A digital transformation study from SAP, supported by Oxford Economics, reveals that 84% of those surveyed say digital transformation is critical to their survival in the next five years. But only three percent have completed company-wide transformation efforts.
The survey of more than 3,000 executives in 17 regions around the world is one of the largest of its kind.
The top 100 or so companies that report the most transformation say they’re getting big benefits: 85% say they’ve seen increased market share (versus 41% for the rest), and 80% say their efforts have increased profitability (versus 53% for the rest). They also expect to see more revenue growth over the next two years than the rest of the organizations surveyed.
The leading organizations turn out to be different from the others in four key ways:
They are focused on true transformation. Ninety-six percent of the leaders say digital transformation is a core business goal, compared to 61% percent of all others.
The leaders have a “digital engagement first” rather than a “product first” mindset, with greater emphasis on changing the company as a whole by improving digital skills and increasing employee engagement.
This is clear when it comes to how they’ve restructured their business for innovation: five times more of the leaders say they have changed their operations as a direct result of digital transformation, and seven times more report a significant impact on how they work with their partner ecosystems.
They transform customer-facing functions first. Almost all digital transformation efforts attempt to improve the customer experience. But almost twice as many of the leaders cite customer empowerment as a key global trend, and 92% report that they have mature digital transformation strategies and processes in place to improve the customer experience versus just 22% for all others.
The efforts of the leaders pay off: three times as many have seen significant or transformational value from digital transformation in customer satisfaction and engagement.
They are talent-driven. Leaders spend more both on hiring and on retraining workers than their peers. They are also significantly more likely to favor flatter, more agile organizational structures.
All this leads to a virtuous circle of new digital talent acquisition: More than three times as many of the leaders say their employees are more engaged thanks to digital transformation and are more likely to say that these efforts make it easier to attract and retain talent.
They invest in next-generation technology using a bi-modal architecture. The leaders, perhaps unsurprisingly, are ahead in technology maturity, but it’s mainly about new ways of working.
Ninety-three percent of the leaders say technology is critically important to retaining competitive advantage, compared with 72% of others. They are investing more heavily in Big Data and analytics (94 percent versus 60 percent), and the Internet of Things (76 percent versus 52 percent). And 50% percent of them are already working with artificial intelligence and machine learning, compared to seven percent of all others.
But the key difference is how that they apply that technology: 72% of leaders say that a bi-modal IT architecture—involving a mix of front-end and back-end infrastructure, able to operate at multiple speeds for multiple business needs—is important to digital transformation, compared to 30% of others.
The organization structures used to implement technology are also different, with leaders overwhelmingly favoring a more centralized approach. They are three times more likely to have a dedicated group for digital transformation or implement change using existing business-focused IT organizations. The others are much more likely to see efforts scattered across operations, finance, and other functional units.
So far, as Pat Bakey put it at SAP Leonardo Live, “We see sparks of innovation happening, but we haven’t seen the big bonfires of opportunity.”
It’s time for IT organizations to accelerate digital transformation beyond small “islands of innovation” and adopt a more holistic, centralized approach. Most companies, faced with digital transformation, are changing what they do, but not how they do it.
What sets the leaders apart is that they have internalized the need to transform how they think as well as what they do—to create a digital mindset across the organization.
Digital transformation will determine the future of business, so it cannot be incremental or be considered independently from the operating model. In the end, what the survey shows most clearly is that companies that treat digital transformation as another IT project will not just fall behind. They will fail.
As Vivek Bapat, senior vice president and global head of Marketing Strategy and Thought Leadership at SAP, puts it: “The next two years will be a key inflection point, which will separate the digital winners from those left behind. Digital transformation is no longer a choice, it’s an essential driver of revenue, profit and growth. Executives need to move from simply understanding the high stakes, to activating complete end-to-end execution across their business. This requires innovative breakthrough technologies, investing in digital skills, and retraining the existing workforce.”
For more insight on digital leaders, check out the SAP Center for Business Insight report, conducted in collaboration with Oxford Economics, “SAP Digital Transformation Executive Study: 4 Ways Leaders Set Themselves Apart.”
Timo Elliott is an innovation evangelist at SAP.