No matter the industry or business model, leading organizations are finding that the most challenging path for systems evolution is also the most rewarding.
Many of the most consequential investment decisions facing CEOs today are technology-related. That wasn’t the case a few years ago. But now every company is in effect a technology company, and every CEO a tech CEO. With every major technology choice representing a vital business decision, “good enough” decisions are anything but.
That’s what we are finding as we continue to analyze the technology decisions of more than 8,300 companies across 20 industries in 20 countries, in what we believe is the largest study to date of enterprise systems. This work also includes responses from nearly 900 CEOs across the globe.
Our initial comparisons found that the top 10% of these companies in terms of their levels of technology adoption, technology penetration, and organizational change are achieving levels of revenue growth that are double those of the bottom 25%, which constitute the technology laggards. These leaders also grow revenues more than 50% faster than the middle 20% of the companies we studied.
Further in-depth analysis of the data, the full results of which we released at the 50th World Economic Forum annual meeting earlier this week, indicates why: At critical stages of systems evolution, the 10% of companies that lead the way boldly choose the most challenging, but most rewarding, of the technology options typically available. In contrast, laggards fail to achieve full value from their investments in new technology because they make defensible but suboptimal decisions that inhibit their ability to share and scale technology-driven innovation across business units and processes.
Tempting Solutions Yield Mediocre Returns
Innovating at scale is difficult. Consider a decades-old media giant that operates across three continents. Rapid changes in its competitive landscape, consumer demands, and regulation have forced the company to quickly adopt new technology throughout the enterprise. Often, these technology decisions have been relegated to business unit, product, or geography heads.
This approach seems reasonable. Allowing different parts of the organization to customize and develop their own systems speeds up decision-making. Individual decisions about technology are made carefully and appear defensible. But this results in highly customized systems that are deployed in isolated pockets of the organization.
In an era of platforms that connect people with technologies and systems, this sort of approach is no longer tenable. Over time, updating and modifying such systems becomes increasingly difficult, precisely because of how customized they have become. More important, however, individually customized systems often cannot work with one another. This adds up to a large difference between potential and realized value as companies find themselves unable to scale tech innovations across their businesses.
Leaders Scale Innovation Across More Processes
In general, revenue growth increases as more processes are transformed. On average, leader companies transform 10 processes. Companies in the middle of the spectrum transform five. Laggards transform three or fewer, leading to 1.5 times lower revenue growth compared with leaders.
Meanwhile, new technologies, such as AI and cloud, have opened up new possibilities for transforming business processes of all kinds and all degrees of complexity. Laggards, however, generally choose to use new technologies on a few easily augmented processes — typically those that are customer-facing, like marketing and sales. For example, a major U.S. bank with nearly $200 billion in assets has experimented with AI chatbots in customer service but has yet to achieve any return on the investment. Similarly, a multinational enterprise software company developed a chatbot for the company’s IT help desk and customer service but nothing else.
Somewhat more ambitious companies build innovation centers and hubs to transform multiple processes. For example, one of the oldest banking and financial services companies in the world has created more than a dozen innovation centers to engage with startups and attract tech talent. Companies that build such hubs enjoy higher revenue growth than companies that don’t. But when companies build innovation centers as silos, without transforming their actual processes with technology, they lose out on 20% to 30% of the revenue that would have resulted from added synergies.
Leaders, in contrast, reimagine multiple business processes so that they can scale the same innovative technology across all of them. They not only transform IT and customer experience processes but also new product and service development, including discovery and innovation, as well as business operations and change management.
A large European airline, for instance, is using AI to predict operations, optimize sales channels, and provide automated assistance to customers. VMware, a provider of cloud computing and virtualization software and services, is using AI to improve sales and operations, in addition to using AI bots to automate more services in HR, finance, and other functions.
Leaders Sequence Technology Adoption for Paradigm Change
In our survey, we asked about the adoption of 28 different technologies. Even if we assume that a company is conservatively considering the adoption of only 10 technologies out of all new technologies available, the number of possible combinations can still run into the millions. This presents a maddening number of possibilities for sequencing adoption.
As with decisions about how many processes to target for transformation, too many companies rely on “good enough” options in the face of such unprecedented uncertainty. We found that most laggards experiment with new technologies but aren’t timing and sequencing them correctly. Middlers engage in experimentation and also double down on industry-specific, customized tech. Both options are suboptimal. Failing to sequence tech adoption in the core decreases returns from technology investments. Doubling down on industry-specific tech locks companies in, inhibiting their ability to pivot or combine technologies in the future.
Leaders invest in paradigm change and do so early. Consider the adoption of AI. Not only have more leaders adopted AI — 98% of leaders versus 42% of laggards — but they also deployed it up to three years ago, whereas most laggards deployed it only a year ago. And leaders created the systems to capitalize on AI before scaling it, first putting in place event hubs, containers, and event-driven architectures.
Or consider the timing of the decision to invest in cloud-based software as a service (SaaS). While companies on the lower end of the spectrum took a wait-and-see approach, leaders acted. Twenty percent leaped into SaaS more than five years ago, compared with 9% of middlers and 8% of laggards.
How do leader companies position themselves for success? They carefully consider the landscape of emerging technologies and identify the foundational and complementary technologies to adopt, and then they sequentially create systems that provide strategic agility and scale.
CVS Health, for example, has unified its data and technology initiatives around customer experience, building its system progressively through the cloud, application programming interfaces (APIs), and now AI and blockchain. It used an API management platform, API backbone, and global identity to connect internal systems and software with its health care partners.
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To counter the challenge of conflicting data from multiple parties in the ecosystem, the company deployed blockchain technology to identify the most likely source of truth for any given point by preserving the chain of the data, the source, and the context. CVS also employs filtering technology based on AI and machine learning in order to identify and prioritize meaningful events for patients and other stakeholders.
Make the Difficult, More Rewarding Choices
CEOs are necessarily playing a much more involved role in their companies’ technology strategies. However, while 80% of the chief executives in our study said their company has the right systems in place to innovate at scale, only about 9% of those companies were actually in the leader group. To move from average to exceptional, CEOs and their IT executives will need to sort through their technology investments and identify the places where they have succumbed to the siren call of seemingly good-enough solutions, elevate their ambition, and match their actions to it.