comments to additional pages. HotelCo is also incorporating third-party
social media onto the site. For example, tripadvisor.com ratings feed directly into
property web pages, despite the initial hesitation of some property managers.
“First off, this conversation is happening and most of the customers are now
savvy enough they’re going to tripadvisor anyway. Let’s bring the content right
to our site, positive or negative. Customers see that and they say ‘OK, well this


is an honest assessment from people like myself….” The marketing people have
found that such content is much more compelling than internally generated
information.

Mobile: Realizing that most customers now carry cell phones, HotelCo has
made mobile a key part of its marketing strategy. The company offers multiple
smartphone apps and is making preparations for a future in which more people
access sites via mobile than from a personal computer.

HotelCo actively engages in mobile marketing. The company realizes the
customer intimacy it can achieve through mobile because customers react
to messages almost instantly. SMS and WAP sites are a core part of mobile
marketing because of their ubiquity. The different properties are in charge of
their own mobile marketing messages, but the messages are delivered through a
unified corporate-level system.

The company is also experimenting with location-based services. Innovation
activities that initially focused on embedded devices and RFID have been
facilitated by mobile phones. For example, customers arriving at some properties
can receive mobile coupons for restaurants, shows, and other services in the
hotel. Customers can also receive personalized service and information from
digital displays located around the properties using phones or their loyalty cards.

While mobile and location-based services show promise, they have challenges.
The firm is trying to balance a tradeoff between the capabilities of location-based
devices and their potential intrusiveness. For example, when building a digital
customer service display, HotelCo opted to ask customers to place their loyalty
cards on the device rather than have the device automatically read who they are.

Additional challenges are technological and organizational. The firm wants to
“support experimentation by all parties, but also clearly delineate their roles
and scopes.” For example, multiple groups conducting mobile experiments meet
regularly to coordinate activities. And the company is starting to examine how
it coordinates its use of vendors so that knowledge is not fragmented across
multiple digital transformation initiatives.

Internal operations: HotelCo is investigating how to incorporate emerging
technologies into internal processes. Compared with the device-agnostic policy
for customers, HotelCo aims to use standard devices for internal processes and
to make them available only to those employees who need mobile capability for
their jobs.

The firm is trying to take the same measured process to implementing social
media in internal processes as it does in other areas. One obstacle stems from
security and cost: free platforms are not seen as secure, and the firm wants to be
careful about investing large amounts of money to in license a secure platform
for an uncertain goal. Another challenge is organizational: who would own
the internal collaboration process? Until there is a clear internal owner and a


well-defined purpose, the firm is taking a slow approach to widespread internal
use of social media instead of targeted efforts.

The firm is midway through a set of initiatives aimed at rationalizing processes
across the enterprise. When complete, HotelCo will have a set of shared services
that are available to all properties, but which can be tailored by properties for
their own use, much as the online platform is today. IT, while a significant
enabler of the firm’s capabilities, remains a challenge as the company changes.
For example, the loyalty database is not optimized for multi-channel interactions,
making it difficult to integrate information that arrives from, or is sent via,
multiple media. Another challenge is integrating information and processes from
acquired companies into the firm’s core IT backbone.

At HotelCo, analytics is “something we do a ton of.” Executives are proud of
the firm’s ability to understand drivers of customer and operational metrics.
HotelCo is now investigating how to move analytics capability further out to the
edges of the company. However, executives expressed the desire to make good
choices about where to apply analytics. Analytics is “absolutely a different way
of thinking… we don’t need every role to do it, but we definitely want the skills
in certain places. “ For example, analytics may enable the firm’s customer-facing
employees to further personalize the customer experience, but executives are
aiming to do it in a way that doesn’t disempower those workers.


Case Study
ASIAN PAINTS: DIGITAL
TRANSFORMATION IN INDIA

A
sian Paints, India’s leading manufacturer of coatings,
has digitally transformed its business step by step. The
firm has been able to maintain fast growth and globalize
while increasing efficiency and reducing its impact on the
environment.

In the early 2000s, as part of an effort to reduce debt
and increase internal efficiencies, the firm implemented
an enterprise-wide ERP and advanced Supply Chain
Management system. This helped to create an enterprise-wide platform that was
the basis for further improvements in sales and customer processes. The change
also liberated working capital that helped fund acquisitions in emerging markets.
Asian Paints gained further efficiencies by linking subcontractors and suppliers on
a B2B portal. In 2003, the firm invested in a CRM system.

In 2010, Asian Paints centralized its order taking process into a single corporate
call center. This change helped the company further improve operational
efficiencies and sustain its growth. In customer-facing processes, the move entailed
much more than just creating the call center. Retailers were encouraged to place
orders through the call center, where they could receive a more consistent service
level than they could through the firm’s 100 local depots. Centralized data also
enabled delivery of products to large institutional customer job sites, giving the
company a capability that competitors could not provide.

The biggest change resulting from centralizing order taking was in the way
salespeople interacted with retailers. Liberated from routine order collection,
the sales team could focus on building stronger relationships. To enable a more
meaningful dialogue between the sales team and each retailer, the company
provided salespeople with vital customer data in the field using mobile devices. A
rollout of tablet devices, which is currently underway, will further mobile-enable
the sales staff.

Asian Paints’ digital transformation also extended to internal production processes.
High growth in paint demand creates the need to set up new manufacturing
plants every three years. Given the scale and size of these plants, the firm has
begun to focus on creating highly automated plants. Automation has led to greater
scalability, better quality and stronger safety and environmental protections. The
new plants are fully integrated from an information management perspective. Data
from shop floor control systems and automated warehouses are linked seamlessly
to the ERP. This has helped to further sustain the firm’s operational efficiencies.


In India, Asian Paints has begun to sell services (such as a painted wall) instead of
products (a can of paint). The services strategy has benefits beyond new revenues.
Selling services helps to ensure that high-end products are applied properly,
thereby improving customer satisfaction. Services also help the firm to get closer
to the end-consumer, understand core consumer choices, and launch high-
end texture finishes. Additionally, having a contractor in a client’s house yields
information that marketing staff can use to understand both customer preferences
and potential demand. Gaining better knowledge of end-customer preferences is a
high priority for the company, since its business model – operating largely through
retailers – means that customer involvement has been traditionally very low.

The relationship between IT and business executives has traditionally been very
strong. The IT team consists of business graduates with a deep understanding
of the underlying business processes. They act as internal process consultants.
Governance is centralized and top down, with a strong executive-level
understanding about the importance of standardization and coordination.
Although business executives suggest many digital investments, IT executives
originate others such as the firm’s new analytics initiative.

Corporate growth and new technology demands have increased the challenges of
digital governance. The firm is in the first year of a new portfolio planning process.
“We have enjoyed great equity with the business because we have delivered solutions. But
seeing so many projects coming at us, we felt that now we need to establish processes to
match expectations and resources whilst taking on innovative projects,” says Mr. Manish
Choksi, CIO and Chief of Strategy.

Asian Paints’ investment in strong IT capabilities, combined with organizational
and process changes intended to leverage those investments, will serve as a
foundation upon which the organization can continuously envision and implement
new forms of digital transformation.


3 THE SHAPE OF DIGITAL TRANSFORMATION

The companies interviewed are moving are changing. These nine elements
forward with digital transformation form a set of building blocks for digital
at varying paces and experiencing transformation. Currently, no company
varying levels of success. Some are in our sample has fully transformed
transforming many parts of their all nine elements. Rather, executives
organizations while others are still are selecting among these building
doing only the basics. Others are blocks to move forward in the manner
encountering organizational issues or that they believe is right for their
other challenges that prevent them organizations. The tenth element–
from transforming successfully. digital capabilities – is an essential
enabler for transformations in all areas.
Analysis of the interviews shows clear
patterns. Executives are digitally In this section, we explore how
transforming three key areas of their companies in our study are
enterprises: customer experience, implementing each transformational
operational processes and business building block. Subsequent sections
models (see Figure 3). Within each examine adoption of four key
of the three pillars, different elements technologies and then common

Figure 3: Building blocks of the digital transformation

Customer Operational Business
Experience Process Model

Customer understanding Process digitization Digitally-modified business
• Analytics-based segmentation • Performance improvement • Product/service augmentation
• Socially-informed knowledge • New features • Transitioning physical to digital
• Digital wrappers

Top line growth Worker enablement New digital business
• Digitally-enhanced selling • Working anywhere anytime • Digital products
• Predictive marketing • Broader and faster communication • Reshaping organizational boundaries
• Streamlined customer processes • Community knowledge sharing

Customer touch points Performance management Digital globalization
• Customer service • Operational transparency • Enterprise Integration
-
• Cross-channel coherence • Data-driven decision-making • Redistribution decision authority
• Self service • Shared digital services

• Unified Data & Processes • Business & IT Integration
• Analytics Capability
Digital capabilities • Solution Delivery


challenges that interfere with digital educational digital tools aimed at
transformation. The paper concludes helping clients invest more safely.
with a set of key levers senior These tools, while not selling the firm’s
executives can use to successfully products directly, aligned closely with
transform their organizations. the firm’s reputation for conservatism
and safety.
3.1 Transforming customer
experience Companies are also building new
online communities to advise and
build loyalty with clients in medical,
Customer understanding
real estate or financial services
products. Others are building products
Companies are starting to take
that improve branding in lifestyle
advantage of previous investment
communities. A consumer sports
in systems to gain an in-depth
equipment manufacturer enables
understanding of specific geographies
individuals to publish their sport
and market segments.
performance to communities and stay
connected with other customers who
Other firms are exploring social
have similar interests.
media to understand customer
satisfiers and dis-satisfiers. A
Many firms are building analytics
mortgage executive noted “We
capability to understand customers in
launched a non-profit real estate
more detail. Some insurance firms, for
community to help our customers. As
example, are improving their portfolios
an unplanned benefit this helps us to
and cost structures through analytics-
understand them better. We launched
based underwriting and pricing. Other
special products, such as a special loan
companies are conducting analytics-
offering for divorced people, following
based experiments to drive customer
several customer questions.”
behavior. In one case, a restaurant firm
is actively conducting experiments
In addition, companies are learning to
in pricing and promotion across a set
promote their brands more effectively
of franchised stores. The experiment
through digital media:
dynamically adjusts product prices
in response to demand, weather,
• A medical device firm is launching
inventory levels, and proximity to
a social media campaign to promote
closing time.
a radically new class of products in
an online community of medical
specialists. Executives expect Top-line growth
awareness to grow in weeks rather Companies are using technology
than years. to enhance in-person sales
conversations. Financial services
• A media company has teamed with firms are using tablet-based
product manufacturers for social presentations instead of paper-based
media-based brand enhancement slide decks to make sales pitches.
tied to in-person events. Some are going beyond. Insurance
firms are introducing mobile tools
• After the 2009 economic downturn, to help sales people and customers
a financial firm built a set of engage in analytics-based planning.


