A year has passed since the pandemic struck and the results are in: companies that were quick to digitalise reaped the benefits in bigger revenues, better share price performance and higher customer satisfaction, while those that were slow off the mark have floundered. Now, with the economy facing a ‘K-shaped’ recovery, digital leaders are set to multiply their lead over laggards in the years to come.
Digital transformation “has become a board-level conversation and a cross-functional conversation, not a technology conversation,” says Robert Parker, senior vice president at market intelligence provider IDC. “This isn’t something that just the CIO does anymore.”
Moving up the agenda: digital transformation in 2020
Tech Monitor analysis of the annual financial reports of 2,000 multinational corporations, provided by GlobalData, found that 26% mentioned ‘digital transformation’ at least once in 2020, up from 19% in 2019. The term was most frequently mentioned by media, financial services and technology companies. The proportion of alternative energy providers invoking digital transformation nearly doubled from 17% in 2019 to 33% last year.
Unsurprisingly, the companies that mentioned digital transformation most frequently included technology providers, such as French IT services giant Atos and German telco Deutsche Telekom, but the number one company was a bank: Spain’s Santander.
Digital leaders have performed better during Covid-19
There are material benefits to being a digital leader. The FTSE 350’s best-performing companies – whose share price rose by 34.4% or more compared with 2019 – discussed technology in their 2020 annual reports an average of 21% more than their peers, according to Accenture’s FTSE Focus Index.
However, it is companies that make frequent mention of specific technologies that come out on top, Accenture’s analysis found, not those making generalised references to digital. All of the mentions of ‘cloud virtualisation’ in 2020 annual reports were by the FTSE 350’s top performers, it found, while four in five mentions of the term ‘digitalisation’ were by companies in the bottom quartile.
“Businesses that are laser–focused on their technology strategy are seeing a positive impact on their performance, whether that’s due to maintaining business continuity, accelerating product innovation or improving customer experiences,” says Maynard Williams, managing director at Accenture UK and Ireland. Top performers often mention technology capabilities in tandem, he adds, implying the value of broad-based technology strategies.
Digital companies also benefit from higher revenue and profit growth, according to IDC’s Global Performance Index. In 2020, digital manufacturing companies observed revenue around 20% higher than 2015 figures, while non-digital peers saw revenues and profits fall.
As a result, digital transformation is becoming an integral part of wider company strategy: 83% of business leaders believe their business strategy is now inseparable from tech, with 77% reporting that success is dependent on their technology stack, according to Accenture.
This is reflected in increased spending on digital transformation, with an average 46% increase in spending on digital strategy between 2019 and 2020, according to Twilio’s State of Customer Engagement Survey.
This has helped established companies close the gap with digital natives, says David Parry-Jones, vice president at cloud communications platform Twilio. “Covid broke down some of the siloes, certainly when it came to access to budget… and the businesses that have dedicated more budget to digital transformation have started to see the benefit, even over a short period.”
Beyond technology implementation
There is, of course, more to successful digital transformation than buying technology. “Firms are realising they must have digital tools and in the implementation of these tools, they realise they need an integrated digital strategy,” says Xavier Cirera, senior economist at the World Bank. “Unless companies transform their business models, they won’t be able to sustain the digital transformation and, in some cases, even successfully apply these new digital tools.”
Unless companies transform their business models, they won’t be able to sustain the digital transformation and, in some cases, even successfully apply these new digital tools.
Xavier Cirera, World Bank
Most companies still have a long way to go to fully digitalise, he says, adding: “There has been a large concentration of digitalisation on sales payment methods and marketing… Will other parts of a company, for example supply chain management or HR management, also become more digitalised? We don’t know yet.”
Accenture’s Williams agrees that successful digital strategy is about more than just increasing spending, saying that, post-pandemic, “every business has to be a technology business”.
“We’re seeing businesses from all sorts of industries digitise their products and experiences, and even reshuffle their boardrooms to bring in tech-savvy CEOs,” he says, adding that it is critical that leaders have a clear tech vision. “The decisions they make now will define what they’re able to achieve in the future, so they need to ensure that it’s closely aligned with their overall business strategy.”
Home page photo of an office meeting by Hurst Photo/Shutterstock.