A HARVARD BUS I N E S S R E V I E W A N A LY TI C SERVICES REPO RT

ACCELERATING THE PACE

AND IMPACT OF DIGITAL
TRANSFORMATION
EXECUTIVE SUMMARY
Copyright © 2016 Harvard Business School Publishing.

in association with LEAN DIGITAL

SM
SPONSOR PERSPECTIVE

Can Digital Generate Significant Impact for More Than 21% of Enterprises?
After questioning 680 executives across functions and industries—from financial services
to manufacturing and technology—four crucial points have emerged on the impact of
digital technologies on global organizations.
1. Digital is a competitive weapon but its impact is 4. Leaders focus their efforts differently. Only half of
unevenly distributed. While optimistic about the future, respondents believe that their companies have an
only 21% of executives see significant results from digital enterprise-wide digital strategy, but digital leaders
transformation in their enterprises today. These leaders (77%) stand out. Only 40% of respondents say their
consider digital a key contributor to growth, and say companies use metrics to pinpoint interdependencies
that it plays a significant role in establishing a superior across organizational processes, but 71% of leaders
competitive position. do. And tenured employees remain the backbone of
change, as only 38% of companies say that they rely on
But why is success not more pervasive, and what can we
digital natives for their digital efforts—although leaders
learn from the leaders?
depend on them more.
2. The challenge isn’t technology prowess, budget, or
The design and implementation approaches respondents
access to extraordinary talent. The study indicates
use are not seen as very effective at overcoming legacy
that the biggest hurdles are the inability to experiment,
system and process challenges, but leaders are better
change management, legacy systems, a risk-averse
off. And while partners offer some help, leaders seem
culture, and organizational silos.
to find the right third parties to support them.
But leaders see things differently, as silos and an aversion
Against this backdrop, we question whether the key to
to risk are lower barriers. And crucially, an enterprise’s
digital success lies in technical acumen or something else.
business architecture—beyond the technology
component—seems to influence the results: 53% of Our experience shows that as large companies evolve they
organizations with strong alignment between customer are supported by four pillars. They (i) infuse adequate
expectations and their organization’s middle- and back- business domain expertise into the transformation program,
office functions/systems are achieving significant positive (ii) methodically focus on the end user’s journey through
business impact from digital, compared with 3% of those design-thinking or equivalent methods, and (iii) harness
with little alignment. Lean practices that enable end-to-end process design
beyond sales and marketing and into middle- and back-
3. The necessary leadership, skills, vision, and approach
office functions. This results in (iv) better digital technology
are often fragmented or immature. These qualities
and analytics choices.
don’t even appear to fully reside in the CIO’s organization,
the traditional home of enterprise technology and These pillars make digital work. We call this approach
business transformation. Indeed, only around a third of Lean DigitalSM.
respondents think that the IT organization can align digital
The findings from this research are essential reading for
interventions to business outcomes; design customer-
any business. To assess your organization’s ability to
focused solutions with, for example, design-thinking
generate impact from digital interventions and compare
approaches; use Lean to integrate middle- and back-
the results against your peers’, take the Lean Digital Ratio—
office functions and systems; and consistently act on
a companion to this study—at ratio.genpact.com.
insight from data.

The Genpact Research Institute, part of Genpact—Generating Impact

The Genpact Research Institute is part of GE-spinoff Genpact, a global leader in digitally-powered business process services.
www.genpact.com
ACCELERATING THE PACE
AND IMPACT OF DIGITAL
TRANSFORMATION
Despite steadily mounting investments in digital technologies, only about one-fifth of companies
report that digital technologies are playing a strong role in their ability to compete, according
to a Harvard Business Review Analytic Services global survey. But the study also found that the
nature and trajectory of digital transformation are on the cusp of significant change. Businesses
are moving away from digital technologies as ends in themselves and using them to fortify their
fundamental abilities to compete. They are turning to digital technologies to support new products
and business models, and revamping customer experiences by focusing on the quality of middle-
and back-office interactions to the same degree that they address web sites and the front end.

As the nature and trajectory of digital transformation change, the requisite skills and capabilities
are changing with them. The emphasis is no longer on technology knowledge, but on strategic and
interpersonal skills such as change management and the ability to communicate and collaborate
across enterprise silos. These skills are needed to drive widespread adoption of digitally relevant
capabilities including customer-focused problem solving and performance improvement approaches
such as Lean.

