Guest post written by Didier Bonnet
Didier Bonnet is Senior VP and Global Practice Leader at Capgemini Consulting.
Over the past few years, Nike has reaped significant business benefits from embracing digital technologies. Online customers can order personalized shoes in virtually any color or style. Digital tools make product design and manufacturing easier, cheaper and more flexible. Social media makes Nike an integral part of the conversation around major sports or events. Nike’s digital products allow runners to track their workouts, share performance online, and even receive customized advice from coaches.
But it wasn’t until 2010 that Nike started to realize the true potential of these fast moving technologies. The company created a business unit called Nike Digital Sport that, by linking all its digital efforts together, would create a singular customer experience that reflects, and even shapes, rapidly-evolving consumer preferences. Teams of marketers, designers and IT people work together to develop digital innovations under the Nike+ banner. Product designers test concepts through social media, while digital designs make sales and marketing easier in the physical world. Analysts mine mountains of data to get ever closer to customers. No longer just selling products, Nike is becoming part of customers’ lives.
Nike’s story is a story of digital transformation, and it is not an isolated tale. In industries from mining to hospitality to finance, smart executives are waking up to the opportunities provided by fast-moving digital technologies like social media, mobility and analytics. They are leading their companies through a process of digital transformation – using technologies to radically improve the performance or reach of their enterprises. And they are reaping the benefits. Through advanced analytics, mobility, cloud, robots, smart sensors and a host of other advances, technology is reaching into every corner of the business world – every industry, company, process, decision, job – and bringing deep changes that create a new playing field with new rules and new winners and losers.
Our research with the MIT Center for Digital Business – examining more than 400 large mainstream companies around the globe – found that companies that are mastering these changes, the digital leaders, enjoy a significant advantage. Our analysis found that they are 26% more profitable than their average industry competitors and enjoy a 12% higher market valuation. They generate 9% more revenue with their existing physical capacity and drive more efficiency in their existing products and processes.
Our research has identified the DNA of digital transformation to show how these companies have risen to become digital leaders. What they have done, though not easy, can be adopted by any company willing to follow a similar path. Becoming a digital leader requires more than sheer digital investment. It also requires building leadership capabilities to envision and drive transformation. In order to harness technology’s disruptive power, an organization needs to excel along two dimensions: it must have high digital intensity – astute investments in adopting new ways of doing business digitally – and also exhibit high leadership intensity – the capability to move the company forward in a coordinated and efficient way to deliver the vision.
Digital intensity: making strategic choices about where to invest
Digital intensity is adopting new ways of working digitally. Digital leaders are using technologies to change the way they do business – their customer engagements, internal operations, and even business models. Digital leaders identify early where the company should excel now, based on its existing capabilities and strategic assets, while building a clear transformation roadmap. With a wide array of digital technologies maturing at the same time – mobile, social, cloud, sensors, analytics – the most common pitfall is to allow the technology to drive organizational change. Digital leaders do the reverse.
The world’s largest gaming company, Caesars Entertainment, extended its powerful customer loyalty program to create a valuable mobile experience. In addition to offering mobile check-in and concierge services, Caesars can send customers personalized mobile coupons in a win/win arrangement: customers save money while Caesars moves unsold tickets and restaurant capacity. In other companies, digital intensity is less apparent to customers. Codelco, the world’s leading copper mining company, is rapidly automating its labor-intensive mines using computer controls, automated coordination and even driverless trucks. It is creating an environment in which miners will do highly skilled tasks, but no miner will ever need to take the risk of working underground.
While the changes possible through digital intensity are impressive, they are not enough. Companies that excel in digital intensity drive more revenue through their physical assets (such as people and facilities) than other firms, but they are no more profitable. Like Nike, leaders in digital intensity find they need to invest in another type of capability.
Leadership intensity: how to drive performance?
Leadership intensity is the capability to move the company forward in a coordinated and efficient way. This includes the vision to shape a new future, governance and engagement to steer the course, and IT/business relationships to implement technology-based change. Our research shows that digital leaders do all of these three managerial activities extremely well.
In 2012, Starbucks, already a leader in digital customer experience, hired Adam Brotman, its first Chief Digital Officer reporting to the CEO, to coordinate digital activities across the company. According to Brotman, “[Digital] has been an essential part of how we build our brand and connect with our customers...there’s been such a seismic shift that we needed to pull it all together and make it a priority.” Etisalat, a communication company based in the Middle East, established a Nike-style digital unit to drive new capabilities, efficiencies and growth across existing and new lines of business. Even public sector organizations have found the need for strong vision and coordination. In 2011, New York City appointed a Chief Digital Officer, Rachel Haot, with the vision of making New York “the world’s leading digital city.” Haot’s task includes the implementation of the vision through a digital roadmap which encompasses a stronger engagement with citizens on social media, a more transparent government and stronger ties with the tech community.
When it works, leadership intensity reduces waste and can help the company move in the right digital direction. When it doesn’t, it can sometimes prevent the company from moving at all. That’s why companies that excel at leadership intensity but not digital intensity have higher profit margins than their competitors, but their physical assets do not produce any more revenue than other firms. Being good at leadership is only helpful if the company starts to invest in the new capabilities that digital technology can bring.
Gaining the digital advantage
Neither dimension – technology investment or leadership - is enough on its own. Each is associated with different types of performance. By building capabilities in both dimensions, digital leaders achieve performance that is much greater than the sum of the parts. This is the “digital advantage.” Digital transformation is causing a tectonic shift in how companies are structured and led, and how they perform and compete. The data are clear: digitization is increasing the pace of change throughout the economy, even in sleepy mainstream industries. Competitive advantage is becoming more fleeting, leaders are pulling away from laggards, and “winner-take-all” dynamics are becoming more common. These shifts are both broad and deep, and they’re just getting underway. The coming years will witness digitally-driven changes in the business world that make everything that’s happened so far look like a prelude.
