Digital leaders open gap on digital laggards: Report

There?s a new player on the digital landscape. Digital (or digitalized) incumbents in traditional industries are joining digital natives and a small group of so-called digital hyperscalers in the congregation of companies that have developed the capabilities to disrupt existing business models and deliver the innovation and revenue growth that are rewarded by investors. But to an estimate by Boston Consulting Group, only about 30% of the companies in the S&P Global 1200 index are successfully transforming themselves into digital incumbents, leaving most legacy companies struggling to keep pace. BCG terms such companies “legacy incumbents.”

The research further points to the emergence of “digital incumbents” — companies that have successfully completed the first lap of digital transformation. Such organizations find themselves in a position to innovate and join the ranks of digital leaders.

. “Legacy incumbents are struggling to deliver a successful digital transformation and are, frankly, falling behind,” said Patrick Forth, a managing director and senior partner with BCG’s Sydney office.

Double down on digital transformation

Digital incumbents can pursue a couple of agendas to maintain and extend their advantage over legacy businesses. For one, businesses that have successfully launched a digital transformation journey should finish what they started, he noted. An initially successful cloud migration, for example, might stall before an organization can obtain the highest possible value in transferring workloads.

“Make sure you get as many transactions and as much use and adoption as possible,” Forth said.

Legacy incumbents are struggling to deliver a successful digital transformation and are, frankly, falling behind.

The report also recommended digital incumbents pursue open APIs and open-architecture technology. Telecom companies and banks could open some of their technology to let external developers add to their ecosystems — third-party payment apps, for instance.

Another agenda item: Decide where to focus on innovation. A bank could look to innovate within its main business — a novel approach for managing mortgage applications — or cultivate an entirely new service.

Legacy incumbents, for their part, must first focus on delivering a successful digital transformation initiative. That’s easier said than done given the complexity of transformation and a 70% failure rate, Forth said. Enterprises, however, can flip the odds in their favor. The key to the first phase of transformation is building initial capabilities that address critical issues, such as better engagement with customers and operational efficiency. Getting a few runs on the board helps an organization feel more confident, he added.

The CIO’s role

CIOs, wherever their companies exist on the maturity spectrum, will influence the shift to digital incumbency. “The CIO role is to play a huge part delivering this,” Forth said.

One role is to make sure an enterprise’s entire leadership team is on board with digital transformation, from the early phases to subsequent innovations. Without widespread buy-in, the CIO ends up selling a difficult venture to wary colleagues on their own.

“The CIO needs to help create that environment in which the transformation is owned by the top table,” Forth explained.

In Forth’s view, CIOs should also keep an eye on “business value realization assurance” as well as delivery assurance. “There are many examples where delivery is 100% and value realization is minimal,” he said. “The two sides aren’t joined up.”

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