How digitally led companies outperform the market
The world we operate in has fundamentally changed
We hear about the growth of social media, mobile, big data, the internet-of-things etc., every day but behind this commentary is a transformational and systemic change that the onslaught of statistics may belie. In their most recent book, Andy McAfee and Erik Brynjolfsson term this systemic shift as The Second Machine Age. That the current cycle of disruption, driven by digital, is as significant as the changes felt during the industrial revolution. Now, as then, the nature of work, interaction, commerce, and broader society are all changing.
Does digital really matter?
Unsurprisingly, making sense of this is complex and challenging with many businesses feeling the pressure from customers and shareholders to react. Often the response to this isn’t systemic in nature; it’s often relegated to a series of projects silos, or owned by a single department. And it’s easy to see how this might happen with online representing just 6.5% of Australian retail sales. And isn’t social media just a fad?
When viewed in isolation, digital may appear to have a low business impact. That it’s something tactical that needs to be responded to because the market demands it not because there’s a real belief that it’ll drive value for a company.
Digital maturity and the +26%
When we look at it more closely though, the difference between taking a systemic versus a tactical approach is key. Based on joint studies by the MIT and Capgemini, a company’s response to digital is characterised by “what” they are doing, and “how” they’re managing it. Considered together these define “digital maturity” at four levels;
- Beginners: carrying out some experiments though largely skeptical of the value of digital.
- Conservatives: strong in the “how” but with few investments in digital.
- Fashionistas: doing a lot in digital but with little focus on the “how” means this are not cohesively managed.
- Digirati: these are the companies that understand how to drive value from digital, balancing both “what” they do and “how” they manage it.
Getting this balance right really matters as the Digirati out perform their peers in every industry. They have higher revenue, +9%, better net profits, +26%, and greater market valuations, +12%, than their less mature peers. Moreover, if you look at the Fashionistas, whilst they enjoy +6% revenue, it’s at the expense of net profit (-11%). Doing a lot in digital without a focus on the “how” isn’t enough. It’s inefficient and net profit is impacted.
Navigating the storm; the common patterns of the ‘Digirati’
So what should we do about it? Amongst the continuous stream of case studies and examples of “what” companies are doing it can be difficult to distill “how” they’ve done it. Looking to the Digirati, as companies which have successfully they exhibit common patterns that we can all follow. Regardless of industry, they follow three common approaches to realise their Digital Advantage;
(1) Equal focus on the “what” and the “how”
Digital is a systemic challenge and should be therefore addressed as a cross-business, systemic program of work. Responding requires transformational, not tactical responses. This means;
- Defining a clear vision that drives the whole organisation, not just a few digital channels.
- Putting cross-business governance in place that balances freedom for each business unit whilst ensuring each investment in “what” they do is complementary.
- Creating a strong IT/business working relationship.
- Building new capability. Ultimately, it’s about people and a fundamental shift is needed in the type of skills a business has in place. In a recent Capgemini study over 90% of companies stated they didn’t have the right digital skills.
(2) Make strategic decisions on where to invest in digital
Whilst ‘Digirati don’t try to do everything, they aim for excellence in a few targeted digital domains (one or more of six domains). Even more crucially they actively ensure these are connected so that customer-side digital capability (social, mobile, online) are linked with operational-side digital capability (data analytics, enterprise collaboration etc.).
(3) Balance investments with clear ROIs with those that don’t
Whilst the ROI of many digital investments can be clearly defined, in some cases they simply can’t. Take enterprise social for example; defining the specific benefits is less direct than for a CRM system. And whilst rigour is still needed, it needs to be balanced with progress. ‘Fashionistas’ attempt to experiment their way to success, whilst ‘Conservatives’ apply so much rigour that little is done in digital. ‘Digirati’ take a balanced approach.
So what does this mean for you? Whilst it varies across industries, only about 25% of companies are ’Digirati’, leaving 75% of us with a huge opportunity and much to do. Taking the time to understand your digital maturity, find focus, and a take a balanced approach is key as the noise around digital will only continue to grow.
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