Digital Transformation is not a magic wand; it is a complex yet essential enterprise commitment to change. Companies that have succeeded have reaped significant benefits. The Deloitte Digital Transformation Survey 2020 found that greater digital maturity is associated with better financial performance. The higher-maturity companies in this year’s sample were about 3X more likely than lower-maturity companies to report annual net revenue growth and net profit margins – a pattern that was consistent across industries.
Unfortunately, most enterprises do not fully appreciate what it entails. Some see it as a technology or a budget problem;
For me, one of the most significant examples of top-driven organisational change is Jeff Bezos’ call to “Rearchitecting the Firm” in 2002. It is a seminal work. The principles of this mandate went on to form the backbone of Amazon in the modern cloud world. It was clear, direct, and backed up by management action.
COVID is a catalyst for change
The flurry of digital technology solutions spurred by COVID-19 presents a unique opportunity for enterprises to rethink how decisions about technology are made and apply them in new and meaningful ways. Covid-19 dramatically accelerated technology adoption across all industries. According to a Fortune-Deloitte CEO survey and the KPMG 2020 CEO Outlook Survey, more than 75% of CEOs agreed that the pandemic sped up their companies’ transformation plans. As Microsoft CEO Satya Nadella noted, “We’ve seen two years’ worth of digital transformation in two months.”
Key stakeholders need to rethink customer experience, business models, and operations fundamentally. It is all about finding new ways to deliver value, generate revenue, improve efficiency, and, most importantly driving sustainable innovation. Bear in mind, just moving to the cloud is not Digital Transformation.
Crises breed innovation
I am of the firm belief that uncertainty drives creativity. Crises are the breeding ground for innovation. You must make decisions quickly, and you never have enough time or information to weigh difficult choices thoroughly.
McKinsey’s analysis shows that bold innovators emerge from crises substantially ahead of peers—and maintain this advantage for years to come. Innovators not only outperformed the market during the financial crisis but continued to widen the gap during and after the recovery. Analysis of the performance of approximately 2,000 companies between 2007 and 2017 against the S&P 500 reinforces those conclusions: staying focused on growth and innovation through a downturn helped the top-performing companies to generate higher returns to shareholders.
Antonio Neri and other leaders confirm that as the pace of technology disruption continues to accelerate, digital-native and digitally transformed companies are outpacing their competitors.
The McKinsey study shows that roughly one in ten companies in their sample achieved higher revenue growth, innovation, digital adoption and profitability than the others over the entire 2007–17 economic cycle and during the downturn years. The outperformers also delivered excess returns of roughly 8%, while the rest hovered around zero throughout the period.
So, what does it take to succeed?
Do existing leadership teams have the skills to undertake true digital transformation? I thought it would be a good idea to look at how companies are hiring critical resources. A study by professors from Harvard and Darden along with executives from Spencer Stuart published in the Harvard Business Review addressed this specific question. The team looked at more than 100 search criteria for C-suite positions in Fortune 1000 companies across a broad range of industries and the results were very suggestive.
There has been a rise in tech and digital expertise search even before the pandemic: 59% of executive searches included technological or digital knowledge. Company boards were asking for these skills across a wide variety of roles. This fact also suggests that people with the right skill sets are already in leadership positions. Not surprisingly, 100% of the specs for CIOs, CMOs, and CTOs sought technical or digital skills. However, the functions that got neglected in the search for technological and digital expertise were more revealing. Less than a third of the job specs for CHROs and chief accounting officers mentioned these required skills. Even more worrying – only 40-60% of searches for roles such as CEO, board director, and CFOs required digital know-how.
At the very minimum, we need all leaders to understand how to build digital businesses. This shift alone could be the difference between success and failure.
But is that enough for now?
Almost every organization has stepped up its digital transformation efforts in 2020-21. Success is as much about the right technology platform choice as it is about leadership, agility, talent, and a clear vision. A new and emerging factor is consumers wanting the brands they use to focus on sustainability issues. So do employees and prospective employees. The driver for this shift largely springs from realizing that human activities’ ecological footprint is a probable cause for the crisis we face today.
While we keep talking about the usual polluters like utilities, transportation, agriculture, and climate change causes, some lesser-discussed and more exciting facts would make the issue more relatable.
- Did you know that in processing 3.5 billion searches a day, Google accounts for about 40% of the internet’s carbon footprint? They have been carbon neutral since 2007, but their infrastructure still emits a considerable volume of CO2.
- Did you know that Bitcoin currently uses enough power (121 terawatt-hours) to run Cambridge University for almost 700 years?
To address sustainability in a meaningful manner, we need to take a holistic view of the players, their impact and then push for a mutually beneficial solution to all – else, it is bound to fail.
As a first step, 26 CEOs of Europe-based companies have signed a Declaration to support Green and Digital Transformation of the EU. They formed a European Green Digital Coalition, committing on behalf of their companies to not only make the tech sector to become more sustainable, circular, and a zero polluter but also to support sustainability goals of other priority sectors such as energy, transport, agriculture, and construction while contributing to an innovative, inclusive and resilient society.
Like these CEOs, Accenture also believes that there is great value at the intersection of digital technologies and sustainability – they call it Twin Transformers. Companies leveraging both are 2.5X more likely to be among tomorrow’s strongest-performing businesses than others.
BigTech is conscious of its responsibilities to the climate. Almost all major players have made pledges to reverse CO2 emission. Since they are all profit-driven, I am sure they have also figured out this also means good business by the numbers too (a counter-intuitive rationalisation but better than getting caught in the justification game)
In the future, a company’s commitment to ESG-related programs will drive the ability to attract investors and retain talent. Companies also realize that ESG factors, when integrated into strategic digital transformation decisions, may offer potential long-term performance advantages. One of the critical levers for moving to sustainable systems will be technology, a lot of technology, and a lot of investment. But how do we make it accessible to all and profitable to the providers at the same time?
HPE is one company that has made significant strides in this regard by embracing the twin doctrine of digital transformation and sustainability. Their customers can reduce their energy costs by more than 30% by eliminating overprovisioning through HPE GreenLake. In fact, their consumption-based offerings have been able to reduce customer carbon footprint by 50% in one case. Minimizing e-waste in another area of focus for them too.
So what have we learned from all this? As an ancient Chinese proverb states, “When the winds of change blow, some people build walls, others build windmills.”
What will you build?