Zero One: Digital Transformation Leaders vs. Laggards

Written by Tom Kaneshige
July 31, 2017

Only 3 percent of companies have gone enterprise-wide with their digital transformation efforts, SAP says. Are you one of them?

If everyone is failing at digital transformation, then line-of-business executives (LOBs) have little to worry about. But this isn’t the case. A few companies, perhaps a competitor, have shown great digital transformation leadership and are reaping the benefits. Thus, the gap between winners and losers grows wider by the day.

SAP’s digital transformation executive study sheds light on the tendencies of these leaders. For instance, leaders tackle digital transformation holistically with cross-functional teams. They get the most out of emerging technologies, such as the Internet of Things and machine learning.

One out of three of these leaders comes from the tech industry, which makes sense given the reliance on emerging technologies. Other leaders hail from retail, manufacturing and financial services.

First, though, the spoils: Four out of five leaders report higher profitability compared with 53 percent for all others, the SAP study found. Nearly one out of four expect more revenue growth from digital transformation over the next two years. Eighty-five percent of the top 100 digital transformation leaders say they’ve increased their market share, compared to 39 percent for everyone else.

The most impressive finding, which, of course, relates to profitability, revenue and market share, has to do with the all-important customer experience. Seven out of 10 leaders have seen significant or transformational value from digital transformation in customer satisfaction and engagement, according to SAP.

It’s a salient point, especially in light of how digital transformation laggards hope to drive value. Laggards want to develop new products and services and rush them to market. It’s a product-first mentality, not a customer-first one. But it’s becoming clear that digital transformation and customer experience go hand-in-hand.

One of the biggest differences between leaders and laggards is the willingness to embrace digital transformation as a sea change.

Leaders are fundamentally transforming their businesses, upending everything from business model to operational processes to organizational structure. They’re retraining their workforce, creating new roles, and investing in new technologies: big data, analytics, IoT, machine learning, mobile, cloud, security, and to a lesser extent, robotics, drones, conversational apps, blockchain, virtual and augmented reality. Their efforts extend beyond the proverbial four walls to partners, suppliers and, of course, customers.

Meanwhile, laggards give digital transformation little more than lip service.

Put another way, more than 80 percent of companies around the world say digital transformation is important to their survival in the next five years, the SAP study found. That’s alarming, yet only 3 percent have gone enterprise-wide with their digital transformation efforts.

“The leaders are relying on a transformative mindset that goes way beyond just increasing speed to market or developing new products, putting emphasis instead on e.g. customer empowerment,” says SAP in the study. “They are investing heavily in digital skill and technology, favoring next gen technologies much more than everybody else. They manage digital transformation as a business goal, not just an IT project.”

That’s not to say digital transformation leaders let LOBs run the show. While digital transformation projects absolutely require lots of business buy-in and input, leaders organize and execute projects using digital transformation groups or IT, not LOBs.

Also, digital transformation isn’t like preparing for Y2K or implementing ERP. Rather, the top 100 companies in SAP’s study see enterprise-wide digital transformation as “a continuous journey to stay ahead of the competition.”

Bottom line: Odds are extremely high that you’re a laggard, while the leader gains distance in customer experience, revenue, profitability and market share – all the business metrics that matter.

Based in Silicon Valley, Tom Kaneshige writes the Zero One blog covering digital transformation, AI, marketing tech and the Internet of Things for line-of-business executives. You can reach him at tom.kaneshige@penton.com.