YOUR LEGACY
OR YOUR LEGEND?
A CEO’s guide to getting the most out of new technologies
January 21, 2020
RESEARCH REPORT
In brief
In brief
- Today, all companies are tech companies; all CEOs are tech CEOs. The technology path you choose now will determine, more decisively than ever, your company’s financial success.
- Our research, based on the largest survey of enterprise systems to date, shows that most CEOs are not getting full value out of their tech investments.
- It also identifies what companies that are getting full value did at five key enterprise innovation decision points: Progress, Adaptation, Timing, Human+machine workforce, and Strategy (PATHS).
- Knowing what choices to make at these junctures will help leaders establish enterprise innovation models that power Future Systems—systems which are boundaryless, adaptable and radically human.
Right tech, wrong application? Are your tech investments failing to create real value?
Today, all companies are technology companies. Every business, in every industry, is increasingly turning to technology-based innovation to disrupt the competitive status quo.
But according to our research—the largest study of enterprise systems to date—the vast majority of companies are failing to achieve full value from their investments in technology.
What’s happening? Most companies are making sub-optimal decisions about how to direct their tech investments. As these less-than-ideal choices add up, they create what we call the “innovation achievement gap.” That’s the difference between the potential and realized value of their efforts.
Compelled to move rapidly, C-level executives are putting business unit, product or geography heads in charge of the tech investment decisions affecting their areas. It works well in the short run. But it results in several (or many) fully rooted, highly customized systems operating in isolated pockets of the organization.
These systems cannot work with each other, right when the nature of technology innovation is increasingly dependent on platforms, ecosystems and large varieties of connected data to fuel AI systems.
Information that might spark enterprise innovation isn’t shared. Even highly successful pilots cannot be scaled across businesses. Over time, it only gets more difficult to update and modify these systems to perform as they should, because of how customized they have become.
If they stay this course, CEOs run a real risk of failing. They need to get on a path to Future Systems. It’s a radically different approach—and an innovation and value multiplier.
| What are Future Systems? | Key Points |
|---|---|
| Boundaryless |
Boundaryless systems blur boundaries between:
|
| Adaptable |
Adaptable systems provide scalability and strategic agility:
|
| Radically Human |
Future Systems can be radically human:
|
Leaving the rest in the dust:
Leaders vs. Laggards and Middlers
We set out to determine what an optimal tech investment path should look like. First, we surveyed more than 8,300 companies, identifying those that were getting the most out of their technology investments (“Leaders”) and those that weren’t.
- LEADERS: Representing just 10 percent of the overall group, these companies grow revenue at more than two times the rate of those in the bottom 25 percent of the study group (the Laggards).
- LAGGARDS: In 2018, this group left 15 percent of their annual revenue on the table. If both Leaders and Laggards continue their current trajectories, the cost will be 46 percent of Laggards’ annual revenue in 2023.
- MIDDLERS: This group—the middle 20 percent of the companies we studied; those in the 40th to 60th percentile—grow revenue at more than one and-a-half times the rate of Laggards. But Leaders still grow more than 50% faster than Middlers.
Introducing PATHS – your route to successful tech investments
Our research revealed the five key decision points CEOs reach when they’re investing in technology. Making the right choices in these areas is how Leaders establish effective innovation models and build Future Systems—and get the maximum value out of their efforts.
They are Progress, Adaptation, Timing, Human + machine workforce and Strategy (PATHS):
- Leaders pursue the action that will create a building block, one that will allow the organization to share and scale innovations repeatedly across business units and processes.
- Laggards most often choose easy fixes that create siloed systems. Sometimes, they fail to decide at all, letting the status quo prevail.
- Middlers tend to mix and match, which is also costly, even if it achieves “good-enough” results over the short term.
The difficult choice is often the best choice
| Decision Points | Sub-optimal and Optimal Solutions |
|---|---|
| Progress: How extensively/broadly should we apply new technology to evolve business processes across the enterprise? |
|
| Adaptation: How do we adapt our current IT investments to changing business needs? |
|
| Timing of Tech Adoption: How do we properly sequence and map our adoption of new technologies? |
|
| Human+machine workforce: How do we activate and enable the workforce to use and be augmented by technology? |
|
| Strategy: How can we intentionally manage the intersection of business strategy and technology strategy? |
|
PROGRESS:
How extensively do you plan to apply new technologies across the enterprise?
New technologies, including AI and cloud, open up almost limitless possibilities for transforming business processes by lowering prediction and computation costs.
Yet Laggards and even Middlers generally choose to apply them to just a few processes, usually in marketing and sales.
Even when companies create hubs and blur organizational silos, they don’t establish connections from the hubs to elsewhere. As a result, the company has no way to ‘transfer’ these innovations, meaning they don’t get as much value out of them.
- Leaders transform two times as many processes as Middlers and three times as many as Laggards.
- When considering each process, Leaders also ask what other processes might leverage the same technologies. They’re always looking at the broader implications of one investment.
ADAPTATION:
Can your current IT investments adapt to changing business needs?
Ensuring that IT systems can adapt and respond to changing market conditions seems like an obvious priority. However, in most companies, it’s not. Driven by security concerns, for example, Laggards may choose to patch a legacy system. While patching works in the moment, it treats a symptom rather than the underlying problem.
Lifting and shifting applications to the cloud— the choice of many Middlers—is better, but still sub-optimal. Migrating to the cloud reduces data storage and computation costs. But it doesn’t provide strategic agility.
