Why digital transformation doesn’t have to be hard

Companies that succeed in doing so clearly stand to benefit. The Digital Investment Index found that digital leaders — firms that achieved higher returns from their digital investments — reported stronger revenue growth in the past two years and expected strong growth in the future. The research also found that digital leaders were much more likely to demonstrate clearer digital strategies, invest in the right emerging technology to execute such strategies, and devote funds to accelerate new digital products, services and business models. 

Strategy two: Scaling up through M&As — “buy to get a head start” 

Companies can accelerate their digital journey by either building in-house capabilities or acquiring them. The above study found that nearly three-quarters of the executives surveyed were shifting to M&As and partnerships to speed up digital initiatives. Notably, digital leaders were shifting an average of five percentage points of their investment mix from building internally to M&As.

M&As provide an effective route for acquiring the technology and talent needed to fuel digital transformation, and allow organizations to nimbly capture new opportunities ahead of the competition. Having said that, acquisitions bring their own set of challenges, not least the risk of failure in post-merger integration, the difficulty of estimating the value of the firm’s technology and determining the correct price if the acquisition target is a start-up.

The success of digital M&A will depend in no small measure on executive alignment and collaboration. The goals and values of the acquiring company and those of the acquired or partner firms should be coordinated. Equally important is internal alignment — leaders from different functional groups should be on the same page on the company’s digital M&A strategy. The board should assess if the executive team is aligned on the mix of investment vehicles used by the organization. It is important that the collaboration among management teams continues during the stage of owning and directing those investments. The board should look out for and address any organizational silos and assess if the executives are playing to their individual strengths in creating a successful digital investment strategy.

All these pay off when done right. Executives in the above study who reported that partnerships and digital M&As met or exceeded expectations were significantly more likely to say that they were implemented by a combination of C-suite executives.

Strategy three: Leveraging ecosystems — “don’t try to do everything yourself” 

Business models are increasingly moving toward platform-based setups that would eventually evolve to become one-stop solution platforms. With this shift, some companies may opt to build their own technology platforms, while others may prefer to forge partnerships and be part of a digital ecosystem. Joining forces can help bolster performance by allowing companies to access new opportunities to deliver products or services, and even create new assets. 

Nevertheless, ecosystem partnerships are not without their hurdles. Difficulties in finding the right ecosystem partner, managing customer data privacy issues and overlaps in operations, and determining ownership of the end-user relationship are among some of the key challenges.

The board should ask the management to consider if ecosystem participation has a place in the business strategy, particularly for areas of value that are too challenging or costly to achieve with existing in-house capabilities. Before deciding to build a platform or join an existing one, carrying out a comprehensive due diligence exercise is essential. After the company starts participating in an ecosystem partnership, establishing a recurring review process will allow all parties to generate and receive value from the ecosystem.

In a post-pandemic world, companies that have transformed digitally can expect to increase efficiency, accelerate growth, create new partnerships and revamp their business models to gain a competitive edge. Boards should have a firm grasp of the strategic opportunities that digitalization creates for the company and be able to bring their expertise to bear on overseeing a large-scale digital transformation strategy. Strong board stewardship will help steer the organization toward a future-fit and digitalized business model and capture opportunities for a first-mover advantage.