A medical device salesforce is processes through a digital plug-
replacing in-person interactions with in. A retailer automatically loads
digital interactions. When visiting a customer’s last online shopping
a doctor’s office, a salesperson list into its e-commerce site. This
leaves an iPad with video and other streamlines the shopping process,
information on new products. The allowing customers extra time to
aim is to get the doctor’s attention look at other products. Customers
and gain a 10 minute conversation can then decide whether to use home
when the salesperson returns to delivery or a drive-through service
retrieve the iPad. with a specific pick-up time. A
mortgage company also developed an
Better understanding helps firms integrated multi-channel experience
to transform the sales experience. to help investors set their realistic
Companies are integrating customer expectations quickly. Then, processes
purchasing data to provide more can cross-sell or up-sell products.
personalized sales and customer
service or even to offer customized Customer touch points
product packages. One executive
commented “Analytics help us to segment Customer service can be enhanced
our clients and to connect SME offerings significantly by digital initiatives. Fast
and clients in a predictive way.” A and transparent problem resolution
hospitality firm engaged in location- builds trust for customers. A bank
based marketing uses analytics to established a twitter account to answer
send personalized mobile coupons client complaints quickly, helping
to customers as they near a facility customers avoid going physically to
and can track uptake in real time. A a branch. This digital initiative also
mortgage firm is setting up a CRM leveraged an expert community,
strategy to link customers to local real allowing crowd sourcing with several
estate references. This system proposes employees and other customers.
new offers in real time via the internet.
Companies with multiple channels to
Other firms are using concept stores the customer are experiencing pressure
as flagships for their digital selling to provide an integrated experience.
innovations. A mortgage company A hospitality executive commented “I
offers investors an integrated process think consumers still respond in the same
combining real estate and bank way, but consumers are now looking in so
services with external services, and many different places that’s it’s now hard
showcases the overall process in a to get that message across efficiently.”
concept megastore. A bank created Many firms, especially in retail and
a concept store in a major city to financial services, are making strong
innovate customer relationships and inroads in integrated multichannel
offer a different experience. Customers activity. However, multichannel
could connect their experiences in services require envisioning and
concept stores to social community implementing change across customer
initiatives like Facebook. experience and internal operational
processes. Many retailers now offer
Some firms try to make the life of home shopping with the option to
the customer easier, simplifying their receive products by mail or in a store.


However, problems remain as, Process digitization
for example, one retail executive
described customers being angry that Companies historically have used
customer service representatives in automation to make processes more
a store could not access online order efficient and scalable. ERP for example
history. has enabled significant efficiency and
quality gains in core transactional,
Some firms are moving beyond simple financial, and supply chain processes.
multi-channel models to enable new An insurance firm has created a central
forms of digital strategy. A mortgage digital platform for core claim processes
company, for example, is offering and deployed the model across several
B2C offerings in one channel to countries. Employee self-service systems,
complement its existing B2B offerings especially in areas like HR, are also
in another. It supplements the becoming widespread.
multichannel experience through a
new type of storefront. Some firms are going beyond simple
automation to gain additional benefits.
Several companies are offering self- Automation can enable companies to
service via digital tools. These tools refocus their people on more strategic
allow the customer to save time, while tasks. A manufacturer has begun to
saving the company money. Classic centralize the HR function, allowing
mobile apps allow bank customers to economies of scale through self-service
access account information or media while freeing HR people to “focus on
customers to have electronic rather enlarging manager skills, rather than counting
than paper subscriptions. Many firms days off.” A specialty materials company
are now offering customer apps to has automated many R&D processes.
enhance customer touch points. In Automation allows researchers to focus
a hospitality firm, smart phone apps on innovation and creativity rather than
are linked to the customer’s profile, repetitive efforts. It also creates streams
enabling integration across SMS, of data that can be useful in later data
apps, and social media efforts. A mining efforts.
media company offers apps with geo-
localization and augmented reality to New technologies are extending this trend
help customers find interesting places of gaining benefits beyond efficiency. A
to visit and provide special offers via paint manufacturer has created fully-
vouchers and e-couponing. automated plants that significantly reduce
labor requirements, improve product
3.2 Transforming quality and enhance environmental,
operational processes health, and safety performance. An
apparel company has moved to digital
Although transformed customer design processes when collaborating with
experiences are the most visible – and manufacturing partners. Going digital
arguably the most exciting – aspects eliminates most need to ship physical
of transformation, firms are also prototypes back and forth, reducing the
realizing very strong benefits from product development lifecycle by 30
transforming internal processes. percent. It allows the firm to be much
more agile, changing designs quickly in
response to market changes.


Worker enablement they are in the office, sit near people
with whom they are temporarily
Once-novel technologies such as collaborating. Meanwhile, the firm’s
mobile e-mail, collaboration tools, collaboration and networking tools
and video conferencing have now allow employees to talk with anyone
become the norm in many companies. in the company from wherever
Employees routinely collaborate they are sitting. This is setting the
with people whom they have never stage for further changes related to
met in person, in regions they have globalization.
never visited. Mobile devices allow
employees to stay connected with the In a broader sense, digital
office at all hours and to work from transformation replaces limited one-
home when not able to be in the office. way vertical communication with
Individual level work has, in essence, broad communication channels that
been virtualized – separating the work are both vertical and horizontal. CxOs
process from the location of the work. can engage in 2-way communication
quickly at scale. Employees can
Some companies are starting to collaborate in ways that were
examine new possibilities for previously not possible. The tools
virtualizing individual work processes. that virtualize individual work,
A financial services firm rearranged while implemented for cost reasons,
its headquarters so that nobody had have become powerful enablers for
an assigned desk, even the CEO. knowledge sharing. Salespeople and
Employees now work from home front line employees, for example, are
one or two days per week and, when beginning to benefit from collaborative

Figure 4: Digital transformation creates a virtuous cycle of knowledge sharing

dge sharin
owle g
Kn

CxOs

Communication
at scale

Virtualization of work
Remote working, Collaborative tools, Knowledge platforms, Cloud Computing

Internal
Crowdsourcing

Employees

Kn
owl
edge sharing


tools in which they can identify 3.3 Transforming business
experts and get questions answered in models
real time. They are also increasingly
gaining access to a single global view
Digitally-modified businesses
of the company’s interactions with a
customer.
A media executive said: “We’ve
realized that if we don’t transform the
Performance management way we do business, we’re going to die.
It’s not about changing the way we do
Performance transparency was technology but changing the way we do
a key highlight mentioned by business.” It is finding ways to augment
several executives. Executives in physical with digital offerings and
most companies say they are more to use digital to share content across
informed when making decisions. organizational silos. A grocery firm is
Transactional systems give executives staying true to its traditional business,
deeper insights into products, regions, but using digital to transform a new
and customers, allowing decisions growth business. “After two years,
to be made on real data and not our e-commerce platform is bringing us
on assumptions. “Instead of simply 20 percent of our new clients and our
revising last year’s plan, we can use data traditional clients are consuming 13
to make better decisions about how we percent more on average.”
prioritize.” This is happening in both
internal processes and customer- Other firms are building digital or
facing processes. The level of detail service wrappers around traditional
is also increasing, allowing managers products. A national post office is
to compare status across sites or creating a free digital mailbox attached
reallocate product manufacturing to each physical mail address that
capacity in ways they could not do companies can use as a substitute for a
before. It is also prompting additional person’s physical mailbox. A business
data gathering and integration as credit firm is developing a digital
managers start to see the value of business for some credit products that
being better informed. requires less involvement than their
traditional high-touch offerings.
Beyond being better informed,
digital transformation is actually
New digital businesses
changing the process of strategic
decision-making. Top executives in
Companies are introducing
a medical device manufacturer used
digital products that complement
the company’s existing collaboration
traditional products. A sports apparel
tools to extend strategic planning
manufacturer started selling GPS and
sessions from 12 people to more than
other digital devices that can track
300 of the firm’s top managers. This
and report on a customer’s workout.
enabled better input into the process
Other companies are changing
and better uptake of the vision after
business models by reshaping
decisions were made.
their boundaries through digital. A
mortgage company is moving from
being a link in the value chain to


being a global assembler of investment 3.4 Digital capabilities
products. An airport authority is
aiming to become the owner of a Digital capabilities cut across all three
traveler’s end to end process. It will pillars. They are a fundamental building
enable for travelers an integrated block for transformation in customer
multichannel experience including experience, operational processes, and
information on airplane traffic and business models. Although CIOs and
reservations, duty-free shopping existing IT departments are leading
promotions and other benefits. digital initiatives across companies,
they hire extra skills or implement
Digital globalization separate units to coordinate digital
transformation.
Firms are increasingly transforming
from multi-national to truly global Unified Data and Processes
operations. Digital technology
coupled with integrated information The most fundamental technology
is allowing firms to gain global need for digital transformation is a
synergies while remaining locally digital platform of integrated data and
responsive. They are, in the words processes. Large successful companies
of many executives, “becoming more often operate in silos, each with their
centralized and decentralized at the same own systems, data definitions, and
time.” These companies benefit from business processes. Generating a
global shared services for finance, common view of customers or products
HR, and even core capabilities like can be very difficult. Without the
manufacturing and design. Global common view, advanced approaches
shared services promote efficiency and to customer engagement or process
reduce risk. They even promote global optimization cannot occur.
flexibility. One manufacturer can shift
production around the globe with The difficulty of operating without a
only a few days’ notice in response to platform becomes greater as companies
interruptions or excess demand. engage in multi-channel operations.
Many companies, for example, cannot
For local managers, the pain of link customers’ activity in stores or
centralization is balanced by bank branches to their activity on the
efficiency benefits and ability to web or mobile. An executive in one
focus on more strategic activities. company, echoing statements by many
Local managers, empowered to others, said “data integration is the biggest
make decisions autonomously, also challenge in setting up our digital services:
gain a broader view of the business self-services, web-strategy and running
through centralized data. They have partnerships.”
the freedom to tailor business to their
local needs, but the responsibility Unified data and process is one reason
to act in the interests of the larger that web-based companies are able
enterprise. Globalization also entails to gain advantage through analytics
a different approach to policy: “fewer and personalization much more
mandates from headquarters, but more readily than traditional firms. For many
guidelines.” traditional companies, the first step in
preparing for digital transformation


Figure 5: Digital platform implementation*

Single integrated No platform
digital platform

39%
47%

14%

Multiple digital platforms
* Percentage of companies in each digital platform state among the 50 interviewed for the study

to invest – sometimes heavily – in but not to emerging digital technologies
integrating data and processes across and practices. Mobile and social media,
the enterprise. In this respect, firms that for example, often require iterative
have already implemented ERP and CRM approaches to learn about what will work
systems are a step ahead of others. in the market or workplace. They also use
technology that is not commonly available
Unified platforms can also help in enterprises. Analytics activities
to manage the centralization/ often require specific knowledge and
decentralization challenge in temperaments that typical IT developers
globalization. Hospitality firm properties do not possess.
can use centralized platforms to deliver
locally-customized information while Some IT departments have established
not having to support the technology. special units to build emerging
A media company common technology technology skills and methods. Others
platform allows the firm to share content have innovation units to identify how new
at worldwide level, offering media content technologies and practices might change
developed in one part of the world to the business. Still others look outside the
be used easily in other markets and firm for help. 78 percent of the companies
publishing formats. interviewed hire vendors to address large
projects or those that require advanced
Solution delivery technologies. Vendor partners can be very
effective, but some executives expressed
Companies also need the capabilities concern about over-reliance on vendors.
to modify their processes or build new A hospitality executive firm said that
methods onto the data and process knowledge of key emerging technologies
platform. Solution delivery requires is spread across silos of external vendors,
effective methods and strong skills. Most making integration difficult. Several
IT departments have solid development executives described knowledge gaps
methods in place. However, those that existed after they ended a vendor
methods are often geared to well-defined relationship.
requirements and mature technologies


