Four Winning Patterns of Digital Transformation
Companies responding to digital disruption inevitably focus on speed first.
They make changes quickly where it matters most—launching apps, forming Agile squads, deploying new analytics, and testing innovative digital business models. The primary objective is to stay one step ahead of the change.
Yet after an initial phase of success, these promising digital transformation initiatives too often lose momentum. On the way to scale and lasting impact, they run aground on legacy issues such as aging technology infrastructure, mismatched operating models, old ways of working, or cultures resistant to change.
This shows up in our annual survey of more than 1,200 business leaders around the world.
Three years ago, when we asked respondents to prioritize what it takes to establish digital leadership, their answers boiled down to making faster decisions and executing quickly to create differentiated offerings. Today, there is a growing realization that speed on its own isn’t enough. While moving quickly to differentiate remains essential, capturing the full value of digital transformation involves scaling a company’s best initiatives across the organization for broad impact. That typically requires retooling the technology architecture while also building digital fluency and capabilities throughout the organization (see Figure 1).
The advantage that digital disrupters such as Amazon or Tesla have over incumbent companies is that they were built for purpose. Not only is their underlying tech infrastructure tailored specifically to their digital ambition but so is the way they operate, how they make decisions, and the way they use technology in their everyday approach to business.
Many incumbent companies have done a remarkable job of mobilizing to fight back against these disrupters through rapid deployment of new digital services and tweaks to their operating models. But they can only go so far before they run into the old ways of doing things—namely, a spaghetti tangle of legacy enterprise systems; a complex, siloed bureaucracy that slows decision making; and a cultural divide between IT and business operations.
Competing in a digital world ultimately means transforming both hard capabilities (the tech stack) and soft capabilities (the operating model) to create a business environment in which change can take root at scale and strategy is fully enabled by digital technology. Yet that presents a fundamental risk: How do you avoid disrupting your business just when you can least afford it?
Leadership teams undertaking digital transformation are starting to figure that out. Companies have enough experience at this point that they are seeing creative ways to build new bridges to the future without creating traffic jams in the legacy business. Looking at the most effective efforts, we’ve identified four patterns of digital transformation that allow companies to rebuild and compete at the same time (see Figure 2).
The first pattern involves companies that are under pressure to develop new digital capabilities and are essentially starting from scratch. The threat is clear and evolving steadily but has yet to produce a burning platform for change. Many industrial companies find themselves in this situation.
Large manufacturers, for instance, have long used technologies such as robotics to automate and optimize the production process. But the industrial application of data and analytics is evolving into a new basis of competition. Companies are using advanced analytics and predictive models to improve everything from supply chain management to maintenance and service. Implementing a new digital infrastructure requires an entirely new set of foundational capabilities, particularly around sensors and analytics used to collect and interpret relevant information across the company.
For one global auto company, starting from scratch meant that it was unburdened by a tangle of legacy tech infrastructure.
