Risk-averse companies struggling with digital transformation - report

Overcoming aversion to risk is one of the most important characteristics of digitally native companies, according to a new study released today by MIT Sloan Management Review (MIT SMR) and Deloitte Digital. The sixth annual study, in its third year focusing on digital business, found that 71 percent of digitally maturing organizations have conquered this barrier by encouraging their organizations to experiment and accept the risk of failure, compared to 29 percent of early stage companies. The study, “Achieving Digital Maturity: Adapting Your Company to a Changing World,” examines the digital transformation habits of “digitally maturing” companies and what sets them apart from “digitally early stage” companies.

Among the key findings of this year's study is the significant number of companies struggling to implement a clear digital strategy in order to evolve the way business is done as digital technologies change the market. Only 13 percent of organizations report that improving technology development and deployment is a source of concern. Nearly 40 percent say improving digital strategy and innovation is what their organization needs to do differently in order to progress toward digital maturity. In addition, digitally maturing companies are more than four times as likely as non-digitally maturing companies to have a clear and coherent digital strategy in place than other companies (80 percent of digitally maturing organizations versus 19 percent of early stage companies).

Based on a global survey of more than 3 500 business executives, managers and analysts from organizations around the world, the study also found that successful digitally maturing organizations are becoming talent magnets. Driven by investment from leadership, opportunities to develop in a digital environment, and a culture that rewards collaboration, experimentation and risk taking, these companies are not only keeping pace with digital change, they're also more likely to retain talent, including executive-level talent, than early stage entities:

  • Seventy-seven percent of digitally maturing organizations recognize and reward collaboration and cross-functional teams as a cornerstone of how they operate, versus slightly more than 34 percent of early stage entities.
  • Approximately 75 percent of digitally maturing entities plan to increase the monies and resources they put into digital business initiatives during the next 12-18 months; only 49 percent of early stage organizations plan to do so.
  • More than 70 percent of organizations that provide their employees with the opportunity to thrive and more than 70 percent whose leaders have sufficient vision to lead digital efforts say their initiatives are successful; fewer than 25 percent of those organizations that do not can make the same claim.
  • Vice President level executives without sufficient digital opportunities are more than 15x likely to leave within a year than those with satisfying digital challenges.

"Cross-functional working is key, yet many organizations still have their structures divided between 'digital' and 'traditional', which is a problem," said Deloitte Digital's Doug Palmer, co-author of the report and principal, Deloitte Consulting LLP. "This has been quite the norm for a company's structure, however, we are seeing that companies are increasingly breaking down these silos and transforming culture and talent by assessing and redesigning processes, workflows and workforce."

Additional analysis of this year's study uncovered the following principles for how companies can adapt and change to compete effectively in a digital environment:

  • Walk the walk: 34 percent of respondents from early stage companies say that their companies spend more time talking about digital business than acting on it. Digital maturity goes beyond the technology and is more about how to sync talent, culture and organizational structures with digital environments. Executives should reconfigure aspects of their organizations and operations to drive digital success.
  • Growth vs. scaling: Reaching digital maturity is an ongoing process that requires a flexible mindset and an organizational structure that supports the company's ability to react to digital trends. Companies are struggling to scale successful experiments and bring them to the core of their business, but can do so with a culture of transformation, which is the cornerstone of increasing the pace of experimentation.
  • Figure out the funding model: Options range from capital funds to savings from operational improvements. Adequate funding provides the necessary resources to begin driving small experiments into enterprise-wide change.

"These discoveries tell us that digitally maturing organizations understand that they have to take a short and long view," said Gerald (Jerry) Kane, guest editor at MIT SMR and professor of information systems at the Carroll School of Management, Boston College and co-author of the report. "Businesses must craft strategies that allow for execution within the next 12-18 months while also keeping an eye on the horizon since the end points of digital change will never completely arrive."

"To create these innovations, companies should foster cultures that embrace risk and create environments where employees want to learn and stay," said David Kiron, executive editor at MIT SMR. "Equally important, operations need to become more cross functional to fully support customers' digital experiences."