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Deloitte Survey Finds Digital Transformation is Crucial for Organizations to Win in a Post-COVID World

Key takeaways

  • More than three-quarters of the leaders we surveyed said their organizations' digital capabilities significantly helped them cope with the challenges triggered by the pandemic.
  • Nearly two-thirds of respondents believe that organizations that don't digitize in the next five years will be "doomed."
  • More digitally mature companies performed better than lower-maturity companies during the past year. They were about twice as likely to generate net profit margins and annual revenue growth significantly above their industry average.

Why this matters

At a time of rapid change and increasing uncertainty, digital enterprises, due to their greater agility and capacity to innovate, have an edge over less digitally mature competitors. A new study by Deloitte provides fresh evidence that more digitally mature organizations are more resilient and better able to navigate rapid change, and they do significantly better financially as a result. Ultimately, the study argues that companies should be digital to play but will need the right strategy-one that takes advantage of digital possibilities and capabilities-to win.

To understand how digital transformation enabled resiliency for organizations during the uncertainty and fast-paced changes brought on by the COVID-19 pandemic, Deloitte conducted a global survey involving 2,860 executives at organizations across industries spanning both the commercial and the government sectors. Responses from US executives were collected in November 2020; responses from executives in Asia-Pacific and European countries were later collected from January to February 2021. Qualifying responses came from organizations with at least $100 million in annual revenue and global headcount greater than 500. Respondents also had to indicate they were "very" or "highly" knowledgeable of their organizations' digital transformations. For more information, please go to: https://www2.deloitte.com/us/en/insights/topics/digital-transformation/digital-acceleration-in-a-changing-world.html?id=us:2el:3pr:4di7199:5awa::MMDDYY:&pkid=1007667

Digital transformation as the central pillar of strategy is key to success

This year's study found that more digitally mature companies were nearly twice as likely to say that digital transformation was the central pillar of their strategy compared to companies of lower digital maturity. And digitally mature organizations were more than three times more likely than lower-maturity organizations to say that new digital initiatives spun up during the pandemic were already having a positive impact. 

The shift from digital as an enabler of strategy to digital as the lynchpin of competitive strategy comes at a time when the mere possession of advanced digital technology is becoming table stakes. COVID-19 brought the need for digital transformation to the forefront; many companies accelerated their digital transformations to deal with the disruptions brought on by the pandemic, in some cases making years of progress towards digital maturity in a matter of months. And nearly two-thirds of private-sector respondents believed organizations that don't digitize in the next five years will be "doomed."

"Digital is the strategic issue of our time. Digital possibilities should shape a business' strategy while strategy simultaneously shapes digital priorities," said Rich Nanda, a principal in Deloitte Consulting LLP who leads the US Monitor Deloitte strategy practice. "When a company infuses digital into its core strategy, it creates new ways to differentiate against competitors and can enable greater resiliency. Digital has helped companies navigate the COVID-19 crisis, but the need for digital capabilities and digitally-informed strategy will only grow."

Despite the pandemic, digital transformation spending is still on the rise

The pandemic showed that investment in digital transformation can be crucial to remaining competitive. More than three-quarters of the leaders surveyed citing their organization's digital capabilities significantly helped them cope with the challenges triggered by the pandemic. Sixty-nine percent of surveyed digital transformation leaders globally planned to increase their financial commitments to digital transformation in response to the pandemic. On average, respondents planned to spend US$12.6 million (or nearly .6% of their annual revenue) on digital transformation over the next 12 months. That's a 15% increase from the US$10.9 million that they spent over the prior 12 months. Leading reasons organizations say they are investing in digital transformation include enabling faster innovation, needing to modernize, and becoming more resilient. This vigorous growth in digital transformation investment raises the competitive stakes for organizations.

The pandemic was also an opportunity for many companies to use digital methods to shore up customer retention efforts and innovate on customer acquisition. Digitally enabled innovations are often "micro innovations" that enhance customer experience, including tweaks to products, services, and channels. Such micro innovations are easier than the big bang variety: they can be done faster, at lower cost and lower risk, which can in turn can confer resiliency.

Digital enables new ways to differentiate - and creates new competitors

Digital transformation can change how organizations compete by creating new opportunities for differentiation. More than three-quarters of respondents said digital is a key differentiator in their industry today. But digital technologies don't differentiate in themselves. They are the platform on which companies can compete in new ways. And digitization is reshaping the competitive landscape, giving an edge to more digitally sophisticated organizations. Most respondents noted they believe their main competition in five years will come from an emerging startup or existing digitally native company; fewer than one-third believed they will be facing down a current competitor. Though mostly smaller, digitally native newcomers can leverage their nimbleness and scalability to break into new markets and deftly seize opportunities from less agile incumbents. However, incumbents are also using digital to fight back.

Post-pandemic, the pace of change will likely increase

Among survey respondents, more than three-quarters expected their organizations will change more over the next five years than over the past five. Not all leaders view the accelerating pace of change in a positive light. In fact, more than half of respondents believed that the fast pace of change in technology is "not good" for their organizations or their customers. Three-quarters of respondents also said their organization's digital transformation has led to major changes to their senior leadership team or board over the prior two years.

However, many executives also recognize that the rapid pace of change can create opportunities. Three-quarters of the CEOs responding to a recent Deloitte and Fortune survey said the pandemic created significant new opportunities for their companies. It is crucial for organizations to assimilate digital capabilities as part of their strategy to ensure that "change" is value enhancing rather than value destructive.

To survive and thrive in an uncertain world, organizations should innovate at speed, keep pace with technological and industry change, and cultivate greater resilience. In this environment, resilience is not just a defensive capability; it can help propel an organization to promising new opportunities. Uncertainty and change are unavoidable and future winners will likely continuously evolve in how they seek growth and profitability by approaching digital transformation as though there is no finish line.

Published Friday, April 23, 2021 1:57 PM by David Marshall
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