For all of the talk about how social media, mobile and analytics are transforming our lives, the majority of big companies still have a long way to go in their digital transformation. However, two years of study with more than 400 firms around the world shows that a quarter of firms are already achieving a measurable “digital advantage” over their peers.
This research, conducted by the MIT Sloan Center for Digital Business in cooperation with research sponsor Capgemini Consulting, shows that the digital advantage is not about luck or about the industry your firm is in. It is not just about how much cool digital stuff firms are doing. Companies that manage their digital activities in a certain way are 26% more profitable than their industry peers, and outperform on other measures as well.
In year one, we interviewed 157 senior executives in 50 large companies in 15 countries to understand how they are using social media, mobile, analytics and embedded devices to change their businesses. We found that 70% of the companies interviewed are already using these technologies to change internal processes, customer engagement or business models. But they are getting wildly different results.
Only 25% of firms are what we call the “digirati.” These firms not only do more digitally, but are also building the leadership and governance capabilities to drive true value from their digital investments. Unfortunately, more than 75% of companies are either investing without leadership and governance or are building governance structures that overly restrict investment. Our year-one report, which explains our findings, was ranked among the top five thought leadership publications of the last decade by market analyst firm Source.
It’s clear that senior executives are paying attention, and many are investing, but relatively few have positioned themselves for success. For all of the suggestions that companies should “let a thousand flowers bloom,” the digirati manage digital transformation deliberately from the top. They’ve realized that leadership is essential to driving digital transformation. But does that really matter for performance?
In our year-two report, we quantified the digital advantage. In a global survey of nearly 400 large companies, we found that the digirati are 26% more profitable, drive 9% more revenue from their physical assets, and earn 12% higher market valuations than their peers in the same industry. Some companies excel in investing in technologies such as social media and analytics. Other firms have strong capabilities to manage transformation. The digirati excel in both dimensions, and achieve better performance than their competitors.
We also found that while some industries are more digitally mature than others, every industry we studied has at least one digirati. That is, every firm in these industries has a competitor that is already earning the digital advantage. Since digital maturity takes several years to develop, every executive should start to consider what it will take to get there.
Digital maturity matters. It matters in every industry. And the approaches used by digitally mature companies are available to any company that has the leadership drive to do so.
Is your company one of the digirati? If not, what will it take to get there?
For more on digital transformation, including a video interview with George Westerman, please visit: http://sloanreview.mit.edu/innovation-hubs/digital-transformation/
Also at: Smart Company
Dr. George Westerman is a research scientist in MIT Sloan’s Center for Digital Business (CDB), and project lead for the digital transformation studies.