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In collaboration with ResearchReport2013 Findings from the 2013 Digital Transformationglobal executive study and research project EmbracingDigitalTechnologyA New Strategic ImperativeBy Michael Fitzgerald, Nina Kruschwitz, Didier Bonnet and Michael Welch AuthorsMichael Fitzgerald is the Digital Transformation contributingeditor at MIT SloanManagement Review, covering thechallenges that traditional companies faceas they adopt emergingtechnologies. He can bereached at [email protected]mffitzgerald.com Nina Kruschwitz isthe managing editorand special projectsmanager at MIT SloanManagement Review,which brings ideasfrom the world ofthinkers to the executives and managerswho use them. Shecan be reached at[email protected] Didier Bonnet is a Michael Welch is a senior vice presidentand global practiceleader at CapgeminiConsulting. He canbe reached at[email protected]capgemini.com managing consultant atCapgemini Consultingand visiting scientistat MIT’s Center forDigital Business. He can be reachedat [email protected]capgemini.com Acknowledgments Lori Beers, Wellpoint; Jon Bidwell, Chubb Insurance; Adam Brotman, Starbucks; Curt Garner, Starbucks;David Kiron, MIT Sloan Management Review; Andrew McAfee, MIT Center for Digital Business;Mark Norman, Zipcar; William Ruh, General Electric; Kimberly Stevenson, Intel; George Westerman,MIT Center for Digital Business. Copyright © 2013. Massachusetts Institute of Technology. All rights reserved.For more information on permission to distribute or post articles, visit our website FAQ pagehttp://sloanreview.mit.edu/faq/Customer serviceEmail: [email protected]Phone: 617-253-7170 ContentsRESEARCHREPORT2013 2 / ExecutiveSummary3 / Introduction•Brewing Up Changeat Starbucks•About the Research 3 / DigitalImmaturity: A Widespread Problem•The Digital Imperative•Technology Everywhere sloanreview.mit.edu 5 / The Benefitsof DigitalTransformation 8 / InstitutionalChallengesAttitudes 6 / The Troublewith DigitalTransformation•Leadership: Definingthe AgendaLack of urgencyThe vision thing Picking a direction of olderworkersLegacy technologyInnovation fatiguePoliticsSidebar: Intel Gets Urgent 10 / Executingthe Change•Making a Case for DigitalTransformation•Incentives 12 / Conclusion Embracing Digital Technology • MIT SLOAN MANAGEMENT REVIEW 1 R e s e a r c h R e p o r t E m b r a c i n g D i g i ta l T e c h n o l o g y Executive SummaryCompanies routinely invest in technology, and too often feel they get routine results. Technology’s promise isnot simply to automate processes, but to open routes to new ways of doing business.To better understand how businesses succeed or fail in using digital technology to improve business performance, MIT Sloan Management Review and Capgemini Consulting conducted a survey in 2013 thatgarnered responses from 1,559 executives and managers in a wide range of industries. Their responses clearlyshow that managers believe in the ability of technology to bring transformative change to business. But theyalso feel frustrated with how hard it is to get great results from new technology.This report (as well as the survey) focuses on digital transformation, which we define as the use of new digitaltechnologies (social media, mobile, analytics or embedded devices) to enable major business improvements(such as enhancing customer experience, streamlining operations or creating new business models).The key findings from the survey are:According to 78% of respondents, achieving digital transformation will become critical to their organizations within the next two years.However, 63% said the pace of technology change in their organization is too slow.The most frequently cited obstacle to digital transformation was “lack of urgency.”Only 38% of respondents said that digital transformation was a permanent fixture on their CEO’s agenda.Where CEOs have shared their vision for digital transformation, 93% of employees feel that it is the rightthing for the organization. But, a mere 36% of CEOs have shared such a vision.Previous research with executives by the MIT Center for Digital Business and Capgemini Consultingshowed that many companies struggle to gain transformational effects from new digital technologies, butalso that a significant minority of companies have developed the management and technology skills to realize the potential of new technologies. Our current survey deepens this research by getting frontlineperspectives as well as high-level ones, from staff to board member. (See About the Research, p.3.) It showsthat frontline corporate employees believe they face a strategic imperative to successfully adopt emergingnew technologies. Almost no organization is sheltered from the competitive disruption wrought by of thewidespread adoption of digital technologies.But the survey also shows that organizations are finding ways forward by taking steps such