Keys to Digital Transformation Success
At a time when many established companies are struggling to remain competitive, it’s clear that fundamental change is in order. Some established companies have found a path that works — they are surviving, thriving and going head to head with an onslaught of fast-moving startups that seem to multiply overnight. What lessons have these companies learned that others need to embrace?
THIS TIME, IT REALLY IS DIFFERENT
Dealing with today’s digital disruption begins by understanding how it differs from past industry changes. After all, stories of the-end-of-our-industry-as-we-know-it have been a trade press staple for decades. A few key elements distinguish this era of change from the past.
Disruption has accelerated dramatically, and the numbers prove it. A 2014 study from Constellation Research quantified the accelerating rate of change in the enterprise by examining a simple benchmark — the entry and exit of U.S. corporations in the S&P 500 index.
In 1958, corporations listed in the S&P 500 had an average stay of 61 years. By 1980, numbers from research firm Innosight reveal, the average stay had declined sharply to 25 years. In 2011, the average tenure dropped to 18 years. At the present rate of churn, Innosight’s research estimates that three-quarters of today’s S&P 500 will be replaced by 2027.
Digital disruption is the primary catalyst of change. While the Constellation study is careful to say that companies rise and fall for many reasons, digital disruption is clearly responsible for a large share. Research shows that since 2000, 52 percent of companies in the Fortune 500 have either gone bankrupt, been acquired, or ceased to exist as a result of digital disruption. The collision of the physical and digital worlds has affected every dimension of society, commerce, enterprises and individuals.
Digital transformation transcends technology. Digital transformation is often viewed through a narrow technology lens, as just another mobile project or e-commerce initiative. Fundamentally, though, digital transformation is the result of enterprises seeking to adapt to the storm of new technology affecting markets and customers. Effective internal systems, processes and value chains will always be essential, but enterprises will increasingly need to harness the skills, capabilities and passions of the external market. Digital transformation forces wholesale change to the foundations of an enterprise — from its operating model to its infrastructure, what it sells, to whom and how. No industry is immune. Industries dominated by information-rich assets (think: publishing and music) were swept up in the early wave of Internet innovation. The subsequent mobile revolution created challenges for retailers who found customers flocking to online alternatives. Today, disruptive technology shifts such as cloud, big data and the Internet of Things will not only upend these industries (again), but they will also introduce revolutionary change to even the most staid industries. Specific industries with regulatory barriers or large infrastructure costs will feel greater effects of shifts created by the next generation of IT breakthroughs.
The value of the digital economy continues to grow in size and importance to every company in every industry. Nearly 3 billion consumers, businesses, government agencies and institutions of every nature interact every day using computers, laptops, tablets, smartphones and a growing range of mobile devices. The relentless speed of change of customers, markets and technology has given rise to enormous opportunity.
The digital economy is making significant contributions to global gross domestic product (GDP), outpacing global growth by 400 percent. A 2015 report by Boston Consulting Group (BCG) estimated the digital economy would contribute $4 trillion to the GDP of countries in the G-20 during 2016 and would continue to grow at a rate of 10 percent per year. Growth outside the G-20 is even higher, measured at rates of 15 to 25 percent. These figures compare to a rate of 2.5 percent global economic growth, according to recent estimates by the Conference Board. BCG’s study also credits the digital economy as an increasingly important source of new jobs, as well as an important catalyst for social and political change.