Today, virtually all companies are aware of the necessity to engage in digital transformation — and the few companies that have not done so are suffering heavily. New digital entrants, and aggressive plays by traditional competitors in reaction to those entrants, are destabilizing many industries, on average cutting by half the revenue and profit growth of standstill companies.1
However, some established companies have fully embraced digital as core to their overall corporate strategies and successfully transformed to reestablish profitable growth. Among the companies that are responding through digital initiatives, the fundamental question is whether they have the right intelligence to succeed in their digital transformation.
We have found that a company’s prospects for success can be diagnosed early in its transformation journey. A shared understanding of a company’s current digital intelligence, its desired future state, and critical gaps to overcome is a necessary precondition for success. Without this, the transformation will predictably hit major roadblocks. Having an objective, empirical, detailed assessment of digital capabilities is essential, enabling managers to speak a shared language across business units, functions, and geographies and to ensure alignment on priorities.
This article discusses tried-and-true approaches companies are taking to improve their digital intelligence and, in doing so, successfully execute digital transformations. Our findings are based both on insights and on recurring themes from our analyses of more than 250 companies globally, across industries, as well as on statistical results confirming the link between those companies’ revenue trajectory and their digital intelligence.
Further, we invite you to conduct your own initial assessment of your company’s digital intelligence (see “Test Your Digital Intelligence”), and then provide a guided tour of best practices and specific steps others have taken on their successful digital transformation journeys.
Measuring Digital Intelligence: The Concept Explained
Over two years, we interviewed more than 100 thought leaders across leading digital companies worldwide — including digital natives such as Google Inc., Amazon.com Inc., and eBay Inc., as well as legacy companies that have become digital leaders such as Burberry Group plc and Capital One Financial Corp. — to identify the characteristics that distinguish these organizations. The research suggests that a company’s digital intelligence is informed by four dimensions: strategy, culture, organization, and capabilities.
1. J. Bughin and N. van Zeebroeck, “The Best Response to Digital Disruption,” MIT Sloan Management Review 58, no. 4 (summer 2017): 80-86.
2. B. Sozzi, “How Home Depot Grew Its Online Sales by Over $1 Billion Last Year,” The Street, March 15, 2015, www.thestreet.com; T. Team, “Here’s How Home Depot’s e-Commerce Strategy Is Driving Growth,” Forbes, Feb. 15, 2017, www.forbes.com.
3. C. Heine, “Inside Hasbro’s Digital Transformation Into a Modern Toymaker and Advertiser,” AdWeek, June 4, 2017, www.adweek.com.
i. J. Bughin, L. LaBerge, and A. Mellbye, “The Case for Digital Reinvention,” McKinsey Quarterly, February 2017, www.mckinsey.com.
ii. By recombining the four components in orthogonal factors, the first factor already explains close to the totality of the variance in DQ components, with a test of single factor being passed at 0.00%. The loading factors of each DQ are 0.87 for strategy, 0.83 for organization, 0.74 for capabilities (all are statistically not different). Only culture weight is lower than others, at 0.53.