as developingbusiness cases for technology adoption, creating cross-department authority for digital initiatives and realigning incentives to include metrics relevant to digital transformation. This report will delve into thechallenges of digital transformation and how companies are meeting them to achieve competitive advantage.2 MIT SLOAN MANAGEMENT REVIEW • Capgemini Consulting sloanreview.mit.edu EmbracingDigitalTechnologyIntroduction E very company wants the technology it uses to transform its business. Executives see thepotential for using digital technologies to achieve transformation, but they’re unclear onhow to get the results. They look at high-profile examples of companies using technology to galvanize their business, and wonder what they need to do to follow suit. Brewing Up Change at StarbucksOne company that has succeeded is Starbucks. In 2009, after dismal performance cut the company’sstock price in half, Starbucks looked to digital to help re-engage with customers. It created a vicepresident of digital ventures, hiring Adam Brotman to fill the post. His first move was to offer freeWi-Fi in Starbucks stores, along with a digital landing page with a variety of digital media choices,including free content from publications like The Economist. It sounds simple, but as Brotman says,“we were not just doing something smart around Wi-Fi, but we were doing something innovativearound how we were connecting with customers.”Brotman is now chief digital officer at Starbucks, where he and Curt Garner, Starbucks’ chief information officer, have formed a close working relationship, restructuring their teams so that theycollaborate from the very start of projects. Last year, they cut 10 seconds from every card or mobilephone transaction, reducing time-in-line by 900,000 hours. Starbucks is adding mobile paymentprocessing to its stores, and is processing 3 million mobile payments per week. Soon, customers willorder directly from their mobile phones.Using social media, mobile and other technologies to change customer relationships, operationsand the business model has helped Starbucks re-engage with customers and boosted overall performance. Its stock price has also bounced back up from roughly $8 in 2009 to nearly $73 in July 2013. Digital Immaturity: A Widespread Problem M any companies want Starbucks-like results, but most are far from achieving them, according toour survey (see About the Research). At the end of the survey, respondents answered a set ofquestions about their companies’ digital maturity. Using an index of digital maturity developed by thesloanreview.mit.edu About theResearch The survey uses a definition ofdigital transformation thatcame from research done byMIT’s Center for Digital Business (CDB) and CapgeminiConsulting, which focused onhow digital transformationplays out at traditional largecompanies, those having morethan $1 billion in revenues. Tocomplement that research,which involved interviews withexecutives at 450 large companies, MIT Sloan ManagementReview and CapgeminiConsulting conducted a broadbased online survey. It wascompleted by 1,559 people in106 countries (the five with themost respondents were:United States, 37%; India, 11%;Canada, 5%; United Kingdom,4%; Australia, Brazil and Mexico, 3% each). They representcompanies and organizationsacross the business spectrum— nearly half (47%) work atcompanies with less than $250million in revenues, 10% workat mid-sized companies withbetween $250 million and $500million in revenues, 9% at companies with $500 million to $1billion in sales, and 33% workat organizations with morethan $1 billion in revenues, including 11% at companies withmore than $20 billion in sales.Respondents span the gamutof functions, from CEO to staff.The survey asked therespondents’ views on anumber of topics related toachieving digital transformation. Respondents also tooka separate digital maturityassessment, based on priorCDB research, to determinetheir digital maturity. Organizations were categorizedeither as Digirati (mature atboth technology adoption andmanagement), Fashionistas(early adopters of technologybut without effective management skills), Conservatives(slow to adopt technologiesbut effective at managingthem) or Beginners (possessing neither advancedtechnology or the ability tomanage it). Embracing Digital Technology • MIT SLOAN MANAGEMENT REVIEW 3 R e s e a r c h R e p o r t E m b r a c i n g D i g i ta l T e c h n o l o g y MIT Center for Digital Business and CapgeminiConsulting, we found that only 15% of respondentswere in the most mature category alongside Starbucks. Sixty-five percent of respondents are inorganizations that rank as least mature — the category the index refers to as Beginners (see Figure 1).The world is going through a kind of digital transformation as everything — customers and equipmentalike — becomes connected. The connected worldcreates a digital