Business leaders expect that their digital efforts and capabilities will have significant impact: Within
the next two years, a significant majority of companies predict sizable performance improvements
from their use of digital technologies. And a small cadre of organizations are already far ahead
of the pack.

WHO IS LEADING THE PACK AND WHAT ARE THEIR HALLMARKS?

Respondents were asked to evaluate the impact of digital technologies on their organizations’
ability to achieve positive business outcomes. The survey found three distinct groups: digital
leaders (ranking the impact 8-10 on a 10-point scale), followers (5-7 on a 10-point scale), and
laggards (1-4 on a 10-point scale).

Digital leaders account for approximately 20 percent of businesses. One of their most distinctive
hallmarks is their strategic use of digital technologies to compete. Although 22 percent of companies
overall say digital technologies play a strong role in their competitive capabilities, 62 percent of
digital leaders believe they do. For example, 66 percent of leaders use digital technologies to a
great extent to support the launch of new products. Only 41 percent of followers and 15 percent of
laggards do the same. Digital leaders are also far more likely to use digital technologies to a great
extent to support new business models—65 percent of leaders versus 34 percent of followers and
16 percent of laggards.

ACC E L E R AT I NG T HE PACE A ND I MPAC T O F DI GI TA L T R A N S FO R M AT I O N 1

 Many companies still face a number of daunting barriers that
digital leaders have surmounted to a far greater extent.

The strategic emphasis on the part of digital leaders is reflected in their business performance.
For example, these companies are significantly more likely to have strong levels of customer
loyalty—75 percent of leaders versus 26 percent of laggards. They are also significantly more
likely to have reduced costs by using digital technologies to achieve internal efficiencies. figure 1

But businesses overall are planning to move quickly. Currently, 21 percent of companies agree
strongly that digital technologies help their organizations achieve business outcomes. In
two years, however, that number is expected to more than triple to 64 percent. In addition,
70 percent of companies say that digital technologies will boost top-line revenues, up from
50 percent currently. Similarly, 50 percent of organizations say that the use of digital technologies
is increasing customer loyalty. By 2018, that number will also hit 70 percent. The vast majority—
85 percent—strongly believe that by 2018 digital technologies will help their companies optimize
the costs of serving customers.

FIGURE 1

THE PERFORMANCE EDGE OF DIGITAL LEADERS

Percentage indicating to what extent they agree or disagree with the following statements
about the impact of digital technology on their organizations’ performance.
[SLIGHTLY AND STRONGLY AGREE]

● LEADERS ● FOLLOWERS ● LAGGARDS

90
70
44
Optimized costs of serving customers
86
68
42
Reducing costs through internal efficiencies
75
53
20
Increased top-line revenue
75
49
26
Increased customer loyalty

Source: Harvard Business Review Analytic Services Survey, June 2016

2 H A RVA R D BU S I N E S S R E VI E W A N A LYT I C S E RVI C E S

BARRIERS STANDING IN THE WAY
Many companies still face a number of daunting barriers that digital leaders have surmounted
to a far greater extent. Followers and laggards struggle with inadequate change management
capabilities and the inability to experiment quickly, both of which require a company culture
that is comfortable with taking risks. But most companies don’t have that comfort: 50 percent of
laggards say that their organizations’ digital transformation progress is hampered by risk-averse
cultures. On the part of digital leaders, the number is only 23 percent. figure 2

The challenges of organizational silos are also significant, and digital leaders have conquered them
more than other organizations have. Consider IT. Only 19 percent of respondents strongly believe
that their IT organizations lack needed talent and skills. But those skills are often trapped within
IT. Nearly 50 percent of laggards, for example, believe that the level of collaboration between
IT and lines of business in their organizations is inadequate. On the part of leaders, the number
drops to 20 percent.

Legacy systems are a challenge all companies face in near equal measure. But leaders are much more
able to tackle the challenges of these systems. For example, more than 75 percent of respondents
say that their organizations’ use of digital technologies requires replacing some or all of their legacy
systems and processes. Yet only 15 percent of laggards and 32 percent of followers believe that
their companies have adequate processes in place to do the work. On the part of digital leaders,
the number jumps to 62 percent.

