While most executives recognize digital transformation is an ongoing multi-year journey, many organizations are still not as far along as they would like. There’s also a growing digital divide between digital leaders and the rest of the pack in terms of financial performance achieved via their transformations.
Management consultancy PwC has been running their Digital IQ Survey for over 10 years and their 11th annual survey polled thousands of business, experience and technology executives in over 60 countries to explore how the top financial performers are gaining and extending their competitive edge.
We caught up with David Clarke, Global Chief Experience Officer, PwC US, to discuss some of the key findings and insights from the global research in the areas of digital experience, disruption, leadership and workforce and his recommendations for executives.
Digital Experience
Thinkers360: Many organizations are often unclear about the difference and distinctions between digital business optimization and digital business transformation. What did PwC discover about the real state of digital transformation in the market? How many organizations are really transforming compared to simply optimizing?
David: Redefiners – Companies that said their aspirations for digital involve completely rethinking how they do business – represented just under a quarter of the companies we looked at. And that makes some sense – true transformation can feel like you’re trying to change out the engine on a bus that’s driving down the highway at 50 miles per hour. Many more companies, more than 50% are either seeking more efficiency or are trying to modernize what they do. Sometimes that can include more holistic transformation, but it’s the redefiners that are really going all-in, including their digital strategy in their broader corporate strategy, making bigger bets on experience and working differently.
Thinkers360: The digital customer experience has been at the heart of digital transformations for many years now. How is this critical area evolving, what’s new and different in 2019, and what capabilities are considered state of the art?
David: It’s hard to quantify the value of experience at the start, but when you do it right, people will pay up to 16% more for what you’re selling. And on the flipside, one-third of people will walk away from a product or service they love after just one bad experience. But there’s a disconnect for many companies and organizations: 35% of people who answered PwC’s 2018 Global Digital IQ survey don’t agree that customer experience is critical to business performance and about the same number say customer experience isn’t a critical part of their digital transformation. I mean, they might as well close up shop and go home if that’s true.
Think about the companies that transcend – Starbucks, Netflix, Apple, among others – they don’t just sell a product, they sell an experience, a relationship. They don’t just have great digital customer experiences, they’re an aspiration and they transcend coffee, movies and TV. People can get through the day (and have done so for millennia) without their everything-on-it smartphones or $6 coffee drinks. Nobody really needs these things, and yet hundreds of millions of us feel we absolutely must and spend as if these are needs.
Top performers are putting their money where their mouth – and strategy – sits. 59% of top performers are investing 10% or more of their revenue in digital efforts—and one-in-six of them are investing 20%-to-25%. And they are more likely to see those investments pay off more than expected off in critical areas. Among them: creating better customer experiences, innovating products and improving talent retention and recruitment – key elements of taking a company from a product-and-service world into a platform that ascends want and turns into need.
The rest? Just 29% are investing at least 10% in their digital efforts, according to PwC’s 2018 Digital IQ survey. And not always in these more critical areas.
Digital Disruption
Thinkers360: When it comes to digital disruption, the PwC Digital IQ survey found a wide range of perspectives among your global participants. On average only 31% of companies said digital disruption was a threat to their business, but among the top financial performers you found that 64% said their business faces a serious threat.
What are these top financial performers observing in the market that’s making them think differently about digital disruption, how do you classify them, and how are they responding?
David: Only 8% of the companies we surveyed are top financial performers. Think about that for a second… that means 92% aren’t sustaining profits, revenues and growth. Now, for some that’s because they’re going through a period of significant change, so they can get to that level. But, that’s not likely all of that 92%. These companies recognize that disruption isn’t just seismic. It’s not just, boom, one day everything changes! It’s iterative. Who would have thought even a decade ago we’d rent rooms from strangers on our vacations or get rides across town in private cars from non-taxi drivers? It starts with recognizing that disruption is not about something big, it’s about the small changes and expectations customers have; it’s about using technology as a tool to improve on what you do, but holistically.
64% of top financial performers say their business faces a serious threat from disruption, compared with 27% of others.
Thinkers360: How about proactive compared to reactive responses to digital disruption? What are the top performers doing here and what does PwC recommend in terms of developing strategies to be proactive, reactive or both?
