It's time somebody said it out loud: Despite spending US$1 trillion on digital transformation last year—that's roughly the size of the Mexican economy—the needle isn't moving all that much. I’m talking about the one measuring financial returns, which is only showing incremental improvements in growth and profitability. While leaders may be nonplussed by initial results, they are not putting the kibosh on spending. On the contrary: IDC predicts this market will double by 2019 to US$2.1 trillion.* Today’s businesses are full steam ahead with plans to use digital to drive innovation and customer acquisition, and to bring radical improvements in operations.
So the question is—how do businesses make these investments pay off, sooner, and in a big way? The “how” starts with a major league “rethink.” It’s not as arduous as you may think. Leaders simply need to get bolder: They must drive digital innovations in order to unlock trapped value—in their core businesses and beyond.
Take it from a few who are getting it right (see Figure 1). These are the businesses that have learned to master digital so that it drives revenue growth and increased investor confidence.Figure 1: Digital versus financial performance
Source: Omar Abbosh and Paul Nunes, Achieving Digital Performance: Time to Rotate to the New (Accenture, 2016), 3. Source: Accenture analysis
Our researchers estimate that the future value of the group we call digital leaders (who are good at digital but not quite making it pay off yet), is 48 percent lower, relative to the digital high performers. This is in part because the high performers are more adept at identifying new growth opportunities.
Let’s take a closer look at what “good” looks like. Consider Singtel, the largest telecommunications company in Singapore and in Southeast Asia by market capitalization. It transformed its core business by focusing on data and making network, technology and spectrum investments. It also offers differentiated content. This allowed Singtel to uncover new revenue streams beyond telecom services by leveraging its core assets. It now earns revenue from digital marketing, geoanalytics, cybersecurity and video streaming, thanks to anonymized and aggregated telecom data and billing relationships.
Four steps to getting the most out of digital
Based on our research, we’ve uncovered some common traits among the digital high performers. Here are four steps businesses can take to get the most from their digital transformations:
Get completely immersed in new ecosystems. Don’t go it alone. Businesses stand to reap big benefits from collaborating with an ecosystem of partners. This is where innovation comes from. Take Home Depot. Since 2014, the company has collaborated with Quirky, a New York-based platform for idea crowdsourcing, to launch more than 60 networked home devices controlled via an integrated app. In 2015, Home Depot further partnered with the Georgia Institute of Technology to tap into a network of more than 40 on-campus start-ups.
Unlock opportunities to commercialize innovative ideas. Open new revenue streams by using existing digital assets (e.g., customer data, proprietary algorithms, product features, etc.) in new ways. Australian telecom firm Telstra is using its telco capabilities to turn to eHealth. In 2015, Telstra Health introduced ReadyCare, a telemedicine service that connects Australians by phone or video with registered doctors, 24 hours a day. Telstra Health seeks to hit AU$1 billion in annual revenues (US$800 million) by 2020.
Move beyond purely transactional customer relationships. Know thy customers and engage them through omni-channel programs and personalization techniques (for many organizations, the offline channels are still critical to building customer loyalty). In 2014, L'Oréal launched an interactive app called Makeup Genius, which uses augmented reality to convert cameras on mobile devices into mirrors to “test drive” more than 300 L’Oréal cosmetics and try on makeup combinations used in fashion magazines and on the red carpet.
Embrace cultural and structural shifts. Get beyond digitizing operations and improving the digital skills of employees, and truly embed innovation into the organization’s DNA. For instance, Nike has connected with existing technology providers to promote Nike apps as a way to encourage customers to train more, for which Nike sportswear is pitched as an indispensable resource. The upshot: Nike is positioning itself as a data, technology and services company, as evidenced by the appointment of a chief digital officer in February 2016.
Racking up ROI on digital transformation takes courage and persistence. Leaders must constantly track, report, revamp and follow through. They must also be willing to accept the risk of failure. These are the traits that make the difference between the organizations that get stuck on the cusp of greatness and those that set the examples for others to follow.
* Source: International Data Corporation (IDC), Worldwide Semiannual Digital Transformation Spending Guide (Framingham, MA, 2016).
About the research: To help companies better understand the relationship between digital investments and financial performance, Accenture created the Digital Performance Index (DPI). Based on the study of 343 leading global companies across eight industries, this index uses 117 detailed metrics to quantitatively assess a company’s level of digital investment and progress across four business functions—Digital Strategy, Digital Production & Delivery, Digital Customer Experience, and Digital Corporate Culture & Operations. The index results were then cross-referenced against each company’s score on Accenture’s High Performance Business (HPB) framework. The framework comprises five key performance components—Profitability, Growth, Positioning for the future, Longevity and Consistency—each measured with a set of equally weighted metric. Financial high performance corresponds with an HPB grading of B and above, suggesting that the company’s overall financial performance score is above 0.33 standard deviation from the industry peer set average. Further details can be found in our report on Achieving Digital Performance.