Analytics capabilities trying to conduct digital transformation.
These companies often have issues
Information management and analytics common to those that do not govern IT
were highlighted as major goals by well, namely complex IT architectures,
executives across industries. Several firms unintegrated data, and processes that are
echoed the statement of an executive not well-enabled through technology.
who stated “It’s time to harvest the data and
turn it into insights.” Combining integrated In contrast, companies with a solid IT/
data with powerful analysis tools is seen business relationship are in a solid
as a way to gain strategic advantage over position to begin digital transformation.
competitors. A bank executive stated: “IT has been
brought closer to business during the last five
Companies are engaging in analytics years. It is very important to success because
at varying levels of intensity. Some are many of the important transformations
just beginning to make better use of in our business enabled by technology.”
the data available from transactional With trust and shared understanding,
systems. They are making more-informed IT executives can help business
and better decisions and reacting more executives meet their goals, and business
quickly to changes in their operations. executives listen when IT people suggest
Companies with integrated data are able innovations. Where strong relationships
to engage in more powerful analytics exist, executives on both sides of the
strategies. An Insurance company is able relationship are willing to be flexible in
to do predictive sales, helping salespeople creating new governance mechanisms or
to target products that a specific type of digital units without feeling threatened.
customer is likely to buy. A hospitality
company and a restaurant firm are In most firms, digital transformation
using analytics to target promotions is being led by CIOs. Where the
and conduct pricing experiments. A relationship is strong, this approach can
media company is using web analytics be very effective. At a manufacturer,
to provide real-time KPIs to customers the CIO is also head of strategy. He led
in order to demonstrate the added-value aggressive investments in technology
of the firm’s products. Several insurance that generated tremendous benefits for
firms are using analytics to underwrite the firm (see case study). The CIO of a
policies, enabling better pricing and global services firm also manages the
reshaping the firms’ risk portfolios. firm’s e-commerce operations and its
However, all executives also mentioned innovation activities. Other companies
that building analytics capability was place responsibility for digital in another
difficult, requiring skills and culture unit or executive who works closely with
change in addition to investments in the CIO. An apparel firm established a
information technology. new digital division that works closely
with the existing IT department. A
Business and IT integration business directory company hired a
second CIO to focus on transformation-
Digital Transformation, more than related activities, working in concert with
other business changes, requires strong the CIO who focused on keeping the
integration between technology and firms’ existing platform functional.
business executives. Companies with
a history of strained IT and business
relationships are handicapped when


Case Study
BNP PARIBAS: DIGITAL TRANSFORMATION
IN AN INTERNATIONAL BANKING GROUP

I
nternational banking group BNP Paribas grew rapidly in the past decade by
acquiring banks in several countries. The firm is now aiming to solidify its
international position, aligning processes at global scale. The group strategy is
defined around three key points: internationalization, process rationalization
and maintaining trust with the customer.

Crisis, regulation and technology adoption by customers and employees are
pushing BNP Paribas to consider digital transformation. Executives envision
digital as a way to reshape boundaries, focus on profitable business areas and
streamline middle and back office processes, but BNP Paribas is only part-way through
its transformation journey. The first step of the transformation has focused on reach:
creating a multichannel strategy that includes the web as well as emerging technologies
such as mobile and social media. BNP Paribas is today in a transition phase to reach the
second step of the transformation: integrating transactions across channels and building
a conversation with clients via an external CRM and analytics-based tools. BNP Paribas
is currently developing a new digital platform leveraging the firms various distribution
assets into multichannel processes and tools.

To improve customer experience, the firm launched multiple initiatives. Mobile apps
provide a substitute to using the internet website. The firm increased customer touch
points via social media, providing customer service on twitter and advertising on
Facebook. In 2010, BNP Paribas launched a new branch model. This Concept Store
will help develop new ways of interacting and selling products to the customer via new
technologies and self-service areas. The firm’s next step is to start a conversation with
customers on social media. This will require building social-customer knowledge, via
an external CRM, and increasing analytics capability. In 2011, BNP Paribas launched
new mobile bank services in partnership with a telecom operator. This was more than a
simple website substitution. It was a switch from traditional business model to a digital
one, with a different cost and revenue structure.

From an operational process point of view, BNP Paribas is still at the beginning of its
transformation journey. The firm is focusing on security improvements and cloud
solutions, which executives see as key differentiators in the industry. The objective of
process rationalization will be to have end-to-end digitized processes in an integrated
platform, which could generate international economies of scale.

A group digital committee sponsored by general management elaborates the group digital
strategy and encourages digital best practice sharing.

BNP Paribas’ next digital objectives are to move into mobility, reach the next level of
customer intimacy and develop a strong analytics strategy. Challenges on this road are to
strengthen digital coordination at the group level and to balance digital and physical in
the front-office perspective


Case Study
MOVING FROM SEPARATE TO
INTEGRATED DIGITAL INITIATIVES IN AN
APPAREL MANUFACTURER

A
n apparel company has built its successful business by
combining good products with compelling branding and a set
of high-profile celebrity relationships. Its entrepreneurial spirit
has led to growth in product silos. The firm spent the past
ten years improving internal processes and its connections to
manufacturing partners.

The firm’s entry into digital occurred in three successful
but disconnected areas. In customer experience, the firm
developed a customized products offering. Customers can go online or work with an
advisor in a store to configure products in exactly the color schemes they wish, and
then receive the products by mail. This process modified existing customer-facing
and manufacturing capabilities to deliver a new customer experience. Separately,
the company made forays into social media. It built communities around different
categories of product, allowing customers to communicate with the company and
each other via Facebook and Twitter. It also launched a few digital products meant
to augment the lifestyle needs of customers, such as GPS devices for athletes.

In internal operations, the product design area moved from paper-based design
processes to a fully digital process. Although some designers initially experienced
trouble in the transition, the process has yielded important benefits. Shipping
digital designs instead of physical prototypes between headquater and suppliers has
cut the product development cycle time by months. It also allows the company to
adjust designs much more easily in response to manufacturing issues or changes
in customer demand. In addition, the firm can use digital designs to promote new
products to retailers differently, gaining attention and orders much earlier and
making retailer promotion easier than was possible with a physical design process.

The company has recently recognized the need to begin coordinating its digital
efforts. It has created a digital division to deliver all digital efforts for the firm.
This included recruiting key senior executives with experience in different
aspects of digital business management, and building an innovation unit charged
with identifying new customer and process approaches that cut across the firm’s
traditional silos. The digital division does more than enable and capture synergies
between initiatives. It also opens up new possibilities for taking the firm from a
product-focused to a customer-centric approach.


4 DIGITAL TECHNOLOGY USAGE

The interviews asked how four digital Customer-experience applications of
technologies – analytics, mobile, social media are more common than
social media, and embedded devices internal uses, reflecting awareness of
– are being used in the enterprise. the fact that consumers are rapidly
All of the executives we interviewed adopting these technologies, and
were aware of these technologies, well as some skepticism about how
although few considered themselves effective they will be for internal
experts. Most could describe how the collaboration. Analytics, too, is more
company used the technology, or how common in customer experience
it might or might not be important in applications, reflecting organizations’
the future. increasing efforts to target marketing
activities and personalize customer
Figure 6 shows how often firms experience better than in the past.
in the study used each digital Mobile is used widely in both
technology to improve customer domains.
experience and operational
processes. Analytics, Mobile and Embedded devices are still an
Social Media are widespread in these emerging technology. Less than one-
large organizations, despite their fourth of companies are using these
relative newness to most industries.

Figure 6: Applications of digital technology in customer experience and operational process

Customer experience
Operational process
72%
66% 66%
62% 62%

52%

24%

14%

Analytics Mobile Social Media Embedded Devices

Note: Percentage of ﬁrms using digital technologies in their customer experience and operational processes.


devices. Most executives commented with a different technology and
that they did not yet see applications process. Blackberries and iphones
for the technologies. In the case of substitute for PCs in both internal
RFID, they mentioned the cost of the operations (email) and customer
RFID tags or the difficulty of using experience (web access). Many
them in busy, machine-filled spaces. employees use both methods
Many executives did express interest depending on their needs at a point
in using embedded devices in the in time. Analytics, in the form of
future. basic business intelligence tools
and detailed reporting, substitutes
Companies varied greatly in the ways for similar information sources
they used the four technologies. We available through other methods.
identified three levels of usage: Substitution is useful when it
improves performance over, or is
• Substitution is using new more convenient than, traditional
technology as an alternative or methods.
replacement for substantially
the same function that the • Extension is significantly improving
enterprise already performed performance or functionality of

Figure 7: Applications of digital technologies in the enterprises we studied

Customer experience Operational process

• Predictive promotion • Insurance underwriting transformation
• Location-based marketing • Remote-control mining operations
Breakthrough • Social-lead generation • Social-enabled product development
• Smart-grid devices • Automated factories

• Deeper customer segmentation • Production / supply-chain optimization
• M-Commerce • Mobile sales force enhancements
Extension • Pharmaceutical / medical device firm • Internal collaboration communities
physician communities • Consolidated status monitoring for
• Phones as payment devices medical devices

• Basic reporting or BI • Basic reporting or BI
• Simple apps • Working anytime, anywhere, any device
Substitution • Facebook pages and ads • Employee blogging, internal Facebook
• Cards replace passwords • Building access control


a process through technology. analytics to engage in location-based
A power company and a paint marketing with its customers.
company provide full information
to field workers on mobile devices, Figure 7 shows examples of how
eliminating the need for workers companies are using the four digital
to spend time in the office at the technologies. Figures 8 and 9 show
start and end of shifts. A pharma the extent to which each is being
company’s social media physician used to improve customer experience
community enables the company to or internal operations. The most
learn about issues and opportunities common usage of each technology
by allowing doctors to talk with one is in substitution -- Mobile email
another. replaces desktop email, Facebook
pages and ads substitute for web.
• Breakthrough is fundamentally However, companies are making
redefining a process or function inroads in each technology. Roughly
through technology. A paint 30 percent of firms are engaging in
company uses a combination of extension or transformation with
embedded devices and analytics to Mobile, Social, or Analytics. Although
create fully-automated factories that usage of embedded devices lags the
deliver higher efficiency, quality other technologies, some companies
and environmental protections are already extending or transforming
than manually-tended factories. their processes through these devices.
A hospitality firm uses predictive

Figure 8: Use of digital technologies to transform operational processes

2%
8%
14%
18%
28% 4%
16%
40%
36% 4%
22%

6%

Analytics Mobile Social Embedded
Media Devices

Substitution Extension Breakthrough

Note: Chart plots extent of transformation each ﬁrm is attaining in operational processes using a particular technology.
Many companies had multiple applications of a technology. For each ﬁrm, only the most transformative usage is counted.


