• Digital
    Transformation
    sh
    sh

    How digital-ready CIOs are reaping higher gross margins.
  • Digital
    Transformation

    How digital-ready CIOs are reaping higher gross margins.


What transformation digital leaders do that laggards don't

22 February 2018

Technology disruption is the new normal. Even as firms come to grips with cloud computing, social media, mobility and big data, they are now faced with new challenges: artificial intelligence (AI) and machine learning, blockchain, IoT (internet of things), and Industry 4.0.

 

Companies with nothing more than a well-designed App, plugged into an eco-system, are disrupting entire industries – Uber and Airbnb have become canonical examples of the power of digital disruption.

 

The burden of understanding this disruption and building a strategy that ensures the company becomes one of the disruptors and not disrupted falls on the C-suite, specifically the CIO (chief information officer).

 

Digital-ready CIOs can take the lead in articulating a vision of how their business needs to develop and the role that new technologies will play in that evolution.  To do this, the CIO must have a strong grasp of their company’s business model — its products and services and how these get to market.1

 

Here are some studies which show how digital transformation results in better bottom line.

  • A Harvard Business School (HBS) and Keystone Strategy study shows that a divide is fast forming between organisations that have accelerated their digital transformations and those that are still figuring out a working digital model. The study notes that firms that embrace digital technology, saw an average 55 per cent growth in gross margins over a three-year period (growth that will echo down through earnings, net income and profits), while companies that weren’t sufficiently prepared to embrace digital technology had substantially lower margin growth (just 37 per cent) during the same period. The report also pointed out that digital transformation leaders outstrip laggards in three-year average earnings 16 per cent to 11 per cent. And in three-year average net income, leaders have the advantage 11 per cent to seven per cent.2
  • SAP’s 2017 study on digital transformation across a wide cross-section of industries found that around 80 per cent of companies that have undergone digital transformation efforts reported increased profitability, compared to 53 per cent of other companies.3

 

A popular misconception is that companies that are successful in digital transformation have higher IT budgets. Empirical data shows otherwise. The Harvard4 study notes that the highest performing companies have technology budgets that are on par with digital laggards, with average IT spending as a percentage of revenue at 3.5 per cent, compared to 3.2 per cent for their counterparts.

 

Digital transformation can be undertaken any time but usually works best in companies which are already doing reasonably well but realise that changes in technologies can threaten their business model by allowing challengers to disrupt their business model.

 

The cautionary tale to keep in mind is that digital transformation is not just about slapping on a bunch of technologies into the existing technological stack.  Digital transformation, to be successful, has to be about becoming customer-centric and obsessed to serve their every need.

 

This process involves wholesale transformation of the workforce with new skill-sets acquisition, reporting structure and a new approach to the way things are done. This is harder that it may seem apparent. The challenge is to overcome the, “If it ain’t broke, don’t fix it”, impulse that can not only affect workers but the top management as well.

 

The 2017 SAP study noted that more than 80 per cent of companies say digital transformation is important to their survival over the next five years and yet only 3 per cent have gone enterprise-wide with their digital transformation efforts.

 

Only those firms that are prepared to bring about total transformation, changing everything from operational processes to how the organisation is structured will succeed. There is a need to ensure retraining of the existing workforce and creation of new digital roles. The digital transformation needs to be extended to partner eco-systems, which would include suppliers and even customers.

 

A study done by Deloitte-MIT found that 70 per cent of digital maturing businesses use cross-functional teams to organise and implement digital business priorities, compared to 28 per cent for early-stage companies.1

 

If you have not started your digital transformation or even if you are enjoying success in your journey, StarHub would like to talk to you. We will be happy to know your challenges as well as successes and help you in your digital journey.

 

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