Eight out of ten companies are lagging behind when it comes to digitalisation, and are executing reactive, rather than active, digital strategies, research by Arthur D. Little shows. A lack of knowledge and sense of urgency are seen as the biggest obstacles to digital transformation. According to the firm, transformational leadership is the key to embracing digitalisation, with a focus on digitisation as a strategic imperative and a way to achieve business objectives.
The business world is increasingly interwoven with digital technologies. To benefit from the massive potential digital can bring – Accenture estimates that digital technologies in the world’s top 10 economies can add a combined $1.36 trillion to their GDP in 2020 – more and more companies are digitalising their operations. While the vast majority of companies agree that digital technologies are ‘here to stay’, the path to digital transformation remains unspecified and as many as two-thirds of digital transformation projects fail, according to data released by Genpact.
In its recently released ‘Digital Transformation – How to Become Digital Leader’ report, Arthur D. Little researches the digital maturity of more than 100 European companies from seven industries. According to these respondents, digitisation brings about a variety of opportunities, of which the acquisition of new customers ranks as the biggest prospect brought by digitalisation, followed by differentiation from competition and new sources of revenue.
The consulting firm’s Digital Transformation Index (DTI) shows that although front-runners have emerged, digital transformation in most companies is lagging behind. Comparing the average DTI score of the surveyed companies with that of the ‘virtual star performance’ reveals that less than one in five (17%) companies can be considered ‘digital oriented’ or ‘digital centric’. These companies have comprehensive roadmaps in place to master the digital transformation. As many as 80% of companies are falling behind on digitalisation and are only ‘responding’ to digital developments. This confirms earlier research from KPMG, finding that 72% UK mid-tier firms are awaiting the success of a digital technology before adopting it.
DTI is most advanced in the sections ‘strategy & governance’ as well as ‘information technology’ (scoring 5 out of 10). Digital transformation with respect to ‘operations & supply chain’ and ‘products & services’ is specifically lagging behind the virtual star (ranked 3 out of 10).
The research shows that every major industry is trying to respond to the realities of an on-demand, personalised digital economy. The automotive industry scores the highest on the firm’s DTI with an average score of 5.02, whereas the cross-industry score comes down to 3.92. Other industries scoring above the cross-industry average are the telecom & media industry (4.20) and energy & utilities industry (4.11). This, according to the researchers, reveals that traditional technology-heavy industries are moving faster to realign their businesses to the digital economy. The lowest scoring sectors are travel & transport, with an average score of 3.51, and EPC & manufacturing (3.53).
The biggest obstacle to digitally transforming a company, according to the respondents, is a lack of knowledge, cited by 50% and the #1 challenge for four of the seven industries. This is followed by a lacking sense of urgency (45%) and excessive complexity (40%), seen as the #1 challenge for the other three industries.
“As customers across the world embrace the new marketplace of shared ownership, on-demand services, and personalisation, no industry is immune to the growing need for digital transformation,” comments Michael Opitz, initiator of the study and leader of ADL’s TIME Practice. “We fear that today too few CEOs recognise the urgent need to not just invest in new technology, but fully realign every aspect of their businesses to the new digitally driven marketplace.”
In conclusion, the study offers CEOs five key recommendations to prepare for and respond to digitalisation:
1. View digitisation as a strategic imperative;
2. Embrace digitisation as a new way to achieve business objectives, not as an end goal;
3. Take a holistic, cross-functional approach to digital transformation;
4. Build a tailored digitisation strategy;
5. Start with a clear understanding of the business’s current capabilities and competencies.