Figure 9: Use of digital technologies to transform customer experience

4%

18%
14%
22% 4%
18%
20%

36% 12%
36% 28%

8%

Analytics Mobile Social Embedded
Media Devices

Substitution Extension Breakthrough

Note: Chart plots extent of transformation each ﬁrm is attaining in customer experience using a particular digital technology.
Many companies had multiple applications of a technology. For each ﬁrm, only the most transformative usage is counted.

The interviews show an interesting for customer-facing applications.
trend toward identifying
transformative opportunities that • An apparel company aims to
combine multiple technologies with integrate its social and web-based
new management practices. marketing approaches with its
digital product design capabilities
• Remote-control mining equipment and embedded devices in products
and automated paint factories to be more responsive to emerging
include both mobile and analytics consumer preferences.
technologies to improve production
significantly. • Concept stores combine multiple
technologies to test or deliver a new
• Mobile phones are increasingly buying experience.
becoming seen as embedded devices


These types of multi-technology
solution are signs of a maturing
approach to digital transformation in
enterprises. Executives are beginning
to envision possibilities that cross
organizational and technological
silos – letting the possibilities drive
technology and organization rather
than the reverse.


5
CHALLENGES ON THE ROAD TO
TRANSFORMATION

What is causing firms to have difficulty was astonished that none of the senior
starting or benefiting from digital executives were aware of TripAdvisor.”
transformation? Challenges occur in all Executives need not be aware of all
three elements of the transformation changes in industries outside their
process: Initiation, Execution, and own, but knowing major digital
Coordination. consumer services products such as
Tripadvisor, Facebook, or eBay can be
5.1 Initiation challenges very useful fodder for envisioning how
executives might change their own
Lack of impetus businesses.

Impetus often starts at the very top Regulation and reputation
of the firm. Executives are justifiably
skeptical of the benefits of emerging Many executives, especially in
technologies. The experience of healthcare and financial services, are
e-commerce taught many executives being careful about mobile and social
that a fast follower approach can technologies because of security and
sometimes be lower risk than a privacy concerns. In our sample, 47
pioneering approach. However, this percent of companies stated a high
skepticism can result in bureaucratic or medium concern over regulatory
investment processes that prevent the impacts on their potential digital
firm from engaging in useful digitally- initiatives. A lost or hacked mobile
enabled experiments and business device can give outsiders access
changes. A manufacturing executive to confidential data on patients or
stated: “We’ve always been fairly slow in customers. This has reputational
adopting technology because we more or repercussions well beyond any
less have the ambition of not being first regulatory penalties. A financial
...but we have become even slower at the services executive said “The last thing
same time that technology development that any of us want to do is put the
has been speeding up. So, the gap has reputation that we built for more than
increased.” 100 years on the line because someone lost
a device.” A medical executive had a
Company performance can also slow similar concern: “We’ve done a good job
the move to transformation. If the of becoming a trusted partner to a lot of
company is not experiencing pain, the governments and customers. If we violate
perceived risk of change may outweigh that trust, if we have one bad apple, you
the potential benefits in the minds of can throw the whole thing out the window
many executives. A manufacturer said very quickly.”
“At the end of the day, we don’t want to
stay on the edge of the latest trend. It’s not Companies, especially in financial
really our business.” services, are taking a slow approach
to social media for fear of regulatory
An other concern issue can be lack sanction. For example, blogs, tweets
of awareness of the opportunities or and other messages are typically
threats of digital transformation. An not reviewed as carefully as other
executive in one of the world’s largest corporate communications, but may
financial companies said “When I be construed as advice by readers. A
made a presentation to the board, I financial company executive said “We


jumped into going ahead with Twitter and Executives in our sample used a
YouTube and Facebook without knowing set of four methods (see Figure
what people are actually saying about us. 10) to justify investment in digital
Now we have started to monitor it.” transformation initiatives. Some
initiatives can be justified in the
While these regulatory concerns are traditional way, through quantified
real, they need not prevent companies economic business cases. Audio and
from moving forward. Two financial videoconferencing technologies, for
services firms and one medical example, can be justified on travel
device firm are already successfully cost savings or other efficiencies,
selling products and services with as could a financial firm’s move to
tablets instead of paper. Several a transformed office environment.
firms have implemented tools to Larger process transformations also
protect confidential information on can cite clear returns, such as when an
phones and tablets or to wipe the apparel firm justified its move to digital
devices in case they are lost. Nearly design processes through cost savings
all of the regulated companies we and significantly shortened product
interviewed are establishing policies development cycles.
for employee use of personally owned
or mobile devices and for using social However, other investments are
media. Many firms we interviewed truly bet-your-company, do-or-die
are using Facebook and Twitter propositions, in which the financial
for brand building. Meanwhile, an case is one of survival. Firms facing
insurance firm is helping agents build a burning platform often make large
their presence on LinkedIn, and a changes without a strict financial
medical device company plans to business case. A business directory
use Facebook as a radically new way service, realizing their paper-based
to reach the specialists who use its model was declining rapidly, brought
products. in a new CEO to lead a radical
digital transformation. An airport
Unclear business case authority invested heavily in digital
transformation when governments
Healthy skepticism or regulatory stated that they would withdraw 60
concerns are legitimate reasons percent of public funding within 5
to be careful when investigating years.
new technologies. Certainly not all
digital initiatives make sense for all However, as with many innovations,
companies (or for all employees in digital transformation investments
the company). One CIO, discussing often have less clear business cases
mobile-enabled process changes, than these examples. Many companies
said “At the end of the day, we’re still considered their initial forays into
looking at value and cost. For some folks, Facebook or Twitter as simple
the most cost-effective technology is still experiments built with limited funding
the desktop.” However, these reasons and risk to investigate the potential of
should not prevent companies from the new media. Similarly, initial mobile
investing in potentially valuable apps or pilot experiments with mobile
experiments or transformations. marketing have been scoped to limit
cost and risk. These experiments are


Figure 10: How companies justify their digital transformation investments

ECONOMIC: BURNING PLATFORM:

Traditional capital “bet the business”
budgeting processes investments made in
emphasizing measurable response to rapidly
cost or revenue declining performance
improvements. in the existing
businesses

STRATEGIC FOUNDATION LOW-RISK EXPERIMENT:
INVESTMENT:
investments structured
initiatives undertaken to with limited size and risk
provide important to learn about
organizational technologies,
capabilities, usually customers, or potential
without a quantified capabilities.
financial business case

often funded “below the radar”, using would be funded on its own merits,
the spending authority available to a but the initial investment to set up the
senior executive. shared service was seen as a strategic
foundation investment. Similarly,
Other initiatives are funded as several firms hired senior executives
strategic foundation investments that or content experts to get started in the
build infrastructure and capabilities to analytics and social media spaces. The
be used elsewhere. These investments new leaders must financially justify
rarely go through the rigor of their existence in the future, but the
developing a quantified business case, initial investment was considered as
but rather are undertaken as strategic capability-building.
bets. Collaboration tools and internal
knowledge bases, for example, were When enabling larger transformations,
often justified as relatively low cost/ executives often use a combination of
low risk infrastructure investments approaches over time. Analytics is an
to smooth cooperation and synergies interesting example. Specific customer
among a distributed workforce. segmentation or predictive analytics
However, some foundation investments efforts can often show a business
are larger. A manufacturing firm case. Marketing experiments either
invested in building a shared digital generate higher sales or they don’t.
division to provide capabilities and Insurance analytics either generate
support to digital initiatives across a better risk/return profile or they
the firm. Each new digital initiative don’t. However, firms often require


an investment in infrastructure – Missing skills
integrating data, buying tools or hiring
expertise – before they can start to Analytic-based decision-making does
conduct more measurable analytic- not always come naturally to people
based experiments. For a restaurant accustomed to using “professional
firm considering analytics, the return judgment” or other methods to make
for hiring new skills and conducting decisions. A grocery CFO lamented
initiatives was initially unclear, but “We have all of the information in place,
senior executives believed it was a but we can’t get those guys to change the
bet worth making to understand way they work.” Emerging technologies
better sales trends and start to are another area where skills may be
engage in dynamic localized pricing scarce internally, especially in areas
experiments. such as mobility and social media.

Regardless of how an initial investment Firms are filling gaps by hiring experts
is justified, the interviews highlighted or working with vendors. Skills that
an important point. The real value are in short supply in one industry
of digital transformation comes not can sometimes be found in others. A
from the initial investment, but from restaurant executive said “We have been
continuously re-envisioning how hiring analytics experts from other firms.
capabilities can be extended with We give them a chance to play a more
digital technology to increase revenue, senior role than they could in their previous
cut costs or gain other benefits. Initial employers, where their skills are more
investments, made with or without plentiful.” A medical company executive
a financial business case, become said “We missed the boat on social media.
foundational capabilities on which We just hired a global CMO to take care
additional investments can be made. of our social media strategy.” Meanwhile,
When it first centralized order taking although the executive recognizes
and implemented an ERP system, that smart embedded devices will be
executives at the home improvement essential to the firm’s future product
products company did not envision strategy “We have nobody to look into
the many successful business model that.” A hospitality firm, aiming to
changes they would be able to add in limit long-term HR investment while
the future. But, to their credit, they experimenting with new technologies,
continuously envisioned what else they is working with vendors who have the
could do with their digitally-enhanced right skills and are willing to work for
foundation, and earned higher and reduced rates to get a foot in the door.
higher returns as a result. However, it is encountering knowledge
integration issues as key skills are
5.2 Execution challenges located in different vendors.

While a top-level impetus for Culture issues
transformation is important, it is often
not enough. Interviewees cited three Cultural issues can also become a
missing elements that threatened to bottleneck for digital transformation.
prevent them from moving forward A major cultural issue is related to
successfully (see Figure 11). changes in jobs due to automation
or information empowerment. A


Figure 11: Organizational gaps in digital transformation

77%

Missing
Skills
55%
Culture
Issues
50%

Ineffective
IT

Note: Percentage of ﬁrms encountering gaps in skills, IT or culture as mentioned by their executives. Some ﬁrms are encountering more than one gap.

grocery executive mentioned that the vision and frequent communication as
firm’s information-based benefits are essential for driving culture change.
reduced by managers who cannot
think differently about how they make Labor relations issues are a stickier
decisions. Other executives find that source of culture change issues.
they must work to change the culture A business directory company,
when empowering front-line workers. even in the midst of a successful
Executives shared that these workers, digital transformation, continues to
accustomed to taking orders from experience resistance from unions.
headquarters, needed help to adopt In an airline firm, flight employees
the idea of using new information embrace digitally-enabled changes, but
capabilities to make autonomous ground employees, fearing job cuts,
decisions. Meanwhile, previously- are strongly resistant. These labor-
autonomous country managers in related culture issues can be overcome.
globalizing firms often require coaching Consider two airport operators from
to grow comfortable working in an different countries. Both feel pressure
environment of centralized shared to change from governments, airlines
services and standardized processes. and customers. One company feels
“stuck” in their environment, unable to
One lever for change is to hire new move because of a culture that resists
leaders. These people, while bringing changes. The other operator overcame
new skills, also bring new vision that these cultural issues. It is now starting
helps change the culture in their areas. to partner with airlines to develop
A business directory company, apparel initiatives such as self-service drop-off,
company, and restaurant firm have all common check-in desk, and selling
benefited from this approach. However, online airport-related (as opposed to
whether leaders come from inside or airline-related) products to customers.
outside, senior executives cite a strong


