Companies routinely invest in technology, and too often feel they get routine results. But a new MIT Sloan Management Review (Oct., 2013) study makes it clear that companies that are aggressively engaged in “digital transformation” tend to perform better. Why? According to the authors, “the current wave of digital innovation is about connecting companies to customers, and companies can’t afford to miss out on opportunities to improve efficiency, service, sales and performance. Companies must succeed in creating transformation through technology, or they’ll face destruction at the hands of their competitors that do.”
Researchers divided companies into 4 categories in terms of their commitment to digital transformation, then tracked the companies’ performance over time. “Digital transformation” refers to overall intensity of the effort to align a company’s operations with its business model through successful uses of digital technologies as a replacement for older processes. The 4 categories of enterprise were:
Digirati: Those companies that have gone all-in on digital transformation. This relatively small percentage of companies outperformed all others across the board.
Conservatives: Companies that have been slower than average to move toward digital transformation. Conservatives performed worst in revenue creation at -10%.
Fashionistas: Companies that publicly say transformation is important to them and may even throw a lot of money at transformation efforts, but whose efforts don’t match their rhetoric. Fashionistas scored worst in profitability at -11%.
Beginners: These performed worst among all the companies in terms of profitability (-24%) and 2nd worst in revenue creation and market valuation.
Results mean, for example, that automating an e-procurement system doesn’t just reduce the amount of paper being shuffled; it also gives a firm more accurate data that can help negotiate lower prices from vendors. Transforming warehouse management doesn’t just reduce headaches for shipping managers; it also can lower the amount of money tied up in inventory. And digital transformation of fleet management not only saves fuel and improve drivers’ efficiency; it also can help a company quickly and cost effectively serve customers and earn more and bigger orders. The bottom line: companies aggressively committed to digital transformation excel.