Before long, nearly every business will be a digital business. To succeed in this changing economy, organizations are increasingly making digital the linchpin of their competitive strategies. For most organizations, the shock and disruption of the COVID-19 pandemic revealed vulnerabilities their leaders had never identified before.
Source: Put Digital at the Heart of Strategy
Yet many businesses managed to survive or even thrive by harnessing digital capabilities to help navigate unfamiliar challenges and uncover new opportunities.
In fact, in times of disruption, digital enterprises have an edge over their less digitally mature competitors, according to the 2021 Deloitte Digital Transformation Executive Survey.¹ Now in its third year, the survey found fresh evidence that digitally mature companies are more resilient and better able to navigate rapid change—and they do significantly better financially as a result. According to this year’s results, higher-maturity companies are about twice as likely as lower-maturity ones to report net profit margins and annual revenue growth significantly above their industry average.
Leaders may not be able to control the pace of change dictated by external events, but they can develop their organizations’ capacity to navigate that change effectively, defend against threats, and take advantage of new opportunities. For all of the above, a strategic approach to digital transformation is crucial. Digital possibilities should shape strategy, and strategy should shape digital priorities.
A New Strategic Linchpin
Digitally mature organizations are much more likely to approach digital transformation strategically and place it at the center of their strategy. In fact, compared with companies of lower digital maturity, the more digitally mature companies in the study were nearly twice as likely to say that digital transformation was the central pillar of their strategy.
This shift from digital as an enabler of strategy to digital as the linchpin of competitive strategy comes at a time when the mere possession of advanced digital technology is becoming table stakes. Before long, most organizations will have extensive digital capabilities. Nearly two-thirds of private sector respondents in the survey believe that organizations that don’t digitize in the next five years will be “doomed.”
Little wonder, then, that 69% of surveyed digital transformation leaders globally plan to increase their financial commitments to digital transformation. On average, respondents plan to spend $12.6 million (nearly 0.6% of their annual revenue) on digital transformation over the next 12 months. That’s a 15% increase from the $10.9 million they spent over the prior 12 months.
Digitally driven strategies can help organizations succeed in the long term in two key ways: by enabling resilience and by driving differentiation.
Thriving Amid Change
Leading motivations organizations cite for their ongoing digital transformation investments include enabling faster innovation, responding to technological and industry changes, and becoming more resilient.
Innovation. Digitally mature organizations often exhibit a greater Original Postages/digital/articles/accelerating-digital-innovation-inside-and-out.html?id=us:2el:3dp:wsjspon:awa:WSJCIO:2022:WSJFY22" target="_blank" rel="noreferrer noopener">capacity for innovation than their less mature counterparts, likely due at least in part to the way digital modes of working support experimentation and rapid iteration. Higher-maturity organizations tend to exhibit a digital mindset—a tendency to look at old problems with new eyes and to ask how data and technology can be applied to reinvent products and processes. They also tend to place greater emphasis on innovation: They are significantly more likely to focus digital investments on product development, R&D, and innovation than less mature companies. The study shows that innovating faster has been critical to more digitally mature organizations during the pandemic. These organizations were more than three times likelier than lower-maturity organizations to say that new digital initiatives spun up since the pandemic hit were already having a positive impact.
Technological and industry change. A desire to modernize is another leading motivator of digital transformation investment. This is a fundamentally strategic imperative, as it can enable companies to compete more effectively and efficiently. Legacy IT systems, which tend to be inflexible and costly to maintain, can impede innovation, while the lower operating costs of modern systems can free up resources for innovative projects. Meanwhile, digital technologies are driving change across industries in distinct ways, leading many organizations to conclude they have no choice but to digitize.
Resilience. Digital transformation can help organizations develop a capability that is foundational to resilience: the ability to recover quickly from unexpected shocks. More than three-quarters of the leaders surveyed say their organization’s digital capabilities have significantly helped them cope with the challenges triggered by the pandemic. Digital capabilities can enhance resilience by increasing organizational nimbleness, scalability, and stability, among other qualities. COVID-19 brought the need for these attributes to the fore. Many companies accelerated their digital transformations to deal with the disruptions brought on by COVID-19, in some cases making years’ worth of progress in a matter of months.
Driving Differentiation
The world is becoming increasingly uncertain, and most leaders don’t expect this trend to let up: More than three-quarters of survey respondents expect their organizations will change more over the next five years than they did over the past five. But executives also recognize that change can create opportunities as well as challenges.
In addition to increasing resilience, another benefit of digital transformation is that it can create new opportunities for differentiation. More than three-quarters of private sector survey respondents say that digital is a key differentiator in their industry today. By helping organizations offer new and better customer experiences, create new products and services, and adapt their business models, digitization is itself reshaping the competitive landscape, giving an edge to digitally native organizations.
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Uncertainty and change are unavoidable, and so is the intensifying need to set oneself apart from the competition. Future winners will continually evolve the way they seek growth and profitability by approaching digital transformation as though there is no finish line. By committing to a strategy with digital at its core and aligning digital priorities with strategic goals, CIOs and other executive leaders can help empower their organizations to shape and secure their future.
—by Ragu Gurumurthy, chief innovation and chief digital officer, Deloitte LLP, and chief innovation officer, Deloitte Global; Rich Nanda, principal, Deloitte Consulting LLP; and David Schatsky, managing director, Deloitte LLP
Endnote
- The survey sampled 2,860 executives across industries. Responses from U.S. executives were collected in November 2020; those from executives in Asia-Pacific and European countries were collected from January to February 2021. Qualifying responses came from organizations with at least $100 million in annual revenue and global headcount greater than 500. Respondents also had to indicate they were “very” or “highly” knowledgeable about their organizations’ digital transformations. Data was weighted by country according to relative GDP size. Because the government sector was relatively over-sampled, government industry contribution was weighted down to equivalence with other industries.