- Eighty-three percent of Leaders in our study agreed that it is important to decouple data from legacy infrastructure, compared with 61 percent of Middlers, and just 37 percent of Laggards.
- Leaders see the cloud not simply as a data center. They see it as a catalyst for innovation across silos and businesses.
TIMING:
What is your sequence, roadmap and timeline for the adoption of new technologies?
Laggards and Middlers take a wait-and-see attitude. That’s what we found when we asked the companies in our study about their adoption of 28 different technologies.
Most Laggards, for example, experiment with new technologies, but aren’t timing and sequencing them correctly.
Middlers might engage in experimentation and also double down on industry-specific, customized tech. Both options are sub-optimal: Failing to sequence tech adoption in the core decreases returns from technology investments. Doubling down on industry-specific tech locks companies into certain technologies. That inhibits their ability to pivot or combine technologies in the future.
Leaders adopt more new technologies than the rest, faster than the rest. And before they attempt to scale them, they put the systems in place that they need to capitalize on.
Consider SaaS, software-as-a-service through the cloud:
- About 20 percent of Leaders adopted SaaS 5 years ago, compared to 9 percent of Middlers and 8 percent of Laggards.
- Today, 90 percent of Leaders are confident of their expertise in SaaS, compared to 71 percent of Middlers and 29 percent of Laggards.
HUMAN+MACHINE WORKFORCE:
How will you enable your staff to be augmented by technology?
The most tempting choice for Laggards is to rely on time-tested, one-size-fits-all training regimens. That’s because they often believe that they can recruit already-trained professionals when new skills are required. But the reality is that skills now rapidly reach obsolescence, and job descriptions evolve faster than ever.
- Middlers prefer to match employees’ individual needs to the most appropriate training modules. But this approach does not explicitly address the need for employees to be able to work with advanced technologies of the future.
- Eighty-six percent of Leaders use experiential learning in combination with intelligent technologies such as AI, analytics and machine learning (ML) to predict and match worker training with required job skills and even rewrite job descriptions, compared to 60 percent of Middlers and 35 percent of Laggards.
- Leaders are actively working to use technologies to make work more engaging while simultaneously realizing efficiency gains. Critically, these activities strengthen their relationships with employees, too.
STRATEGY:
How will you actively align business strategy and IT strategy?
The decisions about progress, adaptation, timing and the human+machine workforce converge in the fifth and final decision point: Strategy. How a company weaves its tech investments together will ultimately determine how prepared it is to pre-empt disruption and seize opportunities.
When Laggards allow business units to address their specific pain points (the first option), they are effectively democratizing IT. This approach allows the units to move swiftly. But it leads to “shadow IT” managed by people outside of the IT department. As a result, systems can’t operate with each other, inhibiting strategic agility.
The same goes for concentrating on entering adjacent markets or exploring new business models. The problem is that disruption can come from anywhere, not necessarily the markets that a company explores.
- Leaders embrace a tech strategy built on systems that are boundaryless, adaptable and radically human.
- This way, they position their organizations to become increasingly agile, and able to innovate at scale within the enterprise.
- They also manage technology investments and track their value, even for areas that are relatively new. Ninety-four percent of Leaders track the value of AI-based automation, versus 76 percent of Middlers and only 47 percent of Laggards.
Getting started with Future Systems: Three essential steps
Not yet on the PATHS to enterprise innovation? Here’s how to set yourself up for success so you’ll be ready to face decisions at every juncture:
Assess your company’s current position
Identify the technology investments that are specific to processes, geographies and functions. Measure their diminishing returns and opportunity costs.
Reconsider your
sunk tech investments
Which can be consolidated or applied across other parts of the business to drive efficiencies and improve returns? Take this step along with your IT leads (including your Chief Digital Officer, Chief Information Officer, Chief Analytics Officer and, if you already have one, your Chief AI Officer). Also align around a set of KPIs to track progress.
Design a new
Future Systems strategy
One that is based on enterprise-wide needs and can adapt to the changing nature of employee, partner and customer habits. Demonstrate the financial case in terms of contribution to margin and revenue growth. Revisit the PATHS framework as you face each new tech investment decision. Remember that it isn’t enough to make reasonable decisions. Nor is it enough to be aligned with your IT leaders on decisions. There’s a real danger that you will all be agreeing on a seemingly justifiable, but suboptimal, choice.
Leaders have a head start and they won’t be standing still
Companies that wait to build future systems will find it increasingly difficult to catch up. Leaders enjoy a considerable head start, and they will not be standing still. The systems they have in place are specifically designed not only to accommodate innovations in technology and its application, but also to create those innovations and to scale them across the enterprise. Yours should too.
Our Future Systems Diagnostic, based on 1.6 million data points from more than 8,300 companies and driven by econometric and decision tree models, can recommend a custom plan for guiding companies in their evolution for future systems.
About the Research
Our study involved engaging with C-level executives at more than 8,300 companies across 20 industries in 20 countries. Half of these executives were in IT roles, and half were in non-IT roles; 885 were CEOs.
We collected data on the companies’ adoption of certain technologies, those technologies’ penetration (the extent to which they were in use through the company), and the culture changes (for example, changes in mindset around experimentation and collaboration) that the companies made as they adopted those technologies. We then scored the companies on those three factors, calling the top 10 percent “Leaders,” and the bottom 25 percent “Laggards.” The companies that fell between the 40th and 60th percentile became our “Middlers.”
Just 8 percent of our CEO respondents represented companies in the Leaders group.
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