Digital Transformation: Obsolete Concept or Rare Feat?

Every company seemingly is digitally transforming, so does the term have any real meaning? Only a small slice of companies are doing the term justice.
David McCannFebruary 20, 2020

Does the phrase “digital transformation” mean anything anymore? If it ever did, it probably doesn’t now. If every company is digitally transforming, saying that a company is undergoing digital transformation doesn’t impart information.

“It’s basically lost its luster,” acknowledges David Clarke, global chief experience officer at PricewaterhouseCoopers. “It’s really just a phrase that’s being applied to ‘business as usual.’ ”

But wait. Forget “transformation” for a moment. Is there even a valid meaning of “digital” now? Because how much of what’s meaningful in today’s business technology arena is not digital?

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“It’s the same challenge we had a few years ago with marketing,” Clarke avers. “What is ‘marketing’ when everything is marketing? Digital is now a commitment. It’s just our modern way of operating. Anything that shouldn’t be digital should probably go away.”

Yet a new PwC report, “2020 Global Digital IQ: Payback ahead. Take charge of your business,” actually suggests that many companies thought the payback they were looking for from earlier investments in digital technologies would have more robustly materialized by now.

PwC surveyed 2,380 executives around the world. They were asked to rate their organizations’ “digital IQ” on a 1-100 scale, with 100 being the highest intelligence. The average response was 55.8. It could be viewed as a rather shocking result, in that when PwC asked executives the same question in 2015 and 2018, the average responses were 71.8 and 65.6, respectively.

You’d think companies that have been engaged in “digital transformation” for years would be getting better at it, wouldn’t you?

“When we really started to poke and prod into this, we found out that digital transformation [initiatives] haven’t translated into payback,” says Clarke. “Companies expected a certain return in a certain amount of time. So this is a wake-up call. Digital is bigger and broader than companies imagined, and the level of confidence in mastering it is slipping.”

Not that there hasn’t been any payback; just not nearly as much as had been expected.

A vast majority (91%) of executives expected upon implementing digital initiatives that they would “create better customer experiences.” As it turns out, though, only 71% say that expectation has been realized.

In fact, the disappointment in the effectiveness of digitalization applies across the board — for improved decision-making (90% expected that result; 66% say it’s happened), increased profits (80% vs. 45%), and improved talent retention and recruitment (75% vs. 49%).

A particularly alarming survey result is that only 25% of respondents said they believe digital transformation will “never” be completed. What these transformational efforts aim to do is maximize technology’s ability to raise up the business and set it on a new, more productive course. But technology development isn’t going to just come to a halt at some point, of course. That any executive would expect the transformation imperative to cease in the future is puzzling.

“The 25% [figure] is a bit shocking, because we’re at a point where there’s no real end anymore to how we’ll have to change,” Clarke says. “The question really is, how aggressively are we willing to change? How fast are we willing to change our operating models or how we engage our customers?”

So, far from “digital transformation” being an archaic concept, the phrase aptly describes a shift that’s taken place at a very small slice of companies.

PwC identified just 5% of those in the large survey sample as what it calls “Transcenders.” They “consistently generate payback and set significant value on their digital investments in every area we assess, from growth and profits to innovation, customer, experience, people, and more,” PwC said in its survey report.

The transcenders set themselves apart in four ways.

1. Mandate change. Don’t just talk about it.

“If it ain’t broke, don’t fix it” is bad advice, PwC notes.

“Most executives know that if they refuse to adapt, they’ll end up among the ranks of payphone providers, VCR manufacturers, and 8-track aficionados,” the report says. “Yet many leaders end up playing it safe when it comes to how their organizations and people work.”

Mandating change involves more than breaking down barriers and silos, PwC advises executives. “Go beyond encouraging collaboration and idea generation. Lead the charge. Get everyone — in all areas of the business — involved, strategizing, and driving.”

While 91% of transcenders encourage idea generation from all staff levels, only 72% of other companies do. And more transcenders mandate collaboration among departments (84% vs. 65%).

Transformation requires a company to do a deep dive into which processes, products, and technologies are working, and which ones need to change. “This will make some people uncomfortable, so get them involved early on.”

2. Invest like you mean it.

Simply put, transcendent companies invest in what’s next, not just what’s now.

Transcenders invest about 33% more than others in digital initiatives. But it’s purposeful investment. They don’t prioritize programs that simply save time or streamline a few processes. Rather, they’re guided by a focus on the technology and processes that will help their people innovate for the long term.

“Not every company can instantly boost their investment,” PwC says. “But a combination of consistent invention and long-haul expectations pays off.” The payoff for Transcenders: 17% higher profit margin growth.

3. Make people your superpower.

Most traditional training focuses on amassing knowledge rather than developing skills or understanding. But it’s meaningless if it doesn’t stick, drive business, and motivate people, PwC notes.

“Current technologies and job roles may become obsolete, but if you focus on helping your employees think and work more agilely, they can add value to the organization as things shift,” the report says.

What’s needed today is consistent upskilling, Clarke stresses. “This 5% of companies are not dabbling in training,” he says. “They’re doing very comprehensive training that’s very different from the past. It’s not intermittent. It’s a long-term investment in upskilling.”

Companies that commit to a higher level of training and invest in it at a high level are better able to attract and retain talent, he adds.

4. Build a resilient culture that doesn’t fear extinction.

This one might seem like a tall order, considering how many companies that populated the S&P 500 20 years ago no longer exist. If anything the pace of that change might pick up speed, given the fast changes in technologies and markets.

But without a resilient mindset, successful digital transformation is a long shot. “Resilience requires persistence and the vision to navigate through headspinning change as it comes,” the report says.

“Accept the fact that digital transformation doesn’t have a start and end date or go project by project — 62% of Transcenders embrace that spirit, and it shows. If you do the same, you’ll be more likely to reframe your challenges, arm your people with the tools they need to adapt and innovate, and develop ways to navigate through and create opportunities from ongoing digital shifts.”