IT Difficulties A strong IT/business relationship can
be very helpful in transformation.
Digital initiatives are built on a solid The CIOs in a hospitality and
foundation of technology-enabled medical devices firm have very
processes and data, as well as the strong relationships with other
analytics, solution delivery and senior executives, enabling them to
relationship capabilities to create suggest and deliver important digital
and extend that platform (see Figure initiatives. A financial services firm has
5). Information technology is a consolidated operations and IT under
fundamental part of the firm’s digital a single senior executive, enabling the
capabilities. However, many companies firm to envision and execute process
find their information technology and technology changes in sync.
infrastructures and capabilities
severely lacking. According to the 5.3. Governance challenges
head of the disability business for a
major insurer, “We have through the Benefiting from transformation
last 50 years proliferated our IT systems typically requires changes in processes
and applications. We don’t retire systems. or decision-making that span
We just add on top of them, which traditional organizational or functional
creates a tremendous amount of expense structures. Transformation, like any
and complexity.” Data issues are felt major organizational change, requires
especially keenly in marketing. One top-down effort to help employees
marketing executive, echoing the envision a different reality, and
sentiment from many we interviewed, coordination to ensure the firm moves
said “It is very difficult to get a good in the right direction.
understanding of the customer when
customer data is spread across so many
systems.”
40 percent of the
Beyond technical issues in IT,
relationship issues can be difficult. companies envision
A history of poor business / IT a radical digital
relations is a difficult foundation for
the collaborative work required in transformation
digital transformation. One business
executive said “IT is a mess. Their costs
are not acceptable. They propose things in
9-10 months where external firms could do Incremental vision
them in 3-9 weeks. We started offshoring
our IT, and now our IT guys are trying While incremental investments can
to change.” A CIO described how he be effective starting places to build
communicates about the possibilities of digital capability, the largest benefits of
digital transformation, but none of his digital transformation come from truly
business executive peers (interviewed transforming activities. This requires
separately) seemed to find the a more radical vision – one that offers
discussions credible. a view of a different way of working,
not just a faster or more efficient one.
Unless senior executives establish a


transformative vision of the future, establish a picture of what is legitimate
managers in the rest of the firm will and help to delegitimize local behavior
tend to locally optimize within their that detracts from a more global
own spheres of authority. approach.

An overarching vision can span More common is a vision that does not
organizational boundaries. Firms go far enough. Insurers and financial
undergoing globalization are services firms are using tablets to
envisioning themselves as a single replace paper in sales presentations,
entity with local offices, rather than a but have not yet integrated all
collection of independent units. The customer information or sales tools
restaurant firm has a vision in which into the new mobile or tablet format.
every outlet will learn from innovations Many companies are using video and
in other outlets. An airport authority collaboration tools to reduce travel
is re-examining the boundaries of its costs, but a financial services firm
business to consider whether it should and a consulting firm are building
take on some functions traditionally capabilities to enable flexible global
performed by airlines and vice versa. collaboration among employees
The apparel firm is starting to envision working either from home or an office.
linkages between design, marketing, Marketing units are trying experiments
and operations so that each can rapidly with social media and location-based
adjust to what is learned in another marketing, but a restaurant company
area. These overarching visions conducts pricing and promotion


experiments in one site and then marketing, and direct-to-consumer,
rapidly shares the learning across the is now investing in coordination. It
company. Overly-limited visions can recently created a digital division to
dramatically affect the value obtained ensure that all of its digital efforts –
from each digital transformation marketing, production, design and
investment. even digitally-enhanced products – are
being coordinated. The significant
Coordination issues investment is expected to pay strong
dividends from better customer
Many firms fail to transform because experience, stronger knowledge of
of coordination difficulties across rapidly-changing customer preferences,
business units or processes. Units are and synergies between internal
able to make progress in their own functions.
areas, but are unable to influence
practices in other units. The paint A further concern arises from
manufacturer could not have continued coordination issues between new and
to benefit from transformation without traditional businesses or processes.
top-down coordination of internal This channel conflict is real, and
and customer-facing processes. Others can be very painful for managers in
are learning this lesson. A hospitality traditional units that lose when new
executive mentioned “We need to start businesses gain. It often must be
rethinking our strategy. The approach of addressed through an overarching
throwing was everything out there and vision. In a business directory firm,
thinking that something is going to stick is that vision was to have 80 percent of
not the way to go.” business online. In a credit firm, the
digital division envisioned as small
An apparel firm, after conducting and complementary, so that it did
separate initiatives in design, not compete directly with the offline
business.


Case Study
CREDIT FONCIER: EVOLVING AS A VALUE
CHAIN ORCHESTRATOR IN MORTGAGES

F
acing increasing pressure from competitors, regulatory changes,
and customers, Credit Foncier decided to incorporate digital
transformation into its business model. The firm, one of the
top France’s largest mortgage companies, aimed to augment
its strong B2B capabilities by building a B2C experience that
extended well beyond its traditional boundaries. It would
orchestrate the entire customer experience of buying a property.
This required envisioning a whole new way of operating, and
then taking steps to experiment with offerings and educate both employees and
customers.

A customer can go online or use a self-service kiosk in the concept “megastore”
to learn how much she is qualified to borrow, or investigate what properties she
is qualified to buy. The company can refer her to real estate brokers or provide
financial products as part of the process. When the customer is ready to buy,
she returns to the store or website to start the process of obtaining a loan. At
any point, she can talk to an advisor who will help her in the process. The full
experience is digitally enhanced, including color-coded maps, analytics-aided
suggestions, and even a RFID-based key that the customer can use to save and
retrieve her information in the store.

Internally, the entire process is integrated with analytics and a CRM system
connecting elements of the B2C experience into the firm’s other processes. The
branch advisor can follow each customer through the process, offering help as
needed. The company augments its existing assets by partnering with other firms
from the long-standing web of business relationships that the firm has built in
its B2B business. The company also hired new skills to augment its existing staff
capabilities. The project, which was under consideration for 6 years, took 2 years to
be implemented.

While the megastore concept has been successful, and the company is considering
opening a new store in the near future, the company’s focus remains on growing
its successful B2B business. The vision for B2C is to augment existing B2B offerings
and hedge against competitive pressure in the consumer mortgage space. As the
concept matures, the firm will begin offering other products through the channel.


Case Study
AIRCO: DIGITAL TRANSFORMATION IN
AN INTERNATIONAL AIRPORT

A
irCo manages operations for several of a country’s major
airports. Following market evolution, the government
demanded that AirCo reduces its dependency on a public
subsidy that funded more than half of the firm’s operations.
The challenge of converting a former government agency to a
profitable company was exacerbated as economic challenges
reduced air travel volumes and made airlines more aggressive
in negotiating the fees they paid to AirCo.

To gain new revenues, AirCo is transforming its business model. The firm’s vision
is twofold: to gain efficiencies by unifying processes across airports, and to focus on
serving end customers instead of only the airlines. Implementing the transformation
also requires engagement to help employees adopt more business-oriented
perspectives. According to executives, however, the transformation benefits from
two strategic assets: the firm’s ownership of the airports (and thus control of how
products and services are sold), and the employees’ collaborative culture.

After unifying the management team, AirCo focused on rationalizing and
integrating processes and IT infrastructure. It launched a digital transformation
program owned by a CIO board that would coordinate and support the digital
progress of the airports. The objective of the program is to allow the company
airport to follow each customer as she moves through an airport, providing services
wherever possible.

Customer experience:

The firm envisions increasing revenues from fliers to overcome diminishing
revenues from airlines. It plans to take advantage of a major change in customers’
behaviors: travelers are increasingly their own travel agents. In this world of
self-service, the company believes it can help customers to reduce the stress of
going to the airport, navigating traffic, checking in, and getting to the right gate
through the use of a website or mobile apps. Customer apps already exist for the
two biggest airports of the country, providing both the customer and the company
with information about the trip. The firm supplements its digital services with
information agents who roam the airport with tablets to support and guide travelers.
AirCo will augment the apps with core business services like car rental, parking,
and train tickets. The firm is also developing airline partnerships to provide airline
tickets on the website.


Operational processes:

The firm’s biggest operational challenge is to have one digital strategy for all of its
airports. It plans to provide every customer in every airport with the same services.
The firm has started its platform consolidation and partnered with foreign airports
to provide more information to travelers. It also made services such as drop-off or
check-in available to the airlines, taking advantage of the interconnectivity of the
firm’s digital platform.

Digitization of operational processes is also improving the communication between
employees. They are able to deliver a better service to the end customer. 75 percent
of workers are already using mobile devices as they move through the airport.

The company does not have a social media policy, but has created guidelines. It
encourages employees to be active on Facebook and Twitter. The firm has also
launched a collaborative community platform to understand travelers’ experiences
better and to be able to adapt its services.

AirCo’s digital transformation journey, currently underway, is seen as critical to
helping the firm reach financial autonomy. Executives started with a clear vision
that leveraged key strategic assets, hired a new CIO, and then created governance
mechanisms to improve the chances of success. These leaders also started early to
build digital engagement with employees to change the firm’s culture. Executives
believe the firm is well positioned to implement the remaining elements of the
digital transformation.


6
HOW CAN YOU MAKE YOUR DIGITAL JOURNEY
SUCCESSFUL?

Successful digital transformations These elements work together in
in our study used a common set of an iterative approach – constantly
elements (see Figure 12). Each is a communicating and listening to
lever executives can use to initiate and re-envision and further implement
drive digital transformation in their new types of digital transformation.
organizations. Leaders diagnose the Senior executives drive digital
potential value of existing corporate transformation through an iterative
assets and build a transformative three-step process:
vision for the future. Then, they
invest in skills and initiatives to make 1. Envision the digital future for your
the vision a reality. Fundamental firm.
to the transformation is effective
communication and governance to 2. Invest in digital initiatives and
ensure that the firm is moving in the skills.
right direction.
3. Lead the change from the top.