imperative for companies. They mustsucceed in creating transformation through technology, or they’ll face destruction at the hands of theircompetitors that do.The Digital ImperativeEven in a connected world, it takes time, effort andwillpower to get major transformative effects fromnew technology. Executives need to lead the process Figure 1 Rated01D for digitalMost companies lack experience withemerging digital technologies. DigitalMaturity DigiratiFashionistasConservatives 15%6%14% Beginners 65% Beginner companies probably use email, Internet and various kinds of enterprise software. Butthey have been slow to adopt, or are skeptical of,more advanced digital technologies like socialmedia and analytics.Conservative companies deliberately hang backwhen it comes to new technologies, althoughtheir management has a vision and effectivestructures in place to govern technology adoption.Fashionista companies are very aggressive inadopting new technologies, but do not coordinatewell across departments or have an effective vision in place for dealing with digital business.Digirati companies have executives that share astrong vision for what new technologies bring, invest in and manage digital technologies quicklyand effectively, and gain the most value from digital transformation. 4 MIT SLOAN MANAGEMENT REVIEW • Capgemini Consulting and make sure they’re managing and coordinatingacross the company. Employees know that technologymatters: a full 78% of respondents said achieving digital transformation will become critical to theirorganizations within the next two years. Less than 5%of respondents say digital transformation will neverbecome important for their organizations. Meanwhile, 81% said their organizations were alreadytrying to achieve digital transformation (see Figure 2).“The big thing is, technology change is happening so rapidly that every industry is being affectedby this,” said George Westerman, research scientistat MIT’s Center for Digital Business, and one of theinvestigators leading the Center’s Digital Transformation Research.Previous research by Capgemini Consulting andMIT’s Center for Digital Business found that companies that invest in important new technologies andmanage them well are more profitable than their industry peers. Respondents to our survey corroboratethis view — they overwhelmingly believe that failureto effectively conduct digital transformation willharm their company’s ability to compete.Of those working at organizations where digitaltransformation is a permanent fixture on the executive agenda, and a core strategic consideration, 81%believe their companies will be somewhat or muchmore competitive in two years. That’s a stark contrast from those at organizations where leadershipis not focused on digital transformation — only18% believe their companies will increase theircompetitiveness, and nearly half (46%) project agrim, less competitive future.Despite growing acknowledgment of a digitalimperative, few companies are responding. Only38% of respondents said that digital transformationwas a permanent fixture on their CEO’s agenda. Ofthe rest, 65% of respondents thought it needed to bemore important than it currently is.Technology EverywhereThe pervasive nature of technology in consumers’lives is causing rapid change in the business landscape. Lori Beer, executive vice president ofinformation technology and specialty business atWellPoint, the nation’s largest Blue Cross/Blue Shieldlicensee, said that “[i]t’s not like we’re a consumersloanreview.mit.edu Figure 2 A current affairAlmost half of employees think digital transformation02is upon us, and a third say it looms.When will itbecome critical toimplement DigitalTransformationacross yourorganization? 27% That time has passed —it is already a matter ofsurvival 18% This year 33% Within the next 2 years The Benefits of DigitalTransformation 13% 3 years or more ompanies that effectively manage digital technology can expect to gain in one or more ofthree areas: better customer experiences and engagement, streamlined operations and new lines ofbusiness or business models. Though innovative newbusiness models are what every CEO dreams of,companies more often see digital technologies helptransform their customer experience or operations.Business model transformation is difficult, and farless prevalent, according to survey respondents.Customer experiences reflect the clearest impactof digital transformation. The survey found that 5% It’s never going tobecome importantacross the entireorganization Percentages don’t add to 100% due to exclusion of thoseresponding “don’t know.” products company, where you can put that producton the shelf. Our products and services really aresupporting consumers, providing capabilities for employers, information, data, much more like a financialservices type of scenario. Technology has always beenimportant to our business, but it really is