David: The companies that take disruption seriously recognize that their competition could come from anywhere and instead of just improving on how they operate today, they’re adopting a new kind of thinking that leaves them ready for what’s next. It’s more agile, more deliberate, more iterative and more collaborative. If you’re always aware and not stuck in your own bubble, if you’re moving from tests and proof of concept to reality, if you’re making digital a part of your mindset, not an afterthought, you’re already developing the mindset and behaviors you need to react fast and be proactive.
Digital Leadership
Thinkers360: With digital transformation being a team sport that requires collaboration across the C-suite as well as digitally savvy leaders who can drive the transformation across the organization, what did PwC find were some of the best practices of the top financial performers with regard to digital leadership?
David: For many leaders, there’s a strong need to actively improve their digital know-how across functions – and the top performers are more aware of that. To bridge the gap, some companies look outside their industry – in particular, in areas that are core to delivering on the promises of digital to bring in new leaders to help move the transformation and mindset changes forward. Experience is one area we see that happening. 91% of top performers have an executive in charge of employee experience and about the same have an executive in charge of customer experience. That’s accountability. That’s somebody’s stake in the ground and that matters.
77% of top performers say the executives in charge of digital efforts are deeply involved in setting high level strategy – it’s not a silo.
They’re also prioritizing upskilling and modeling new ways of working – not just talking about it. They’re using more iterative and collaborative approaches and actively working to avoid the sorts of handoffs that destroy great ideas. That doesn’t mean they’re getting it right all the time or even most of the time, but it matters that they’re going in that direction.
Thinkers360: Historically, we’ve often seen CMOs and CIOs lead the charge, as well as various CDO roles. What did the Digital IQ survey discover in terms of who’s leading the charge today and what advice would you provide to organizations deciding on how best to structure their teams?
David: There’s a gap in know-how between top performers and the rest – although even the more successful companies still have room to improve. 54% of top-performers say their leadership is digitally savvy and helps the workforce think in new ways; 41% of less successful peers, it’s a world of difference.
77% of financially successful companies have the executives responsible for digital involved in high-level business strategy but certain c-suite members are missing from the forefront. CMOs are seen as less digitally savvy than nearly every one of their C-suite counterparts. Assessing 2,280 executives from a range of industries across 60 regions, CMOs were rated by their fellow execs to have a digital IQ of just 54 out of 100. Compare that with CEOs at 61 and CTOs at 65.
All leaders no matter their title should act as partners and purveyors of digital knowledge not only to see their own clout in the organization rise but to see greater financial success.
Digital Workforce
Thinkers360: One of the big challenges in digital transformation is often cited as the digital skills gap. What did the Digital IQ survey discover on this topic, was there anything counter-intuitive, and what are your recommendations for executives?
David: High organizational digital IQ flows from the top, with senior leaders modeling the skills and behaviors they need from the digital workforce. While there’s no difference between top performers and the rest when it comes to having a CEO that champions digital (72% say they do), there’s a gap in know-how: 54% of top-performers say their leadership is digitally savvy and helps the workforce think in new ways, according to PwC’s 2018 Digital IQ survey. That leaves plenty of room for improvement, but compared with just 41% of less successful peers, it’s a world of difference.
28% of top financial performers say they lack a strategic focus on training, compared with 47% of others.
For many executives across industries, there’s a strong need to actively improve their digital know-how across functions. To bridge the gap, some companies look outside their industry – in particular, in areas that are core to delivering on the promises of digital. Experience is one key area: 91% of top performers have an executive in charge of employee experience – with about the same number committed to the idea that employee experience is critical to business performance. Just 70% of their peers say the same. The gap is similar for customer experience. It matters. People say they will pay an average of 16% more for superior customer service. And one in three people say they would walk away from a brand they love after just one bad experience.
Even digitally-savvy Apple struggled to meet customers’ desire for in-store tech-enabled but still-human human experiences. It looked outside to help transform its stores into thriving town squares under the aegis of Angela Ahrendts – the former Burberry CEO who’d restored that brand’s luxury roots with strategic cuts to anything creating noise around the brand.
Digital Ambition
Thinkers360: In your research, you found organizations can be categorized into four groups based on their digital ambitions: efficiency seekers, modernizers, redefiners and industry explorers. What are some of the key distinctions between each and how should organizations think about their roadmap for transformation?