FIGURE 2

TOP FIVE BARRIERS TO DIGITAL TRANSFORMATION

Percentage indicating to what extent each of the following is a barrier to their
organizations’ use of digital technologies. [8-10 ON A 10-POINT SCALE]
● LEADERS ● FOLLOWERS ● LAGGARDS

29
50
60
Inability to experiment quickly
29
41
56
Change management capabilities
23
38
52
Inability to work across silos
23
39
50
Risk-averse culture
32
43
39
Legacy systems

Source: Harvard Business Review Analytic Services Survey, June 2016

ACC E L E R AT I NG T HE PACE A ND I MPAC T O F DI GI TA L T R A N S FO R M AT I O N 3

 Increasingly, businesses realize that although their
products may not lend themselves to digitization, the
customer experience of buying and using them does.

Money doesn’t appear to be a major hurdle. Only 28 percent of respondents strongly agree that
insufficient budgets are a barrier to success. Between now and 2018, nearly 90 percent of companies
plan to increase their investments in digital technologies, and almost 50 percent are planning to
increase investments significantly.

THE IMPORTANCE OF THE END-TO-END CUSTOMER EXPERIENCE

Increasingly, businesses realize that although their products may not lend themselves to digitization,
the customer experience of buying and using them does. In everything from obtaining a mortgage
to renting a car, companies are focusing on the end-to-end customer experience to ensure that it
is competitive in terms of speed, efficiency, and simplicity.

Front-end touchpoints such as web sites continue to be a major focus. Nearly 50 percent of
respondents say that their organizations support these touchpoints with digital technologies
to a significant extent (8-10 on a 10-point scale). Among digital leaders, the number climbs to
75 percent. But non-customer-facing functions such as accounting, sales operations, auditing,
and procurement are also on the radar: approximately 40 percent of companies overall and 62
percent of digital leaders are supporting these operations to the same extent as customer-facing
experiences. But the results are falling short of expectations. When asked to rate how well middle-
and back-office processes meet the expectations of their companies’ clientele, only 17 percent of
respondents say they do so extremely well (8-10 on a 10-point scale). On the part of digital leaders,
the number is still less than half—42 percent.

The primary culprit of the shortfall is a pronounced lack of enterprise-level capabilities to design
solutions and manage changes to the organization and its systems. Respondents were asked to
assess the effectiveness of several of these capabilities on the part of their IT organizations as
well as other operational functions including finance, procurement, marketing/sales, and supply
chain. figure 3 None of these units fare especially well, and IT organizations are often perceived to
be behind others. For example, only 35 percent of respondents say their IT functions can tightly
align digital interventions to business outcomes through governance and metrics. On the part
of other functions, the number ranges from 42 percent for the supply chain organization to 62
percent on the part of procurement. figure 3

Only 34 percent of respondents believe their IT organizations have design-thinking or comparable

capabilities. On the part of other functions, only marketing/sales tops 50 percent. The shortfall can
be a significant impediment. As technology changes the scope of what is possible, organizations
increasingly need sophisticated design capabilities to delve into customer needs and environments
and develop novel solutions in sync with business capabilities.

4 H A RVA R D BU S I N E S S R E VI E W A N A LYT I C S E RVI C E S

FIGURE 3

WHICH CAPABILITIES DOES THE ORGANIZATION HAVE?

For each of the following, please select the capabilities you perceive your IT organization
and the function you are most familiar with possess.

● IT ● FINANCE ● PROCUREMENT ● MARKETING/SALES ● SUPPLY CHAIN

42
40
46
34
66
Using structured improvement methods such as Lean principles when integrating middle- and back-office
functions to meet customer experience expectations

35
56
62
53
42
The ability to tightly align, through governance and metrics, any digital intervention to business outcomes

34
23
48
57
49
Using structured development approaches (such as design thinking) to identify opportunities to create value
for customers before we design solutions using digital technologies

29
63
48
64
47
The ability to consistently act on insights from data

Source: Harvard Business Review Analytic Services Survey, June 2016

Even the ability to use structured end-to-end improvement methods such as Lean is not especially
common. Although Lean has been a corporate mainstay for customer-focused operational
improvements, only slightly more than 40 percent of IT organizations have that capability.
Procurement leads the pack among other functions at 66 percent, possibly due to its close
relationship with manufacturing and other operations. The use of advanced analytics doesn’t
fare much better—only 29 percent of IT organizations are considered adept at gleaning insights
from data. Advanced analytics acumen is a more common capability on the part of finance and
marketing/sales, but not for a significant majority of either—63 percent and 64 percent, respectively.

