How Digital Transformation Can Drive Better Business Results

Oct 27, 2014
8 Min Read

Social media, cloud computing, big data and analytics are changing the way companies function, and digital innovations are only expected to grow. Companies that ignore this reality will be left behind, while the “digital masters” will increase their potential, contends new research.

When hearing the term “digital masters,” many business people think of Silicon Valley and the whiz kids running dominant IT companies like Google.

But a new book contends that it’s time other companies woke up to the reality that if they want to excel in the future – with their employees, with their customers and in running their operations – then they need to also embrace the idea of using technology to transform their business. They, too, must become digital masters.

In a study of more than 400 large mainstream organizations in every industry around the world, authors of “Leading Digital,” found that digital masters are those companies that use digital technologies to drive greater profits, productivity and performance. Specifically, research shows that those who do digital transformation well are on average 26% more profitable than industry peers.

George Westerman, a research scientist in the MIT Initiative on the Digital Economy and one of the book’s authors, says the research also found that companies lagging behind in making a digital transformation were often worried about the cost, the lack of skills or regulatory concerns.

But the book debunks those worries, noting that making a digital transformation isn’t just about pouring money into IT and trying to woo talent away from Silicon Valley. Westerman explains, for example, that it’s also critical that a company have the leadership willing to drive that transformation throughout the culture. In addition, the employee talent for digital transformation doesn’t just come from tech backgrounds, he says.

“You don’t have to make yourself into Google,” he says. “Even if you’re making soap, there are things you can put into place that will give you an edge.”

If you don’t, Westerman warns, be prepared to be less productive, profitable and left behind as your competitors make the transformation.

Authors Westerman, Didier Bonnet and Andrew McAfee found that digital masters are those who use analytics, social media, mobile and embedded devices to understand customers better. These companies also implement technology to link customer-facing and operational processing in new ways. At the same time, they use analytics to make better operational decisions, as well as digital technology to increase the performance and value of existing products.

Just Do It

One of those companies profiled as a digital master is Nike.

The authors note that while Nike has traditionally built its business through innovative products, intensive brand building and efficient operations, Nike jumped on new digital technologies. Specifically, the company used technologies to improve customer experiences, develop new selling processes, connect athletes worldwide and implement new design and manufacturing methods in its operations.

They explain that Nike didn’t begin by strategizing its business model, but rather investigated ways it could provide more value to its connected customers. While it had a social media presence, it decided to weave its technology and information together in a new business model, which is how the Nike+ concept took off, the authors say.

Nike+ includes several connected elements such as a shoe, a sensor, an internet platform, and a device such as an iPhone or a FuelBand.

This allows Nike to gather valuable information about how customers use its products, which allows the company to improve the product and develop an engaged community of users.

“What Nike demonstrates is that you don’t have to rebuild the wheel every time,” Westerman says. “They are coordinating everything very nicely.”

Westerman explains that Nike lets its various operations do what they do best, whether it’s marketing or product design, while providing each one with more information to help them do their jobs better. For example, social media conversations from customers about how a new product is being used is conveyed to those building the products, while marketing is in the loop regarding a new product before it’s even built.

Nike CEO Mark Parker has made it clear he doesn’t want the company resting on its laurels.

“One of my fears is being this big, slow, constipated bureaucratic company that’s happy with its success,” he says. “Companies fall apart when their model is so successful that it stifles thinking that challenges it. It’s like the Joker said – ‘this town needs an enema.’”

The authors explain that there are a dozen steps to becoming a digital master, beginning with an awareness by top leaders that digital is critical and the opportunities it brings. But more than that, companies must be able to transform a digital transformation vision into action by setting strategic goals and designing a roadmap of digital activities. Funding the transformation, explaining the benefits to employees and aligning incentives and rewards are also keys to success, they say.

“There are a lot of smart people in a lot of industries,” Westerman says. “It’s time companies brought in those who are able to think digitally and put some of these things in place. Let IT be part of the conversation, because it will cost you more if you work around them. You need a tight link with IT.”

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