Strategy, not Technology, Drives Digital Transformation

Digital success isn’t all about technology: The Digital Business Global Executive Study and Research Project by MIT Sloan Management Review and Deloitte identifies strategy as the key driver in the digital arena. Companies that avoid risk-taking are unlikely to thrive and likely to lose talent, as employees across all age groups want to work for businesses committed to digital progress.

MIT Sloan Management Review and Deloitte’s global study of digital business found that maturing digital businesses are focused on integrating digital technologies, such as social, mobile, analytics and cloud, in the service of transforming how their businesses work. Less-mature digital businesses are focused on solving discrete business problems with individual digital technologies.

The ability to digitally reimagine the business is determined in large part by a clear digital strategy supported by leaders who foster a culture able to change and invent the new. While these insights are consistent with prior technology evolutions, what is unique to digital transformation is that risk taking is becoming a cultural norm as more digitally advanced companies seek new levels of competitive advantage. Equally important, employees across all age groups want to work for businesses that are deeply committed to digital progress. Company leaders need to bear this in mind in order to attract and retain the best talent.

The following are highlights of our findings:

Digital strategy drives digital maturity. Only 15% of respondents from companies at the early stages of what we call digital maturity — an organization where digital has transformed processes, talent engagement and business models — say that their organizations have a clear and coherent digital strategy. Among the digitally maturing, more than 80% do.

The power of a digital transformation strategy lies in its scope and objectives. Less digitally mature organizations tend to focus on individual technologies and have strategies that are decidedly operational in focus. Digital strategies in the most mature organizations are developed with an eye on transforming the business.

Maturing digital organizations build skills to realize the strategy. Digitally maturing organizations are four times more likely to provide employees with needed skills than are organizations at lower ends of the spectrum. Consistent with our overall findings, the ability to conceptualize how digital technologies can impact the business is a skill lacking in many companies at the early stages of digital maturity.

Employees want to work for digital leaders. Across age groups from 22 to 60, the vast majority of respondents want to work for digitally enabled organizations. Employees will be on the lookout for the best digital opportunities, and businesses will have to continually up their digital game to retain and attract them.

Taking risks becomes a cultural norm. Digitally maturing organizations are more comfortable taking risks than their less digitally mature peers. To make their organizations less risk averse, business leaders have to embrace failure as a prerequisite for success. They must also address the likelihood that employees may be just as risk averse as their managers and will need support to become bolder.

The digital agenda is led from the top. Maturing organizations are nearly twice as likely as less digitally mature entities to have a single person or group leading the effort. In addition, employees in digitally maturing organizations are highly confident in their leaders’ digital fluency. Digital fluency, however, doesn’t demand mastery of the technologies. Instead, it requires the ability to articulate the value of digital technologies to the organization’s future.

Digital Transformation Isn’t Really About Technology

One wouldn’t expect that changing the size of tables in an employee cafeteria could be emblematic of the digital transformation of a business. But consider this example: The tables in question were in the offices of a large, online travel company working with Humanyze, a people-analytics company headquartered in Boston that is a spinoff of the MIT Media Lab. Humanyze integrates wearables, sensors, digital data and analytics to identify who talks to whom, where they spend time and how they talk to each other. The analysis identifies patterns of collaboration that correlate with high employee productivity.

Humanyze analyzed the travel company’s workforce and discovered that people eating lunch together shared important insights that made them more productive. In addition, the analysis showed that productivity went up based on the number of people at the same table. At the company being analyzed, Humanyze found that employees typically lunched with either four or 12 people. A quick inspection of the cafeteria solved the puzzle — all the tables were for either four or 12 people. The integration of digital technologies pointed the way to increasing table sizes, which had a direct and measurable impact on employees’ ability to produce.

The tale of the tables is a powerful example of a key finding in this year’s MIT Sloan Management Review and Deloitte digital business study: The strength of digital technologies — social, mobile, analytics and cloud — doesn’t lie in the technologies individually. Instead, it stems from how companies integrate them to transform their businesses and how they work.

Another key finding: What separates digital lea­ders from the rest is a clear digital strategy com­bined with a culture and leadership poised to drive the transformation. The history of technological ad­vance in business is littered with examples of companies focusing on technologies without in­vesting in organizational capabilities that ensure their impact. In many companies, the failed imple­mentation of enterprise resource planning and previous generations of knowledge management systems are classic examples of expectations falling short because organizations didn’t change mindsets and processes or build cultures that fostered change. Our report last year on social business found similar shortcomings standing in the way of technology reaching its potential.

Our findings this year are based on an assessment of digital business maturity and how maturing organizations differ from others. To assess maturity, we asked respondents to “imagine an ideal organization trans­formed by digital technologies and capabilities that improve processes, engage talent across the organization and drive new value-generating business models.” We then asked them to rate their company against that ideal on a scale of 1 to 10. Three groups emerged: “early” (26%), “developing” (45%) and “maturing” (29%).

Although we found some differences in technology use between different levels of maturity, we found that as organizations mature, they develop the four technologies (social, mobile, analytics and cloud) in near equal measure. The greatest differences between levels of maturity lie in the business aspects of the organization. Digitally maturing companies, for example, are more than five times more likely to have a clear digital strategy than are companies in early stages. Digitally maturing organizations are also much more likely to have collaborative cultures that encourage risk taking.

Several obstacles stand in the way of digital maturity; lack of strategy and competing priorities lead the list of speed bumps. Lack of a digital strategy is the biggest barrier to digital maturity for companies in the early stages, according to more than 50% of respondents from early-stage organizations. As companies move up the maturity curve, competing priorities and concerns over digital security become the primary obstacles. (See Figure 2.)

Across the board, respondents agree that the digital age is upon us: Fully 76% of respondents say that digital technologies are important to their organizations today, and 92% say they will be important three years from now. In this year’s report, which is based on a survey of more than 4,800 executives and managers as well as interviews with business and thought leaders, we look specifically at the emerging contours of digital business and how companies are moving forward with their digital transformations.

About the Authors: Gerald C. Kane is a professor of information systems and McKiernan Family Faculty Fellow at the Carroll School of Management at Boston College in Chestnut Hill, Massachusetts. He tweets at @profkane. Doug Palmer, Anh Nguyen Phillips, David Kiron and Natasha Buckley were co-authors.