becomingmuch more strategic, especially today, when you’reseeing the emergence of new technologies. You’re seeing a transformation of how consumers are engagingwith technologies.”The rise of the tech-savvy, connected consumeracross all facets of society changes the expectationsconsumers have of companies, regardless of theirbusiness, said Curt Garner, the chief informationofficer at Starbucks. “IT and digital is pervasive inpeople’s lives now. So the advice I would give somebody starting it now is, think of yourself like aconsumer technology company.”How do consumer technology companies act?One key point is, they update frequently. For nontech companies, this translates into adapting bystreamlining product cycles. Quicker product cyclesoften lead to adding some features later. Adding features into new versions of products can become asloanreview.mit.edu strategic move for non-tech companies, as well.Responding effectively and quickly to new technologies affects the bottom line, and ultimately businesssurvival. Effective management of new technologies isalready creating winners and losers in measurableways, like market share and profits — both areas whereDigirati outperform their rivals. Business leaders whoembrace the digital imperative will see boosts in theiroperations, customer relations and business models,as described in the next section (see Figure 3). C Figure 3 Digital cash registerDigirati — the best companies at managing digitaltechnology — get the best financial results. 07 DigiratiRevenuecreation +9% Fashionistas Conservatives Beginners+6%-10% +26% -4% +9% Profitability-11%-24% +12%+7% MarketValuation -7%-12% Source: MIT’s Center for Digital Business and Capgemini report “The Digital Advantage: how digital leaders outperform theirpeers in every industry (http://ebooks.capgemini-consulting.com/The-Digital-Advantage/index.html)” Embracing Digital Technology • MIT SLOAN MANAGEMENT REVIEW 5 R e s e a r c h R e p o r t E m b r a c i n g D i g i ta l T e c h n o l o g y improving customer relationships was the area whereucts and services. General Electric is pushing ancompanies were having the most success with digitalInternet of Things service strategy that will help it telltechnology. Most prominent was improving the overcustomers how to schedule maintenance and avoidall customer experience, followed closely by enhancingpart failures, improving operations. The companyproducts and services in customer-friendly ways.expects it will sell services related to maintaining itsSurvey respondents said their organizations alsoproducts.are seeing improvements in operations, in part in auOf course, more efficient products may well reducetomating operations. A number or respondents saiddemand for new GE goods. But William Ruh, vice presinternal communications are sharply improved, espeident of software at General Electric, notes that “there’scially through using social media. For example, Jonupside for us in the services. We can grow on theBidwell, chief innovation officer at Chubb, a largeservices side, and they’re winning and we’re winning.”specialty insurer, told us that social business tools andBut business model transformation is also elusive.processes had transformed the company’s innovationA mere 7% of respondents said that their company’sculture, helping it develop products and understanddigital initiatives were helping to launch new busirisks as rapidly as new markets emerged.nesses, and only 15% said new business models wereThe opportunity for digital technologies to createemerging thanks to digital technology (see Figure 4).new businesses is real, andEnhancea quarterof respondentsour existingproducts and services It could be that these technologies are so new thatexpect digital transformation to launch new prodthey simply haven’t had time to be turned into newbusiness opportunities. One respondent noted thatin his company, “the belief is that digital technologiesFigure 4are not that effective yet in our marketplace.” Anothersaid customers weren’t ready for new models yet,What has digital done for us lately?Companies are using technology to create real, transformative effects acrossbecause they are “highly conservative and resistant tocustomer experiences, internal operations and new business model.change.”08Number of responses2000 Ensurecross-channelconsistency 1876 Our digital initiativesare helping us to:(Select up to three.) 