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Companies are expected to continue investing in digital transformation while facing increasing pressure to produce results, according to an EY-Parthenon Digital Investment Index (DII) survey of C-level executives from large companies around the world. They are also under mounting pressure to accelerate the launch of technology-enabled products and services and achieve efficiencies.
Over 40% of the surveyed executives aim for a structured approach to measure their digital ROI. However, many do not know their digital operating or capital expenditures from the previous year or the value yielded in terms of incremental revenues, cost reduction and working capital.
The DII survey found that customers remained at the heart of most firms’ digital priorities, with customer experience (CX) ranking highest in positive outcomes from important digital investments. More than half (55%) of the executives indicated “improved CX” as an area where they had seen a positive impact from their digital investments. This is because digital transformation enables businesses to reinvent experience and journey touch points to stay connected with customers, harmonise the use of emerging technologies and processes to achieve operational excellence, and unlock data and insights to accelerate time-to-market decisions.
Conversely, businesses that fail to embark on their digital transformation journey risk losing out to competitors and becoming irrelevant. Known as the “red queen effect”, an organisation’s success depends on its ability to match or outdo competitors’ advancements.
The DII survey also showed an increase in existing technology investments and the adoption of technologies such as chatbots, artificial intelligence (AI), machine learning, blockchain and augmented reality. Many companies have been building data platforms through investments in the cloud and internet of things (IoT). The number of companies that reported the realisation of full benefits of investing in cloud, IoT and AI increased by 54% in 2022, compared with 2020. But even with the right strategic digital transformation intent and a well-communicated vision, why do some companies stumble at various implementation phases of the journey?
Companies must address five pillars in their digital transformation effort to get the right outcomes:
1) Focus on nonlinear value creation and differentiation
A nonlinear approach to value creation that entails a culture change to sustain ongoing digital transformation is the most critical element for successful execution. The Transformation Leadership: Humans@Centre study by EY teams and the University of Oxford’s Saïd Business School found that the complex factors influencing a transformation’s success or failure are rooted in human emotional behaviour. Therefore, organisations need to build a culture of change and understand the interdependencies linked with the emotional behaviour of the overall workforce and key senior stakeholders.
2) Address skill gaps
Organisations need the right skill sets during the transformation and a sound plan to enhance workforce capabilities to sustain transformations. The EY Work Reimagined Survey revealed that 84% of employers expect generative AI (Gen AI) to be used in the workplace, yet only a handful are prioritising training in Gen AI skills. To do this effectively, organisations may need to infuse skills that are not currently considered core and develop existing core skill sets to cover more than just the conventional essentials in each function.
3) Maintain an agile business and technology architecture
An agile business and technology architecture can act as a foundation for transformation. Many organisations have fragmented systems – a mix of legacy and new digital stacks. Fragmented systems and rigid architecture hinder an organisation’s ability to provide seamless experiences to customers and result in inefficient processes. The potential to explore future business models, partnerships and products depends on the agility of the organisation’s technology landscape. The organisation must see to it that its applications and technology infrastructure are not considered as isolated functions. Instead, its transformation should align with the business strategy and outcomes.
4) View data as an asset and embed cybersecurity
In line with the first pillar above on a nonlinear approach to value creation, data must be considered as an asset and managed accordingly. Data assets increase in value with usage and hence, the treatment of data as an asset must be strategic. However, this is often complicated by existing operational structures, fragmented systems and a lack of distinct data ownership within an organisation.
With greater digitisation, an organisation’s vulnerability to cyber attacks escalates, heightening the risk of data and privacy breaches. To combat these threats, organisations must envision and implement technological solutions with cybersecurity in mind, underpinned by comprehensive data protection and privacy policies.
5) Set clear governance policies around decision-making
Transformations are intense to an organisation, its employees, customers and connected ecosystem players. It’s critical for each decision to focus on business outcomes envisaged at the start of the transformation but such focus can often be lost amid the complexities of the transformation process. It is therefore critical for the leadership team and board to establish clear governance policies around decision-making at the beginning of the programme. A sound operating model, clear decision-making, the willingness of leaders to accept tradeoffs in decisions and being on schedule are crucial for success.
Continuous alignment of the five pillars above with short- and medium-term objectives and placing emphasis on urgency and timeliness are crucial to the long-term success of digital transformation. By applying these principles with the aim of delivering superior customer experiences, organisations can better position themselves for success in an increasingly competitive and complex world.
Gaurav Modi is EY Asean and Singapore Consulting Leader. This article was first published on the EY website. Republished with permission
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