Companies across the corporate spectrum are striving to implement digital transformation strategies to drive up agility, responsiveness and enhance the customer experience.
A clear minority of leaders are starting to emerge who are reaping the benefts. In fact, according to the 2018 Harvey Nash/KPMG CIO Survey – the largest IT leadership survey in the world, taking in the views of nearly 4,000 IT leaders across 84 countries – 61 percent of companies that are effective at using digital technologies see higher revenue growth than their competition.
But the majority of businesses are fnding it more challenging – a reality that came through very clearly in this year’s survey.
However, we believe that there are a number of clear priorities that organizations must embrace to drive better, quicker and more certain returns.
We can see these by looking at the small proportion of businesses that we identifed as digital leaders in our research - organizations that are ‘very effective’ or ‘extremely effective’ at using digital to support business strategy. These leaders account for only around 22 percent of the total population.
Certain core IT priorities remain important to all organisations, such as effciency, stability and cyber security; with cyber security notably making a 23 percent increase as a key business issue that the survey respondents’ management boards are looking for IT to address this year. However, our research shows that Board priorities at digital leader organizations are markedly different from the rest – with a much more pronounced focus on innovation in products and services, and a higher focus on enhancing the customer experience.
Successful digital transformation also requires the whole leadership team to engage with it – not just the IT team. Many CEOs recognize this. KPMG’s 2018 CEO Outlook Survey found that 71 percent of CEOs are personally ready to lead a radical organization transformation. However, half of CEOs believe that their Board has an unreasonable expectation of returns on digital investments – another sign of how diffcult the whole undertaking actually is.
In this context and based on the fndings from the 2018 Harvey Nash/KPMG CIO Survey, there are three characteristics that are helping digital leaders enable a successful digital strategy:
The customer must be at the heart of any organization’s digital transformation. We found that almost half of digital leaders (47 percent) are able to measure the proftability of individual customers – compared to just 22 percent of other businesses. They not only understand the proftability of their customers but can then segment and prioritize them accordingly and engage with them in a differentiated and personalized manner which will improve the customer experience. It isn’t diffcult to see how this can result in greater proftability.
One of the hallmarks of customer-centricity is taking an outside-in perspective to develop empathy with customers and truly understand what they want and need. The customer experience is everything. Customer-centric leaders focus their efforts across fve key customer-focused capabilities.
When your organization can properly understand customer needs, and the factors driving both customer revenue and costs, then you can truly focus on making the right digital changes across the front, middle and back offces that will drive the greatest value and show the fastest results.
Customer-centric organizations are 38 percent more likely to report greater proftability than ones that are not.
Digital and customer-centric leaders foster an agile culture – 41 percent of digital leaders do so, compared to just 11 percent of other businesses.
This culture matters because it is the people within your organization that will make digital transformation actually happen. They are just as crucial as the customer. It is essential that they are empowered through a culture of agility and innovation that allows them to take responsibility for decisions and keep things moving quickly. They need to understand and buy into the digital vision and, at the same time, be given the right levels of support throughout the changes that might affect their day-to-day roles.
Leadership teams have to recognize that digital development requires a different organizational approach. In many businesses, work happens in functional silos such as Marketing, Finance or HR – but for digital transformation to be a success, you need to break down the barriers between functions and create integrated teams in a boundary-less approach that creates a looser, more fexible and networked organization. These teams will be driven through a product or experience owner structure, i.e. one that is based around the product or experience being created or delivered rather than the traditional functional model.
However, it can’t just be a creative free for all. The right balance has to be struck that enables people to work and experiment in innovative ways, but that retains clear structure and protects investments. Our research found that digital leaders are twice as likely to understand the need for governance to be defned and understood.
Digital leaders are much more likely to be investing in new technologies across the board compared to other companies, and often vastly so. For example, over half (52 percent) have invested in cloud compared to less than a third (29 percent) of other businesses, while 17 percent of digital leaders have invested signifcantly in Artifcial Intelligence (AI) compared to just five percent of others.
But no matter where the investment is going, businesses need a clear and continuous mechanism to control, monitor and manage it. In order to get value from innovation you need to measure the benefts from it and also know when to switch things off.
In the experience of KPMG professionals, a framework needs to be created that can become the mechanism for governing the investment portfolio – and that has control at executive committee level.
Traditionally, many investment projects are carried out in pockets of the business within functions, and almost go under the radar. With a digital innovation framework, small teams of design thinking facilitators can be assigned to work with the business - including capturing any projects or spend that could be classed as ‘shadow IT’ - to drive sessions in which ideas and concepts are developed, following which engineering capability can be brought to build the solutions. A fnancial mechanism is overlaid to measure the benefts and returns.
As the framework sits across the business rather than in disparate functions, the digital transformation effort can be effectively measured and directed. The executive committee can make decisions at a portfolio level. Value can be demonstrated, building executive confdence, and investment decisions can be validated more quickly.
Many organizations are struggling to make signifcant headway with their digital strategies – but the prize is clear for those that get it right.
We have begun to see the emergence of a clear cohort of digital leaders. Other businesses are in real danger of falling behind. Catching up will only become harder.
That is why all businesses need to stay committed to their digital goals and redouble their efforts through the three key lenses: customer, people, innovation.
In all of this, the CIO is key. He or she is the agent for digital change. Acting as the bridge between the executive committee and the customer and user experience, the CIO is the common thread that can pull things together.
With the engagement of the Board behind them, the opportunity is clear for energetic, focused and driven CIOs to make a critical difference to the success of their organization.
KPMG recognizes that CIOs and IT leaders face increasingly complex demands and challenges. Today, IT must advance the business, not just support it, with boards increasingly expecting returns on digital investments and the implementation of successful digital transformation strategies that will drive up agility, responsiveness and enhance the customer experience.
KPMG professionals help CIOs, technology leaders and business executives to harness new technology and improve the strategic value of their technology investments. If your business is seeking ways to leverage technology as a source of innovation and competitive growth, KPMG member firms can help.