BCG ’ S PERSPECTIVE ON DIGITAL TRANSFORMATION
When it comes to the digital transformation of business , the future is now . Companies worldwide are using digital technologies and advanced analytics to unlock new sources of economic value and achieve step-function improvements in productivity , flexibility , and speed in business and in IT .
WHERE DO WE START ?
BCG ’ s “ Digital Acceleration Index ( DAI )” measures the degree of digital maturity and a global study based on DAI shows that digital maturity drives superior performance .
The Digital Acceleration Index helps organizations assess their digital maturity — that is , uncover their digital strengths and weaknesses , determine whether their digital capabilities are lacking or imbalanced , and evaluate how well they perform against peers in digital efforts .
Our global study shows that increased levels of digital maturity significantly improved competitive advantage in multiple areas , such as time-to-market , cost efficiency , product quality , and customer satisfaction .
Digital strategy and digital transformation are top priorities for CEOs around the world , but a fundamental question remains : How do we make these happen ? BCG has found that the most successful companies excel at Speed , Scale , and Value — in parallel . That is , they determine : How can we move at digital speed ? How can we change the way we work across the entire enterprise ? How can we create tangible value for the business — and for customers ?
TRANSFORMING IT TO TECH TO ENSURE DELIVERY
There is a strange dynamic at play at many traditional companies : technology is increasingly important , yet in many cases , the IT function is not involved in the development of the new , differentiating products and services aimed at ever more discerning and empowered customers .
IT transformation is part of a larger need to digitize businesses : the vast majority of companies are , or are becoming , technology companies — at least to a certain degree . Soon , technology will be embedded in nearly every product , service , and process , all of which will be integrated into a broader digital ecosystem . Powerful software will be the backbone of products , services , and customer engagement . Data is already a highly valuable asset for every company , and the ability to analyze and act on that data is at the core of a company ’ s competitive advantage .
To handle the digital shift , companies must bring business and technology together . More specifically , they must rethink how they manage three categories of technology : product and service ( technology embedded in end products and technology that embeds end products into digital ecosystems and customer interfaces ), production
( technology in the industrial production processes of physical goods ), and enterprise ( infrastructure , platforms and standard software packages ).
Companies will increasingly build internal capabilities and focus resources on product and service technologies and production technologies for competitive advantage . For example , autonomous cars use a variety of product and service technologies — including , radar , lasers , GPS , odometry , and computer vision — to detect and interpret their surroundings . They also include apps that link the customer to the OEM . Meanwhile , companies will devote fewer internal resources to enterprise infrastructure , opting instead for cloud-based utilities .
Not only does getting the digital transformation right improve a company ’ s operations , but it can also boost valuations . According to our research , traditional assetheavy companies often trade at low multiples , even below annual revenues , while pure digital companies typically trade at multiples that are several times that of revenues .
INITIATIVES CREATING THE TECH FUNCTION OF THE FUTURE
1 . Develop product and service technologies close to the business . With fewer internal resources devoted to enterprise technologies and technologies that are more integrated into the business units , leaders can turbocharge product and service technologies . Small teams can focus on working closely with product managers and customers on new products and services , speeding up iterations and time to market .
2 . Integrate technology and the business . Today ’ s silo-like IT function needs to be transformed into an embedded and integrated business technology structure . In practice , this means that leaders need to create collocated , cross-functional teams for agile development and effective collaboration of business and technology resources .
3 . Build software engineering capabilities as a critical differentiator . We have seen large incumbent companies staffing more than 75 % of IT roles with generalists . Leaders need to make significant changes to this skill mix , moving the organization toward specialized engineering and analytical skills to develop products and services .
4 . Ensure powerful governance and steering capabilities . In the future , business units will all have their own capabilities for developing products and services , so strict rules and regulations will be necessary . Leaders will need to ensure a strong governance and steering function to coordinate certain areas such as vendor management ; ensure that standards are met in various areas including cybersecurity , data , and application architecture ; and avoid unexpected side effects such as heavy loads affecting specific parts of the infrastructure .