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

The Boston Consulting Group analyzed the projects of 950 companies and reported the success and failure rates by sector.

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The Boston Consulting Group analyzed the digital transformation work of 950 companies and found that only a third of those efforts were successful. The report published this week measures success rates and predicts future priorities for digital transformations. Along with an overall analysis, the researchers looked at successes and failures by industry, including the tech world.

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

  • Winning Zone: Reach or Exceed the Target Value and Achieve Lasting Change
  • Zone of concern: generating value but limiting long-term change
  • Zone of doom: generate limited value and no lasting change

In 2020, BCG has set itself these six digital transformation goals:

  1. Develop a clear integrated strategy
  2. Commit to leading from the top to the middle
  3. Place the best people in the right places
  4. Embrace an agile governance mindset
  5. Track and measure the progress of your transformation
  6. Create an enterprise-led technology and data platform

Analysts found that companies that considered these six factors reported a 21% increase in EBIT in businesses impacted by transformation, compared to just 10% on average for companies that did not. .

To see how well companies have achieved these goals, BCG researchers analyzed 30 successful digital transformations from working with clients and interviewed 860 VPs and CxOs who acted as their organization’s primary digital transformation decision maker. over the past five years. Researchers also interviewed BCG digital leaders and clients and conducted a literature review of key academic publications and research.

BCG published reports on digital transformation in five sectors:

  • Telecommunications
  • Media
  • Material
  • Software and services
  • IT services

Here are the top results for hardware, software, and IT services companies.

Success of digital transformation among software and service providers

Software and service companies achieved a 60% pass rate, the highest of any industry. According to the report’s authors, this is because these companies are inherently digital and leaders are naturally primed to be early adopters of digital advancements. The researchers also identified these key findings:

  • Successful digital players prioritize areas that have yet to emerge as universal priorities, such as automated lead generation, personalization, and automated churn reduction.
  • Software vendors have sophisticated, forward-looking digital agendas when it comes to customer experience and services, security, and support functions.
  • ESG is becoming increasingly important in the digital agenda, particularly supply chain, customer and employee data risk and cyber resilience.
  • Companies in the top quartile identify the six key success factors, while companies in the middle struggle the most with talent.
  • Software companies pursue digital initiatives more broadly than companies in other industries, with a focus on customer experience, marketing, pricing and innovation.

The research also revealed that almost all software companies intend to spend 50% of their investments on customer experience and service delivery.

Digital transformation and hardware companies

Companies that manufacture hardware devices, components and semiconductors succeed in digital transformation better than several other sectors, according to the report. Half of these companies hit the winning zone, which is above the cross-industry average. The main conclusions for this sector are as follows:

  • Hardware companies outperform other industries on individual success factors, particularly leadership and strategy, but struggle to manage agility, suggesting that large-scale agility remains a heavyweight for hardware companies. physical goods companies.
  • Hardware companies place less emphasis on customer experience than companies in other industries, instead prioritizing business model growth and innovation, as well as accelerating sales and marketing.
  • Successful digital players prioritize areas that fit well with AI solutions, such as automated lead generation, dynamic pricing, predictive maintenance, and demand forecasting.
  • ESG considerations around reducing energy consumption, data privacy and cyber resilience are gaining prominence.

According to the report’s authors, organizations in the worry and misfortune categories should shift their focus from core operations to sales and marketing and innovation-driven achievements.

IT services and digital transformation

The most important IT service organizations have focused their digital transformation work on external or customer-facing initiatives such as customer experience and journeys, business model growth and innovation, sales and marketing acceleration, and partnerships. Only 45% of these companies are in the winning zone, a lower percentage than other technology, media and telecommunications companies, including internet-based companies (58%) and hardware and device companies (52%).

BCG researchers recommend that IT services companies accelerate the pace of digital adoption and note that successful digital players are turning to internal digitization efforts such as employee journeys and support functions. Other discoveries on the sector include:

  • The IT services industry has faced significant talent and agile governance challenges.
  • The forward-looking digital agenda for IT services companies includes service delivery 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.

Helen D. Jessen