I’m using all my persuasion to get my son to eat his vegetables. He’s not buying it. It’s 8 p.m. on a cold January night in New England. He sits in his highchair in our kitchen without a care in the world. Almost a year into the pandemic, I’m just about ready to give up when I get a notification from my banking app. It says, “Review your finances with Liza.”
“Sounds like a great idea. I want to review my finances,” I think to myself. I’ll take anything other than a game of eat-your-veggies with my son. Of course, at this point, I haven’t even been to the bank in a year! For the next 10 minutes — an eternity in the age of decreasing attention spans — I’m in conversation with Liza, a virtual assistant. I didn’t type a single letter. Through completely click-based prompts, Liza seamlessly walks me through my finances.
An “Insights” button pops up. As a researcher, of course I’m tempted by insights. So, I click. And it was actually insightful. At the end of it, I felt as if I had reviewed my 2020 finances with my advisor.
As a person who researches technology, I was impressed by this experience. For years we’ve explored the relationship between tech adoption and business success. The pandemic accelerated the need for businesses to operate virtually. I wondered, like this bank, how have other companies adopted innovation?
Changes forced on companies by COVID-19
In 2019, our research on Future Systems found that technology Leaders were growing at two times the rate of technology Laggards. Leaders are companies in the top 10% of the sample, while Laggards are the companies in the bottom 25% of the sample in terms of Systems Strength — a measure of technology prowess composed of tech adoption, tech penetration across the firm, and cultural readiness for tech-enabled innovation.
Much, of course, has changed in the business landscape in the past 18 months.
The COVID-19 pandemic created unprecedented new pressures on businesses. It’s not just banks that had to adapt to the pandemic. All business processes that used to happen in person suddenly had to be done virtually.
So, we decided to repeat the study in 2021, as the world was still recovering from the effects of COVID-19. We found that Leaders have extended their advantage and are growing now at five times the rate of Laggards.
Has the pandemic created a winner-take-all environment? Are there any companies that turned this crisis into an opportunity? It turns out some companies did channel COVID-19 for change. These companies, which we call Leapfroggers, offer a model for others.
Leapfroggers: A new hope, a new model
COVID-19 has forced all companies to virtualize as many business processes as possible. The mandate is simple: build new, cloud-native applications and/or modernize their IT estate in the cloud — or fall behind. Leapfroggers — companies that had the infrastructure in place and accelerated tech-enabled innovation during the pandemic — offer new hope to companies that are not technology Leaders yet. About 18% of the sample in our research were Leapfroggers.
How Leapfroggers succeed
They are building core Systems Strength in the cloud. This shouldn’t be surprising. We know that companies that build Systems Strength — a composite score incorporating tech adoption, spreading innovation technology across silos in their enterprise, and creating the right organizational culture and structure for tech-enabled innovation — are crucial for scaling tech innovation. For example, the bank I mentioned above wouldn’t have been able to quickly develop a customer-centric, AI-embedded app without some previous work. If the bank hadn’t already re-platformed to the cloud, democratized technology across the organization, and had the right culture and mindset to take advantage of technology innovation, they couldn’t have moved that fast.
They are flipping the IT budget allocation toward innovation. We’ve been tracking IT budgets since 2017. We’ve known that Leaders have gradually been allocating more of their budget toward innovation, so we asked this explicitly in our latest survey.
This is where things get interesting. Today, about 70% of IT budgets are allocated for operations or maintenance, with the rest going towards innovation and other discretionary spending.
Well, Leapfroggers are accelerating this flipping of the IT budget allocation in strong favor of innovation. We call this the Flip Size. This is the indicator that matters. What we discovered in 2019 is that Systems Strength alone is a good predictor of the ability to scale innovation and performance. But during a crisis, such as the pandemic, you not only need a level of Systems Strength but, more importantly, you need an innovation mindset to focus on new products and services, perhaps enter new markets, redesign business processes and ecosystems strategies.
Essentially, this is about focusing on innovation key performance indicators (KPIs). As organizations migrate their IT estate to the cloud, they can free up capital to invest in innovation activities, such as automating software development cycles and building capabilities to deploy new technologies. The IT budget doesn’t increase, and maintenance and operations are not ignored but rather become more cost-effective because of the cloud.
Using this mechanism, Leapfroggers were able to grow at a rate even higher than that of Leaders during 2020. Both Systems Strength and Flip Size were necessary to realize the high growth rate during the pandemic. Notice that if your Systems Strength is below the 30th percentile, you don’t get the same bump in performance even with a high Flip Size. Based on our research and a company’s current levels of Systems Strengths and Flip Size, our study provides three strategic prescriptions:
- If you have high Systems Strength, and high Flip Size, you should continue to increase both and reach beyond traditional KPIs. For example, two times more Leapfroggers are accelerating funding for employee wellbeing and equality.
- If you have low Systems Strength, you should focus on building Systems Strength regardless of the Flip Size. This can mean working on democratizing technology across the organization. For instance, Leapfroggers target two times more business processes than Laggards.
- If you have high Systems Strength, but low Flip Size, focus on flipping the IT budget allocation toward innovation. For instance, scaling new innovations was the No. 1 priority for Leapfroggers during the pandemic.
Leapfrogging into the future
Now is a good time to ask: Is your company a Leapfrogger? Take a closer look at your organization. Which of the scenarios apply best to you? Maybe you already have the systems capable of scaling innovation but aren’t properly using them. We have built a diagnostic tool to figure it out for you. Get in touch with us to find out how your company can leapfrog into the future.