Figure 12: Digital transformation framework

Transformative Digital Vision

Strategic Assets
Products & Partnership Customer
Sales force
content network knowledge
Point of sale &
distribution channels Product innovation Brand Culture

Digital Building Blocks

Customer Operational Business
Digital Engagement

Digital Governance

Experience Process Model

Customer Process Digitally-modified
understanding digitization business

New digital
Top line growth Worker enablement
business

Customer touch Performance Digital
points management globalization

Digital capabilities
KP
I

Digital Investment

SKILLS INITIATIVES

Iterative Transformation Roadmap

6.1. Envision the digital Interviewees, without being asked,
future for your firm often identified important assets
that could help or hinder their
Many digital transformation initiatives transformations. These strategic assets
fail to capture all of the value available include:
to them because their vision is not
transformative. Only the top of the • Sales force: A strong source of
company can create a compelling customer loyalty is the set of
vision of the future and communicate relationships cultivated by a strong
it throughout the organization. sales force. Digital initiatives
Successful digital transformation does can threaten to disintermediate
not occur bottom up. The true value salespeople, leading to channel
of transformation often comes from conflict. However, digital
seeing value across silos and then transformation can also be used to
helping everyone else see that value. enhance those relationships, such as
a logistics firm that can use demand
data in one part of the world to
Identify and diagnose strategic
provide customers in another part
assets of the world with forecasts of trends
that will hit them soon. In addition
Large companies survive major to sales people, front line employees
transitions not by radically replacing often are an important face to
the old with the new, but rather the customer, as well as having
by transforming some of their important knowledge about how
existing resources and competencies business is done.
for the new environment. While
this sometimes involves changing • Point of sale and distribution
leadership or replacing assets, it channels: Stores are often a strong
usually involves reassigning or source of location-based advantage,
adapting assets and realigning or even in a digital world. In other
re-motivating employees. However, cases, firms with a strong warehouse
it also requires understanding when and supply chain capabilities are
traditional assets and sources of able to use their distribution assets
advantage no longer provide value. to disrupt the advantage of local
competitors.
Digital transformation is the
same. Your company will thrive in • Products and content: Media firms
digital transformation not by doing find their content is a strong
something completely new, but by asset that can be reused in digital
taking advantage of your powerful environments. Product companies
capabilities to gain advantage through often find they can build new digital
digitization. But that requires business around strong products. An
thoughtful diagnosis: what assets will electronics manufacturer is building
be useful in a digitally transformed energy management solutions
world? around its highly successful devices
for the commercial buildings


market, and a manufacturer of • Customer knowledge: Across the
expensive long-lived transportation years, companies had gathered
products is building services that more and more knowledge about
digitally diagnose and help to customers. Today, some are
maintain those devices. reaching a point where they can
start envisioning the next step,
• Product innovation: A high-tech monetizing this relationship to
materials firm has engineering launch new products, enhance
capabilities that few other firms customer relationships or augment
can match in its niche markets. It sales via customer-segmentation.
has the opportunity to use digital
transformation to connect its • Culture: Some firms are able to
engineers more closely with global use culture as a powerful asset.
manufacturers. An apparel firm has Executives in a manufacturing firm
world-class fashion design talent. It found that the company’s historically
uses digital technology to connect entrepreneurial culture made digital
designers closer to manufacturers, transformation easier. Employees
speeding the design-to-market cycle were willing to embrace operational
time while enabling designers to changes and strategic partnerships
change designs at will. as part of the new vision. An
airport authority noted that the
• Partnership network: Strong nation’s collegial culture made it
partnerships can be a key lever easier to engage in transformation.
for transformation. Networks of Meanwhile, another airport authority
exclusive or trusted relationships found that its unionized culture
can enable firms to combine restricted change.
different expertise and deliver
powerful new operating models. A Create a transformative vision
mortgage company, in switching
from a single value chain link to a Successful digital transformation
value chain orchestrator, benefited comes from envisioning new ways
greatly from its partnership assets. that digital technology improves
Partners could have refused the idea performance and customer satisfaction,
out of fear of direct competition, not just trying to find a use for the
but they cooperated in the project new technologies. As we described
because of years of working together earlier, many companies that are doing
on many financial products and experiments in mobile marketing,
transactions. social media, or analytics find that
they can be quickly stymied by
• Brand: Companies with a strong organizational boundaries or by
brand are able to leverage it in culture issues. Often the problems
related offerings. Through mobile arise through vision focused on
web, social media, new digital technology rather than different ways
businesses and other digital of operating. More often they are
initiatives these companies can limited by a vision that is incremental
extend and strengthen their brands, instead of transformative.
building additional points of contact
with customers.


Start with an overarching vision of specific business units, while others
the what, not the how: “customer extended across the enterprise.
experience transformation” not Another element of the vision is the
“mobile marketing” or “social media.” relationship between new and existing
Then support the message through businesses. Companies in the study
consistent communication. Each had visions that included launching
specific element of the transformation new businesses, digitally improving
can then be placed in a context of existing businesses, or creating an
the broader vision. This will also overarching vision for a transformed
highlight when issues such as a single company.
customer profile or a coordinated
messaging approach may be 6.2 Invest in digital
important in reaching the vision. initiatives and skills
Our interviews showed visions Transformation does not happen
that were internally focused, without investment. Digital
externally focused, or bridging the transformation is no different. The
two. Some visions were focused on investment may be large, and the


business case may not be completely capabilities quickly while helping
clear. It may be a series of low- existing employees understand what it
risk experiments that lead to a means to work in an analytics-driven
larger investment. It often becomes environment. An apparel company
a strategic bet that only senior hired two senior people who were
executives can make. As with any already well-versed in social media
investment, digital transformation marketing and online commerce,
requires understanding the need asking them to help the firm build
for investment, managing risk, and skills in those areas.
making the changes necessary to
capitalize on the change. In addition, While outsiders can be helpful to
there is often tremendous value to jumpstart the change, companies
be gained from making the most of also found insiders very helpful. In
investments you have already made. particular, it was very useful to put
senior insiders in roles that required
Find the right skills coordinating across units and changing
cultures. Meanwhile, other firms found
Respondents nearly universally that they could move junior level fast-
described the difficulty of finding the risers into roles where their energy and
right skills to manage new initiatives resilience was essential for success. The
or to change work methods. While hospitality firm moved two relatively
some were able to reassign or retrain young managers into roles in mobile
existing employees for the new vision, marketing and digital innovation.
most found it necessary to acquire These two people oversaw rapid
skills from outside. experimentation in their areas using
very small staffs and a set of vendors.
Find good vendors for technical skills, but Both reported to a much more
coordinate them. When investigating senior executive who could manage
a new technology, it is often easier coordination across their units and
to hire vendors than to hire people. with the rest of the firm.
Companies can hire vendors for an
emerging technology experiment, Invest in initiatives that advance
and then easily end the contract at the vision
the end of the experiment. However,
coordination is still necessary or Very few examples of successful
knowledge will remain stuck in digital transformation were fully
vendor silos. planned in advance. In many cases,
executives built basic capabilities for
Hire some stars. Analytics skills are one need, and then incrementally
becoming more plentiful, but are not added capabilities. A set of relatively
distributed evenly across firms. One incremental changes added up to a
firm hired good analytics leaders radical transformation. A medical
from firms where these skills were device firm implemented relatively
more plentiful. The new people, who incremental digital changes to
were skilled but experiencing limited enable knowledge sharing and
upward growth in their firms, were videoconferencing, but then used them
able hit the ground running. The to radically transform its strategy-
new hires created initial analytics making processes. An apparel firm


conducted digital transformation 6.3 Lead the change from
initiatives in product design and in the top
marketing, and is now considering
initiatives to link the two. Top-level vision rarely translates to
local-level action unless reinforced
In other cases, radical changes were through top-down communication and
just the start of even more radical governance. Consistent engagement,
changes later. Executives envisioned backed with appropriate coordination,
a radical transformation of the KPIs, and incentives, make the difficult
company, invested in key initiatives, process of transformation possible.
and then opportunistically made
additional changes that advanced
Engage the organization
the vision. In addition to the home
improvement products and directory
As in most business transformation, the
services companies, a financial
role of communication is paramount
services firm is an example. Radically
in effecting change and reducing
changing its headquarters design
organizational resistance. People
caused people to rethink the way they
can be a much bigger obstacle to
work. Instead of working in defined
successful digital transformation than
offices in headquarters, employees
any complex technology. Successful
began to envision their work
companies in our study recognized
happening independently of location
this by communicating early their
– moving desks as needed, working
digital vision and using technology to
on mobile devices, collaborating
mobilize their workforce. There are two
virtually, or working from home. Then
main characteristics of communication
it was only a minor step to improve
in a digital world that are making
the way the firm collaborated globally.
mobilizing the workforce easier and
more impactful than traditional
As a leader, build a roadmap for your
methods:
initial changes. Make it clear how
the initial roadmap connects to your
• Moving away from “cascading”
broader vision for the company. But
information through traditional
then be open to ideas that will build
hierarchical channels toward
on that foundation for even more
enterprise-wide large scale
change later on. It requires judgment,
communication. On top of traditional
but also strategic bets. Not every
tools such as e-mail, new possibilities
idea will be a winner. By promoting
have been opened up with webcasts,
a strong vision of a transformed
internal social networks or PC-based
organization, you put in place a
video conferencing.
process through which smart people
throughout the company can help you
• Moving away from a one-
to implement and extend that vision
way “broadcasting” model of
in the future. But then you must be
communication toward offering
open to hearing and sponsoring those
people in the organization the
extensions.
opportunity to engage in a real


dialogue around the transformation. awareness through communication,
Wikis, discussion forums, blogs and but have increased the level of
so on are easy tools to support such transparency and trust through this
conversations. open dialogue.

Enterprise 2.0 tools are powerful Establish digital governance
tools to help mobilize and align
the workforce towards digital Bottom-up digital transformation
objectives. Most organizations is rarely successful. With the right
have already implemented some vision and leadership, opportunities
of these technologies but are not from digital transformation build
exploiting them to the full in their on each other to create new ways of
communication efforts. Successful working that would not have been
organizations have not only created possible earlier. However, they require


top-down ambition setting to put the One executive stated “There’s an
organization in motion, coordination intense focus on the transition to digital
to turn disconnected or poorly- because, from the very top, the CEO has
considered digital investments into mandated that 20 percent of our sales will
true platforms for transformation and be digital within 5 years. To achieve that
monitoring to ensure that progress is we will have to change the culture and
being measured and managed. the way the organization operates.” In a
financial company, the CMO stated
Ambition setting: Once an organization “Unfortunately, digital transformation was
has defined its transformative vision, not a priority of the board a year ago. We
leaders must translate that vision into had 2-3 percent of digital revenue. Now this
a set of ambitions and targets that has changed and we have set a challenging
signal to executives and employees target of 15 percent for all divisions.”
“what good looks like.” In our study, Ambitions need not be only about
some of the companies most advanced revenue changes. A home improvement
in their digital transformation had product firm sets targets related to
established a clear set of ambitious health, safety and environment, as well
KPIs to drive the desired results. as to scrap reductions in plants.