ACC E L E R AT I NG T HE PACE A ND I MPAC T O F DI GI TA L T R A N S FO R M AT I O N 5

A NEW TALENT MANDATE
As digital transformation moves to the center of how companies compete, technology skills and
knowledge fall toward the end of the list of the skills companies say are most important. Instead,
new needs are emerging that reflect the strategic dimensions of technology innovation and the
barriers that businesses face. Reflecting the thoroughness of the changes to digital transformation,
digital leaders, followers, and laggards are closely aligned on what they believe are the most
important skills. figure 4

The ability to cope with change leads the list of the most important skills companies believe
their employees in order to harness digital technologies—31 percent rank it as most important.
Design-thinking skills follow closely with 27 percent putting them at the top of the list. The ability
to communicate and collaborate is also critical, and respondents place it high on the list of the
second and third most important skills.

FIGURE 4

WHAT ARE THE MOST IMPORTANT SKILLS?

Percentage indicating which of the following are the most important skills for employees
to have so that the organization can harness digital technologies.
● FIRST ● SECOND ● THIRD

31
20
18
Ability to adapt to change
27
21
13
Customer-focused problem solving skills (e.g. design thinking)
18
22
23
Ability to communicate and collaborate
8
11
19
Technical knowledge and capabilities with specific technologies
4
10
11
Understanding of analytics methods
2
6
6
Knowledge of transformation efforts such as Lean

Source: Harvard Business Review Analytic Services Survey, June 2016

6 H A RVA R D BU S I N E S S R E VI E W A N A LYT I C S E RVI C E S

 The ability to cope with change leads the list of the most
important skills companies believe their employees in order
to harness digital technologies.

CONCLUSION
Although the digital transformation of business has been a corporate agenda item for some years,
only a minority of companies are successfully harnessing digital technologies to grow and beat the
competition. However, the nature and trajectory of digital transformation are changing. Where
it was once an issue of implementing technologies and having sufficient bu dgets, th e de mand
now is to use digital technologies to strengthen competitive prowess by launching new products
and business models, and revamping the customer experience, particularly the alignment of
middle- and back-office functions/systems to support it. Managing the transformation requires
distinct capabilities. However, many of these are not as yet developed to significant degrees across
organizational functions. Businesses should follow the example of digital leaders to ensure they
have these capabilities and can keep pace with the rapid changes in the digital landscape.

ACC E L E R AT I NG T HE PACE A ND I MPAC T O F DI GI TA L T R A N S FO R M AT I O N 7

METHODOLOGY AND PARTICIPANT PROFILE
A total of 682 respondents drawn from the Harvard Business Review audience of readers (magazine/e-
newsletter readers, customers, HBR.org users)

SIZE OF ORGANIZATION JOB FUNCTION

Sixty-nine percent were in organizations with Fifteen percent of respondents were in sales/
10,000 or more employees, 13 percent were in business development management and
organizations with 5,000 to 9,999 employees, and marketing; 9 percent each were in finance/risk,
19 percent had 1,000 to 4,999 employees. IT, and HR/training. Other functions were
SENIORITY
represented by 8 percent or less of the base.
Thirteen percent of respondents were executive REGIONS
management or board members, just over a third Thirty-eight percent of respondents were located
(35 percent) were senior management, 37 percent in North America, 37 percent were from Europe,
were middle executive management, and 15 and 25 percent were from the rest of the world.
percent came from other grades.
KEY INDUSTRY SECTORS
Sixteen percent were in manufacturing (including
4 percent of respondents from consumer goods),
14 percent were in technology, 13 percent were in
financial services, and 11 percent were in energy/
utilities. Other sectors were each represented by 8
percent or less of the respondent base.

8 H A RVA R D BU S I N E S S R E VI E W A N A LYT I C S E RVI C E S

hbr.org/hbr-analytic-services