Digital Leaders Outperform Digital Laggards

Digital Leaders Outperform Digital Laggards

Evidence is emerging of a growing digital divide between organisations who ‘get IT’ and those who don’t; between those using digital technology to successfully transform their business and those still stuck on the starting blocks.

For example, in a recent blog post, we presented a Digital Maturity Index identifying four main types of organisation in terms of digital capability and digital leadership – ‘Fashionistas’, ‘Conservatives’ ‘Beginners’ and ‘Digital Masters’, based on work emerging from MIT (see Water Deregulation: Is the Industry Ready Digitally?).

A new report from Harvard Business School, published this week, provides evidence that the digital divide is already having a major impact on subsequent financial performance.

Based on detailed research covering 344 large US based enterprises, the Harvard study concludes that ‘digital leaders’ (enterprises who are transforming digitally) outperform ‘digital laggards’ across a range of financial measures.

Organisations that sit in the top quartile of Harvard’s Digital Transformation Index achieve significantly better gross margins, earnings and net income than organisations in the bottom digital quartile. A similar disparity is evident across other financial and operating indicators (see What the Companies on the Right Side of the Digital Business Divide Have in Common).

An interesting conclusion from the study is that building digital advantage is not simply about how much money is spent. The best performing companies have technology budgets on par with digital laggards. It is how that money is spent building digital capabilities that makes the difference.

Four key operating pillars of digital success are identified, with advanced data analytics permeating all four pillars:

  • Customer interaction and relationship management, with digital leaders leveraging data analytic platforms to shape relationships and target opportunities.
  • Product and service delivery built on efficient management of internal operations and the external ecosystem with business partners.
  • Efficient product and service creation combining effective engineering, product management, data science, operations, design and resources.
  • Human capital management – the recruitment, development and empowerment of high quality information workers.

Digital leaders have built robust capabilities across all four operating pillars.

While based on a study of large US based enterprises, the Harvard research raises important implications for digital transformation this side of the Atlantic. Our experience is that a similar digital divide is opening up in the UK public sector too.

You can access the full paper here.