Figure 13: Coordination models for digital transformation

Silo Central coordination
• Each business unit can • Digital strategy deﬁned at
have its own strategy and HQ B S HQ enterprise level
budget for digital initiatives • Digital initiatives funded
• No enterprise-level and coordinated at
Less Shared

coordination enterprise level
• Digital operations • Digital operations
BU 1

BU 2

BU 3

BU 1

BU 2

BU 3

developed and managed developed and managed
in business units in business units
Op Op Op Op
B B
S S
Less coordination More coordination

Digital hub Global
• Digital strategy deﬁned by • Digital strategy set by a
central unit, although local HQ HQ dedicated business unit.
business units can have
• Local business unit digital
More Shared

their own strategies
strategies and budgets are
Provider
Digital Solutions

Provider
Digital Solutions

• Local business units coordinated across the
develop and manage company
BU 1

BU 2

BU 3
BU 1

BU 2

BU 3

operations, but must use
• Local business units
solutions and resources
develop and manage
from dedicated business Op
Op Op Op Op Op operations, but must use
unit when available
solutions and resources
B B B B B B from dedicated business
S S S S S S unit when available

B Budget owner S Digital strategy Op Operational teams


Coordinating mechanisms: Successful (see Figure 13). Figure 14 shows
companies in our study had strong that central coordination is the most
leadership for digital initiatives. Most commonly used model in our study,
had to adjust their organizations but all models are relatively common.
to accommodate the new digital We found no single model that clearly
ambitions. As the CEO of a digital outperforms others. However, we do
business unit explained “We said we’d see clearly that companies lacking
find the balance between central and effective digital coordination do not
de-central by creating one central role get the value possible from their
for coordinating the digital strategy. We digital transformation initiatives.
appointed local Chief Digital Officers
CDO in local business units reporting to Monitoring progress through KPIs:
both the CEO of the business units and a Once the ambition is clearly stated
CEO of an overall digital business unit. and the organization structure is
In one of our business units we moved aligned, leaders need to ensure that
the CEO to the position of Chief Digital a transparent set of metrics and KPIs
Officer. It was a promotion. So the Chief are in place to constantly monitor
Digital Officer CDO role is more a and review progress towards that
business role than a technology role.” ambition. As an executive stated
“To ensure alignment with our digital
We observed in our study that not strategy, we monitor our progress through
all the companies use the same a transparent scorecard where everyone
structure. We found four models for can see a quantified assessment of our
coordinating digital transformation progress and take actions against it.”

Figure 14: Usage of digital coordination models in the study

Hub Silo

24%
18%

40%
18%

Global Central coordination

Note: Percent of ﬁrms using each coordination model for their digital initiatives.


Case Study
PRISA: DRIVING DIGITAL
TRANSFORMATION ACROSS A GLOBAL
COMPANY

P
RISA is a Spanish-language-based global media organization
with businesses spanning television, press, radio and educational
publishing. As with many media organizations, PRISA was faced
with a rapid transition to digital in most of its core businesses,
and a move away from more traditional media. According to a
senior executive, “We realized early that if we don’t transform the
way we do business, we’re going to die. It’s not about changing the way
we do technology but changing the way we do business.” The digital
transformation was mandated from the top of the organization. The CEO, in laying
out his vision of the future, demanded that the firm substantially grow its digital
business from less than 1 percent to 20 percent of its sales within a span of a few
years.

The CEO instituted a radical change for the highly decentralized organization
by creating a centralized digital unit to coordinate and assist in building digital
businesses. The appointment of a global Chief Digital Officer from outside the
organization, who reports directly to the CEO of the Group, was a major signal.
Senior executives were appointed to the position of Chief Digital Officer in each
division, coordinating with the central digital unit. The Chief Digital Officer of each
division was responsible for the implementation and coordination of the digital
transformation of their division. This was a very senior role that had not existed
before. For example,

The company’s digital transformation was designed around four key pillars:

1. Creating a federated digital organization

2. Creating the next generation digital distribution and monetization platform
to ensure that all of their global assets could be shared effectively across
businesses, and new products could be easily created

3. Injecting new digital skills and experience from outside the company

4. Encouraging digital experimentation (e.g. social media strategy) and innovation
(e.g. crowd sourced textbooks) in the business lines.

The company monitors the progress of its digital transformation through clear and
transparent performance management scorecards. The digital unit is simultaneously
driving innovation (an investment model), sales strategy (a P&L model) and service
delivery (shared service model).


Through digital, PRISA faces cannibalization of its traditional business. The
firm still has profitable traditional activities and there is a temptation to focus
on retaining this current business. But the transition is being reinforced in
communication from the top of the organization. For example the top management
at PRISA TV talks about the evolving interactive landscape of digital video
technologies, not just about the traditional set-top-box model of pay TV. Education
is also moving fast. “It’s not only taking a book and making a textbook that’s digital.
It’s reinventing education. It’s defending the old business through the power of digital
opportunities.”

PRISA is engaged in a strategic project with technology partners “to be able to deliver
any type of content anytime, anywhere, any device.” This digital platform will be fully
centralized and support information sharing in the group: “It will enable them to
get a South African interview of Christiona Ronaldo for El Pais local, and to publish it in
Spain. Of course, the system will preserve some exclusive content for a certain time.” With
this digital platform, “PRISA will be able to offer a global platform to its customers with
one identity -- fifty million customers’ credit cards -- and start giving them a consequent
ecosystem. No other media companies have yet done that.”

For Mobile, the company faces market issues as executives believe the advertising
market is not well educated on the new cost structures. PRISA launched
some initiatives like an app for El Pais that was recognized as the world’s #1
media-related iPad apps in April 2011 (see http://mcpheters.com/2011/04/05/
imonitor™-releases-list-of-best-publication-apps/).

In Social Media, the firm is doing some experiments. PRISA has been on Twitter
for a couple of years and does some advertising on Facebook. The company has
integrated its digital products more tightly with social media and intends to use
social media information to drive content consumption. The company views social
media, mobile, and video to be key drivers for future growth.

PRISA also envisions several new business opportunities “So if you’re watching, for
example, a soccer game of Real Madrid and you see players running around, you’re going
to have technology that understands the numbers on the back of the shirts, and it can go up
to the database, and then they can say ‘give me the stats on these players’ and pull them up
on the right side of screen. That’s an interactive content analytics play. And maybe you can
tweet about it right there.”

PRISA’s transformation challenges have mainly been around cultural resistance,
the differing speeds of transition in each business unit, digital skills building, and
allowing for experimentation while keeping the integrity of the unified strategy. The
firm’s top three challenges for the future are breaking risk aversion, streamlining
the decision making process, and executing technology on pace to support all of
the needed changes. Digital will also enable PRISA to expand to other European
countries and to deepen its Latin American ties.


7 WHAT IS DIGITAL TRANSFORMATION MATURITY?

7.1 The What and The How set of elements implemented by the
organization, and the resources used
The digital transformation framework to do so. Together they represent,
has many moving parts because much in essence, the digital intensity of the
is required to drive a successful digital organization.
transformation. However, executives
can think about the figure in terms of The How: The outer boxes, consisting
two main areas (see Figure 15). of digital vision, governance and
engagement, are the ways in which
The What: The inner boxes, leaders will drive the transformation
consisting of strategic assets, the nine to a successful outcome. They serve
digital elements, digital capabilities, as a form of scaffolding through
and investments, are the shape of the which leaders can ensure that the
transformation. They are the specific elements of the “what” are built
effectively and that the organization

Figure 15: The What and the How of Digital Transformation

Transformative Digital Vision

Strategic Assets
Products & Partnership Customer
Sales force
content network knowledge
Point of sale &
THE “HOW” IS THE distribution channels Product innovation Brand Culture
WAY THAT SENIOR THE “WHAT” IS
SPECIFIC SET OF
EXECUTIVES DRIVE
DIGITAL
CHANGE THROUGHOUT
TRANSFORMATION
THE ORGANIZATION. Digital Building Blocks ELEMENTS
THIS INCLUDES
IMPLEMENTED BY
CREATING AND
Customer Operational THE ORGANIZATION,
Digital Engagement

Digital Governance

COMMUNICATING Business Model
Experience Process INCLUDING THE
VISION, ESTABLISHING
STRATEGIC ASSETS
GOVERNANCE AND
AND DIGITAL
MEASUREMENT
Customer Process Digitally-modified INVESTMENTS THAT
MECHANISMS, AND
understanding digitization businesses ARE USED TO
BUILDING A CREATE THOSE
DIGITAL-READY ELEMENTS.
CULTURE. New digital
Top line growth Worker enablement
businesses

Customer touch Performance Digital
points management globalization

Digital Capabilities
KP
I

Digital Investment

SKILLS INITIATIVES

Iterative Transformation Roadmap


has the skills and culture to drive types of approaches to driving digital
value from them. It is, in essence, the transformation.
transformation management intensity of
the organization. Firms in the lower left are Digital
Beginners. They are doing very little
Together, the “what” and the “how” with advanced digital capabilities,
represent the digital maturity of an although they have more traditional
organization (see figure 14). They can digital capabilities such as ERP, internet
be thought about as digital “Style” and or e-mail. Companies may be in this
“Substance.” Firms that are mature on quadrant by choice. For example,
both dimensions can drive powerful executives in a specialty chemicals
digital transformation that yields firm believe that their B2B customers
business value. Unfortunately, many will not be interested in social media
firms in our study are mature at only or mobile technologies, and that
one, or neither. their engineering employees are very
effective with traditional collaboration
7.2 Digital maturity matrix tools. However, many companies are
in this quadrant by accident. They are
Figure 16 shows digital maturity as a either unaware of the possibilities of
classic 2x2, highlighting four different new digital technologies or are starting

Figure 16: Digital maturity matrix

FASHIONISTAS DIGIRATI
• Many advanced digital features • Strong overarching digital vision
(such as social, mobile) in silos • Good governance
• No overarching vision • Many digital initiatives
• Underdeveloped coordination generating business value in
• Digital culture may exist in silos measurable ways
• Strong Digital culture
Digital intensity

BEGINNERS CONSERVATIVES
• Management skeptical of the • Overarching digital vision exists,
business value of advanced but may be underdeveloped
digital technologies • Few advanced digital features,
• May carry out some though traditional digital
experimentation capabilities many be mature.
• Immature digital culture • Strong digital governance
across silos
• Taking active steps to build
digital skills and culture

Transformation management intensity


some investments without effective they can’t always build organizational
transformation management in place. momentum to carry out an ambitious
program. As a result, though aiming
Firms at the top left are Digital to spend wisely, their careful approach
Fashionistas. They have implemented may cause them to miss valuable
a large amount of sexy digital “stuff.” opportunities that their more stylish
Some of these items may be creating competitors will pounce on.
value, but some may not. While
the digital fashion items may look Firms at the top right are Digirati.
good together, they may clash with These firms truly understand
other items, and they rarely generate how to drive value from digital
synergies. Digital fashionistas are transformation. They combine a strong
motivated to bring on digitally- shared vision for transformation,
powered change, but their digital careful governance and engagement,
transformation strategy is not founded and sufficient investment in new
on real knowledge of how to proceed. opportunities. Through managing
As a result, fashionistas may look the “how” carefully, they develop
good, but rarely have much substance a digital culture that can envision
– in terms of business value – behind further changes and implement
the sizzle. We see many fashionistas them wisely. Through managing the
in B2C businesses, where executives “what” sufficiently, they continuously
(especially the marketing units) believe advance the competitive advantage
they must move fast to keep up with they draw from implementing digital
the fast-moving world of consumer transformation.
electronics, but do not necessarily have
a clear vision for how the elements will 7.3 How to assess your
collectively create value. Some firms digital maturity
are in this quadrant at the enterprise
level even though digital efforts in silos Figure 17 shows how companies in our
may be in other quadrants. This is the study scored on an initial qualitative
case with a hospitality firm, in which assessment of digital maturity.
marketing and customer service are
both relatively mature digitally, but the What is your digital maturity? Use
two are not yet well coordinated. the guidelines below to assess your
company. Note that digital maturity
Firms at the bottom right are Digital may vary across business units,
Conservatives. These represent the and will usually be different at the
wise old men and women of the digital enterprise level than within silos.
world. They understand the need
for a strong unifying vision and for • Digital intensity: consider how
governance and internal engagement advanced your digital capabilities
activities to ensure prudent investment are relative to competitors, or
management. However, they are relative to rising expectations of
typically skeptical of the value of new customers and employees. How
trends, sometimes to their detriment. much are you investing in new
Digital conservatives understand where technologies such as mobile,
the company should be going and analytics and social media? Are
how to master digital challenges, but you launching technology-enabled


business changes such as location- well-articulated and shared?
aware marketing or analytics- How well are you governing and
informed supply chain planning? coordinating digital investments?
Digital intensity also depends on How well are you helping the
your firm’s IT capabilities and the organization be ready for changes?
strategic relationship between IT
and non-business managers, since Using these guidelines, you can plot
most digital opportunities will your own organization on the digital
have a significant IT component. transformation maturity matrix. Then,
if your company is not yet a digerati,
• Transformation management take steps to address any weaknesses in
intensity: consider how carefully your digital transformation capabilities
you are envisioning and or build a roadmap to maneuver up the
managing the firm’s move into maturity cycle.
the digital future. Is the vision

Figure 17: Distribution of digital maturity

FASHIONISTAS DIGIRATI
Digital intensity

Note: Digital maturity assessments were
conducted by the research team using

BEGINNERS CONSERVATIVES information from interviews. Vertical and
horizontal lines are located at the mean value
plus ½ standard deviation along each axis.