1800 1600 Enhance ourexistingproducts andservices Launch newproducts andservices 14001255 Improveinternalcommunication Transitionphysical products/ services todigital products /servicesDevelop newbusiness models Enhance theproductivity ofour workersImprove thecustomerexperience Customerexperience 12001087 Automate ouroperationalprocesses Operationalimprovements Launch newbusinesses Expand ourreach to newcustomersand markets Business modelchange 6 MIT SLOAN MANAGEMENT REVIEW • Capgemini Consulting 1000 800 600 400 200 0 The Trouble with DigitalTransformation D espite growing acknowledgment of the needfor digital transformation, most companiesstruggle to get clear business benefits from newdigital technologies. They lack both the management temperament and relevant experience to knowhow to effectively drive transformation throughtechnology.Even companies where leadership has demonstrated it can effectively leverage technology canrun into challenges with new digital technologies.Today’s emerging technologies, like social media,mobile, analytics and embedded devices, demanddifferent mindsets and skill sets than previous wavesof transformative technology.There is no one factor that impedes digital transformation. Lack of vision or sense of urgency plaguedmany companies, culture at others, and organizational constraints problems at still others. Oursloanreview.mit.edu research highlighted nine specific hurdles in thebroad areas of leadership, institutional obstacles andexecution that companies need to overcome toachieve digital transformation.Leadership: Defining the AgendaMany managers feel no urgency to achieve digital transformation. This may be because so few leaders offer avision and a road map for digital transformation,leaving managers with no motivation for achieving it.Lack of urgency Complacency affects more companies than any other organizational barrier citedin our survey, with almost 40% of respondents saying that lack of urgency/no sense of burningplatform is the biggest single obstacle to digitaltransformation. One survey respondent working inhigher education said “The organization has a long(70 years) history of success … the need to change isnot clear to some members of the old guard” (seeFigure 5).The survey shows a clear split in perception ofurgency between the top managers at companiesand those below them. In fact, the further down theorganizational ladder one goes, the less satisfiedworkers are with the pace of digital transformationat their organizations. A third of C-level executivesand board members think the pace of change isabout right, and another 10% think it is fast, or evenvery fast. CEOs are particularly bullish — 53%think the pace is right, fast, or very fast, the highestof any category (see Figure 6, p.8).CEOs might know something their colleaguesdon’t, of course. Or it could be that as one gets intothe trenches of transformation, conditions change.Only 25% of managers think the pace is right, and amere 22% of staff agree. Of these, product development staff are the most positive — just over 40% saythe pace is very fast, fast or just right. Managementwas guilty of “complacency, ignorance of moderntechnology,” said one respondent. “Clueless management,” commented another.But employee skepticism can also impede pace —even when leadership is on board to promote digitaltransformation. “There is too much hype,” said oneCEO. “I can’t push harder because of all the hype andthe overselling from suppliers. I lose my credibility ifsloanreview.mit.edu Figure 5 The biggest transformation traps ppt15 (09) Desire, money and tools are the three big reasons organizations fail to usetechnology to make their business better.No “burning platform” / no sense of urgency39% Not enough funding33% Limitations of IT systems30% Roles and responsibilities are not clear What are the mostsignificantorganizationalbarriers to DigitalTransformation inyour organizationas a whole?Select up to 3. 28% Lack of vision28% Unclear business case27% Business units implementing independently in silos24% Culture not amenable to change19% Lack of leadership skills16% Regulatory concerns9%Percentages refer to respondents who clicked this option versus total number of respondents whoanswered this question. I push it too hard. So we take a slower approach justto make sure we don’t give the naysayers their way.”The vision thing Digital transformation starts with a vision from top leadership. Where seniorleaders had shared their vision, it had huge buy-in— fully 93% of employees agreed that digital transformation was the right thing right now for theircompanies to do, and 73% strongly agreed.“This idea that a thousand flowers will bloom andwe will all be okay is a great way to get some ideas, butwe have not seen any transformations that happenbottom up,” said George Westerman. “They’re allbeing driven top down. The big difference betweenthe companies that are just doing technology initiatives and the companies that are leading atechnology-based transformation is how they’re putting the leadership frameworks in place.”Embracing Digital Technology • MIT SLOAN MANAGEMENT REVIEW 7 R e s e a r c h R e p o r t E m b r a c i n g D i g i ta l T e c h n o l o g y Figure 6 ppt11 Off the pace The pace of digital transformation is too slow — unless you’re the CEO. 50% From your perspective,how would you rate thepace…

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