Tech companies win in digital transformation, but struggle with leadership and governance

Boston Consulting Group analyzed projects at 950 companies and reported success and failure rates by industry.

Digital Transformation
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Boston Consulting Group analyzed digital transformation work at 950 companies and found that only a third of these efforts were successful. The report published this week measures success rates and forecasts future priorities of digital transformations. In addition to an overall analysis, the researchers examined success and failure by industry, including the tech world.

The transformation success rate in 2021 was 35%, compared to 30% in 2020. BCG placed companies in one of three categories:

  • Win zone: meet or exceed target value and achieve sustainable change
  • Care Zone: Generate some value but limited long-term change
  • Woe zone: Generate limited value and no sustainable change

In 2020, BCG set these six digital transformation goals:

  1. Create a clear integrated strategy
  2. Bet on leadership from the top to the middle
  3. Put the best people in the right places
  4. Apply an agile governance mindset
  5. Monitor and measure your transformation progress
  6. Create a business-led technology and data platform

The analysts found that companies that addressed these six factors reported a 21% increase in EBIT in operations within the scope of the transformation, compared to an average increase of only 10% for those that did not.

To see how well companies are achieving those goals, BCG researchers analyzed 30 successful digital transformations of work with clients and surveyed 860 VPs and CxOs who have served as their organization’s primary digital transformation decision-makers over the past five years. The researchers also interviewed digital leaders and clients of BCG and conducted a literature search of leading publications and academic research.

BCG published reports on digital transformation in five sectors:

  • Telecommunications
  • Media
  • Hardware
  • Software and services
  • IT service

These are the key findings for hardware, software and IT service companies.

Success with digital transformation in software and service companies

Software and service companies had a 60% success rate, which is the highest in all industries. According to the report’s authors, this is due to the fact that these companies are inherently digital and leaders are naturally ready to be early adopters of digital developments. The researchers also identified these key findings:

  • Successful digital players prioritize areas that have not yet emerged as universal priorities, such as automated lead generation, personalization, and automated churn reduction.
  • Software companies have advanced forward-looking digital agendas in customer experience and services, security and support functions.
  • ESG is becoming increasingly important in the digital agenda, especially supply chain, customer and employee data risk and cyber resilience.
  • Top quartile companies determine the top six success factors, while median companies struggle the most with talent.
  • Software companies follow digital initiatives more broadly than companies in other industries, focusing on customer experience, marketing and pricing and innovation.

The survey also found that nearly all software companies plan to spend 50% of their investment on customer experience and service delivery.

Digital transformation and hardware companies

Companies that manufacture hardware devices, components and semiconductors are more successful in digital transformation than several other sectors, according to the report. Half of these companies reach the profit zone, which is higher than the cross-sector average. The key findings for this sector are:

  • Hardware companies outperform other industries on individual success factors, especially leadership and strategy, but they struggle with agile governance, suggesting that agile at scale remains a heavy burden on physical goods companies.
  • Hardware companies place less emphasis on customer experience than companies in other industries, instead making growth and innovation of business models and accelerating sales and marketing their top priorities.
  • Successful digital players prioritize areas that are a good fit for AI solutions, such as automated lead generation, dynamic pricing, predictive maintenance, and demand forecasting.
  • ESG considerations about reducing energy consumption, data privacy and cyber resilience are becoming increasingly important.

Anxiety organizations should shift their focus from core activities to sales and marketing and innovation-driven performance, the report authors said.

IT services and digital transformation

Most leading IT service organizations have focused their digital transformation work on external or customer-facing initiatives such as customer experience and travel, growth and business model innovation, sales and marketing acceleration, and partnerships. Only 45% of these companies are in the win zone, a lower percentage than other technology, media and telecom companies, including Internet companies (58%) and hardware and device companies (52%).

The BCG researchers recommend IT service companies to accelerate the pace of digital adoption and note that successful digital players are focusing on internal digitization efforts, such as employee travel and support functions. Other industry findings include:

  • The IT services industry has faced major talent and agile governance challenges.
  • The forward-looking digital agenda for IT service companies spans services and operations, sales and marketing, security, support functions and R&D.
  • ESG considerations related to data privacy, cyber resilience and the use of analytics for emissions reduction are becoming increasingly important.

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