Transformation management intensity


Case Study
PAGES JAUNES: CAPITALIZING ON
DIGITAL OPPORTUNITIES

H
istorically the market leader in local advertising based
on printed directories, Pages Jaunes began to experience
a digitally-induced change in its markets. Individuals
looking for business providers were increasingly shifting
from paper directories to alternative digital channels in
their search for information. Facing a 10 percent annual
decline in business as its clients (typically SMEs) switched
their advertising spend, Pages Jaunes saw little opportunity
for growth in the business of printed directories. Although Pages Jaunes had
some significant online activity by 2009, they needed to quickly grow their online
presence to counter the decline of the printed directory business, as well as the
global economic and financial turmoil.

New CEO Jean-Pierre Remy convinced the organization to re-envision its business.
Pages Jaunes was not just a provider of directories, but was a trusted name in the
relationship business. It disseminated local information to end-users (consumers)
and provided local communications services to advertisers. The firm held only a 10
percent share of its newly-envisioned market, providing scope for growth. With this
new vision, the company started to identify new client needs and rapidly capture
opportunities to extend its relationship brokering role from paper to the Internet.

Pages Jaunes’ strategy aimed to accelerate the transformation of the business from
having roughly 30 percent of its business online to 75-80 percent in 3-4 years.

Elements of the transformation included:

• restructuring the organization into an SME-facing Advertising group and two
consumer-facing -media groups, focused on Internet & print respectively. A second
CIO was recruited to lead developments around new digital technology while
keeping the first CIO in charge of the existing, and still critical, IT systems.

• recognizing the value of the relationships built over many years between the firm’s
salesforce and its thousands of clients. The firm committed to keeping as many
salespeople as possible and helping them to learn to sell the firm’s new services.

• substantial effort to change the culture of an erstwhile state-owned company by
recruiting new tech-savvy employees and by instituting KPIs to retain focus on
attention and performance.

• educating clients (SMEs) about how digital possibilities could impact their own
business and drive revenues, without losing sight of that portion of its clients’
customers who continue to rely on the print channel.


• building content strength online by creating and managing websites for more than
100,000 SMEs in France and Spain. The firm is experimenting with social media
possibilities, 3D applications, and focusing on various other services, including
display, SEM, SEO, direct marketing, coupons, etc. to reach an increasingly online
audience.

• building and continuing to enhance a strong online mobile brand presence,
reaching number three in the marketplace after Google and Facebook in France.
This tactic allows the firm to spend less than before on driving traffic to its sites
(search engine marketing).

• leveraging analytics heavily to analyze audience traffic and patterns, to quantify
for each advertising client the value and impact of products they purchase and to
help clients optimize media spending.

Pages Jaunes’ approach built on an already strong brand, a strong network of
salespeople who had existing relationships with SME clients, strong investments in
content and therefore the ability to partner (vs. compete) with major search engines
like Bing and Google, and with major content sources like Facebook.

Within two years of this strategic shift, Pages Jaunes earned €1billion from online
sales at a 50 percent net margin. Online business comprised about 50-60 percent of
its total business, and the firm was well-positioned to reach its goal of 75-80 percent
online business within two years.


CONCLUSION

Digital technology, which transformed the media industry, • Where are the key investment areas that will maximize the
is now transforming the rest of the commercial world. contribution to the new vision?
Companies in all industries and regions are experimenting
with – and benefiting from – digital transformation. • Can you de-risk some of the investments through
Whether it is in the way individuals work and collaborate, experimentation and controlled testing?
the way business processes are executed within and across
organizational boundaries, or in the way the company • What skills are missing in your digital transformation
understands and services customers, digital technology initiatives? Do you need to hire new executives? Retrain
provides a wealth of opportunity to those willing to change front-line employees? Partner with another firm to gain
their businesses to take advantage of it. capabilities?

The pressure points for change are increasing from many 3. Lead the change from the top
angles. Globalization is dictating efficient integration of
businesses which can only be achieved through digital • How do you communicate the vision and engage the
processes and collaborative tools. Employees and customers organization on a large scale? How do you monitor
are starting to demand new ways of working. As competitors engagement?
and new entrants make digitally-enabled practices a reality in
an industry, other firms will need to follow. • What process do you have in place to iterate the vision and
strategy?
Faced with these challenges, what are the key steps senior
executives should take to steer their organization? • How do you coordinate investments and activities across
silos? What is the best organizational model to coordinate
1. Envision the digital future for your firm. digital initiatives in parallel to the core business?

• What assets will be valuable in a digitally-transformed • What KPIs and metrics do you need to put in place to
business? monitor the progress of your digital transformation towards
your strategic goals?
• How can you transform customer experience? Internal
operations? Your business model? • What mechanism do you use to make the necessary
adjustments?
• How can units work differently – and work together
differently – in a more connected way? Digital transformation requires skills and influence that only
senior leaders possess. Create a transformative vision that is
2. Invest in digital transformation initiatives clear and compelling to galvanize the organization. Mindfully
consider what parts of your company should move – and why,
• Are you getting all of the value out of your previous and when – to make it implementable. Build digital maturity
technology and platform investments in ERP, analytics, in two dimensions to increase your chances of success. Then
or collaboration tools? If not, what is necessary to get the take actions and monitor progress to turn your vision into
foundations right? reality.


MIT Center for Digital Business and Capgemini Consulting Team members

George Westerman, a research scientist in MIT Sloan’s Center for Digital Business
(CDB), is also faculty chair for the MIT Sloan executive course Transforming Your
Business Through Information Technology. George’s research examines the role of
executive leaders in driving competitive advantage from digital technology. George
is co-author of two award-winning books, The Real Business of IT: How CIOs Create
and Communicate Value, and IT Risk: Turning Business Threats into Competitive
Advantage. Prior to earning his Doctorate from Harvard Business School, he gained
more than fifteen years of experience in innovation and technology management.
georgew@mit.edu

Claire Calméjane is a Managing Consultant in the Technology Transformation
Practice. She worked for the last 6 years at the Paris office and is currently visiting
scientist at the MIT Center for Digital Business, working with the researchers. She
specializes in Digital Transformation and IT Financial Services. She graduated from
a Computer Science Engineering School and holds a Master degree from HEC Paris
Business School.
claire.calmejane@capgemini.com

Didier Bonnet is a Managing Director and global head of practices at Capgemini
Consulting. Didier has more than 25 years’ experience in strategy development,
globalisation, internet & digital economics and business transformation for large
multinational corporations and private equity firms.
He has authored several research articles and is regularly quoted in the press e.g., WSJ,
FT, the Economist and provides commentary for broadcasters such as the BBC, CNN,
Reuters and CNBC.
Didier graduated from a French Business School and holds a DPhil from Oxford
University. He is based in London.
didier.bonnet@capgemini.com

Patrick Ferraris is the Global Leader of the Technology Transformation practice
within Capgemini Consulting. With over 20 years of consulting experience, Patrick has
supported large multinational organizations in their digital strategy and transformation
with a focus in Telecom, Media, Internet, Insurance and Transportation. He is an
alumnus from M.I.T and Ecole Nationale des Ponts & Chaussées.
patrick.ferraris@capgemini.com

Andrew McAfee, a principal research scientist at MIT, studies the ways that
information technology (IT) affects businesses. He coined the phrase “Enterprise 2.0;”
his book on the topic was published in 2009 by Harvard Business School Press. He
has also held appointments as a professor at Harvard Business School and a fellow at
Harvard’s Berkman Center for Internet and Society. In 2008, he was named the 38th
most influential person in IT.
amcafee@mit.edu


Special thanks to our other research team members: Greg Gimpel and Mael Tannou.

We would like also to acknowledge the valuable support of a number of colleagues
who have either helped with the data collection or have contributed with their ideas
and insights; they are: Emmanuel Rilhac, Vincent Leonetti, Julien Pontault, Deborah
Soule, Michael Krauch, Cyril Francois, Martin Hanlon, Kieran Draper, Jerome
Buvat.

Last thanks to our point of contacts who facilitated access to their clients and often
performed interviews: Eric Lamotte, Peter Lindell, Ravouth Keuky, Jesus Viceira
Alguacil, John Varghese, Diego Mackee, David Blackwood, Benoit Pradet, Philippe
David, Stanislas de Roys, Mark Hoffland, Eric Kruidhof, Ulf Holmgren, Philippe
Bigot, Jari Matula, Adeline Pairault, Sebastien Blot, Sandra Lagrue and others.


About Capgemini Consulting

Capgemini Consulting is the Global Strategy and Transformation Consulting brand
of the Capgemini group, specializing in advising and supporting organizations in
transforming their business, from the development of innovative strategy through
to execution, with a consistent focus on sustainable results. Capgemini Consulting
proposes to leading companies and governments a fresh approach which uses
innovative methods, technology and the talent of over 4,000 consultants worldwide

For more information: www.capgemini-consulting.com
Follow us on Facebook: http://www.facebook.com/capgemini.consulting.global
Follow us on Twitter: @CapgeminiConsul

About the MIT Center for Digital Business

Founded in 1999, the MIT Center for Digital Business (http://digital.mit.edu)
joins leading companies, visionary educators, and some of the best students
in the world together in inventing and understanding the business value made
possible by digital technologies. We are supported entirely by corporate sponsors
with whom we work in a dynamic interchange of ideas, analysis, and reflection
intended to solve real problems. The Center has funded more than 50 faculty
and performed more than 75 research projects focused on understanding the
impact of technology on business value, and developing tools and frameworks
our sponsors can use for competitive advantage.

101011010010
101011010010
101011010010

Digital transformation _a_road-map_for_billion-dollar_organizations

More Related Content

What's hot (20)

Similar to Digital transformation _a_road-map_for_billion-dollar_organizations (20)

Recently uploaded (20)

Digital transformation _a_road-map_for_billion-dollar_organizations