David: Efficiency Seekers are focused on doing business smarter and faster using technology, with a sharp eye toward measuring digital outcomes and bringing new skills to the workforce. Many have been through at least one cycle of industry disruption and feel confident that they’ve made some smart moves. But only 59% explicitly incorporate digital strategy into corporate strategy and just over half say their leadership is digitally savvy. They’re most likely to define digital as just IT. Efficiency seekers, in general, need to evolve their definitions of digital and move beyond the obvious emerging tech and skills they’re developing to be ready for what’s next. Many still need to adopt a mindset where digital is woven through every area of the business. They’ve been successful with early transformations and need to stay nimble.
Redefiners aim to change their companies and their business model. They are most likely to embrace the mindset of constant innovation, flat decision-making and the integration of tech across the business. But, their digital investments aren’t yet driving success – 69% say they’re delivering less than expected. Redefiners have the right mindset, but aren’t yet firing on all cylinders with digital – and that’s to be expected because they’re trying to change the very nature of their businesses. In aspiring to change their core business model, redefiners have to think differently about the way they lead and shift to more digital ways of working and thinking across the business. Consider bringing in new, nontraditional leaders to bolster creativity and bring a fresh way of thinking about people and process. It’s likely many will come to that way of work anyway, since they’re all-in on transformation, but it’s got to be top of mind.
Modernizers want to create new capabilities, and most are embracing more advanced definitions of digital to get there. Their senior leaders encourage innovation at all levels and their digital efforts so far have improved retention and recruitment. But, they aren’t always weaving digital strategy into corporate – still a lot of silos. Nearly half of them say they’ve seen profit margin increases up to 10% over the past three years. But there’s still room to evolve. Right now, only half of all modernizers have leaders who boast real digital know-how or have made digital an explicit part of corporate strategy. They’ll need to think more broadly, starting at the top and adopt not just processes and technologies that will help the organization evolve but also move more toward collaborative, flat ways of working and encourage innovation across the company.
Industry explorers are fighting for their futures; they’re being bombarded by competitors and trying to break ground in new markets and industries. But, this group puts the least emphasis on its employees and customers. Fewer than one-quarter explicitly incorporate digital strategy into overall corporate strategy. They’re not really on a transformation journey, for a variety of reasons – competition, newness of their efforts, among them. Only 22% say their leaders are digitally savvy and help employees think in new ways, so that’s a challenge, as many are in the midst of more core disruption. Their leaders need to upskill and some of these companies might consider bringing new leaders in to change up the pace. To keep up with the pace of change, they’ll also need to set the workforce up to gain the new skills, change their behaviors, and adjust their mindset.
Thinkers360: As organizations look to their innovation teams to accelerate their transformations, what advice do you have for these teams in terms of where to look for opportunities and how to improve their odds of success?
David: Let’s look a transformation a bit differently… If you knew you needed to transport your entire workforce across the continent, you wouldn’t build an airplane off in a side building, at one-tenth the scale you need, a side project delegated to a handful of people who ‘get’ or just want to ‘experiment’ with planes.
Yet, that’s exactly what many companies do with digital – silo a small project off in the corner in the form of an innovation group or a digital subset, forgotten on another floor or another P&L statement and not a part of overall strategy or success of the company. Who runs that digital thing? Oh, right, that guy. We should invite him to a meeting now and then. Sound familiar?
To deliver true innovation, rewarding employee experience and superior customer strategy, companies must break down these silos. Top-performing companies are far more likely to involve the executives responsible for executing on digital strategies in their higher-level corporate strategy efforts at twice the rate of their less-successful peers – although only about half explicitly incorporate digital strategy into overall corporate strategy. Digital capabilities are the single-most driver of top-line growth – and failure to include digital executives in strategy expresses a commitment to failure.
Thinkers360: In summary, if there was one secret to success for digital transformation that you discovered among the top financial performers, what would that be and what’s your advice for business and IT executives?
David: Being digital isn’t something extra. It’s not a nice to have. It’s now. It’s everything. It’s having a mindset that embraces constant innovation. It’s flatter, data-guided decision making. It’s developing a workforce and culture that hones the types of skills and behaviors that speed innovation and bolster experience. The companies that have embraced this “it’s all digital” approach offer a roadmap of sorts for those who are playing catch up. It’s not too late to take control and win in the digital world.
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