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Digital Transformation, Part 5: Transformation by Industry

Digital transformation has hardly been uniform across or within industries. It's clear that some industries surpass others in their transformation. Just compare pharmaceutical giants to the high technology companies of Silicon Valley. It's also no secret that within every industry, we find digital beginners, the digitally mature, and everything in between.

From businesses to entire industries, we find leaders and followers. And as Steve Jobs once said, "Innovation distinguishes between a leader and a follower."  This saying applies to all realms of life, including, of course, digital transformation. 

Digital transformation has hardly been uniform across or within industries.  It's clear that some industries surpass others in their transformation.  Just compare pharmaceutical giants to the high technology companies of Silicon Valley.  It's also no secret that within every industry, we find digital beginners, the digitally mature, and everything in between.

Digital Transformation by Industry

Digital maturity

For the purposes of discussing digital maturity on the industry level, I'm going to borrow the classification and definition of digital maturity outlined by Capgemini Consulting and MIT Sloan

Digital maturity is determined by a firm's initiative in incorporating technology and by its leadership in this direction.

 

Digital maturity stems from two factors: digital intensity and transformation management intensity.  In other words, digital maturity is determined by a firm's initiative in incorporating technology and by its leadership in this direction. 

From these two metrics, digital maturity sorts businesses into four profiles:

  • Digital beginners: low digital intensity in both technology and leadership
  • Digital fashionistas: some digital initiatives, but not really maximizing business benefits
  • Digital conservatives: holding back and may miss opportunities as a result
  • Digirati: digital culture and investments, plus competitive advantage. Simply put, the digital elite.

Looking at the numbers is proof enough that Digirati are, by far, the most profitable.  Unsurprisingly, the same study also finds that digital beginners are the biggest losers in all categories: revenue generation, profitability, and market valuation. 

On average, Digirati enjoy 9%, 26%, and 12% higher rates of revenue generation, profitability, and market valuation, respectively.  Digital beginners, on the other hand, are losing on all fronts, lagging in those three areas by 4%, 24%, and 7%.

Need more proof? 

A different study from McKinsey came to similar conclusions.  After comparing the intensity of digital transformation across 10 industries, McKinsey finds that digital leaders have a 50% boost of net profits over the next five years compared to less-digital businesses.  Part of this success is fueled by the 2.5 times greater growth of digital sales. 

Variation across industries

The nature of certain industries makes them more likely candidates for digital transformation.  It's expected that businesses offering virtual products, like a telecommunications company, have obvious opportunities for digital transformation. 

Anything is possible, but start early to avoid having to play catch-up. 

But take, for example, grocery and apparel stores, for which sales are anticipated to still come primarily from brick and mortar stores in coming years.  Only 10% and 24% of sales, respectively, are expected to be digital by 2018. 

Most customers still prefer picking their product and trying on clothes before purchasing them.  Going shopping with friends also has a social aspect to it that, as of yet, cannot be entirely replicated online. Nevertheless, every sector has digital transformation opportunities. 

Trips to the grocery store could be complemented by digital initiatives like mobile apps, promotions, and more. 

Some examples

Robert Bosch is undergoing his digital transformation by pursuing digital initiatives while also future-proofing itself.  First, Bosch recognized that paper processes are bogging down production sites.  For that reason, Bosch is looking into developing a mobile device and smart glasses for its warehouses so that workers can instantly scan and move products.  With over 250 manufacturing sites, implementing this would reduce inefficiency significantly. It should look something like this:

 

On top of that, Bosch is preparing itself for the Internet of Things by moving to equip all its appliances with sensors.  Even without knowing exactly what the future will bring, Bosch has already planned its next move.  That's smart thinking. See more in this video on Bosch's vision with the Internet of Things.

To really drive the point home that digital transformation works for any and all industries, I present you with an example from the sports industry: the National Basketball Association. 

Although already backed by a huge fan base, the NBA has refused to be complacent and continues to improve fan engagement with an admirable level of digital intensity.

The NBA brought 65 years' worth of official game statistics to fans with a user-friendly, high-traffic-capable website.  It not only gives fans access to statistics that the NBA already had, but it also has made the experience interactive.  It didn't stop there.  The NBA added video content, advanced box scores and, of course, made everything available on smartphones and tablets.

And it worked. Visitors to the web page increased by 63% in just one season.  On top of that, fans are spending twice as long on the site compared to the previous season! 

Change of businesses themselves

It's easy to see that today's customers are demanding more from businesses.  But what may be less obvious is that businesses themselves are also becoming more demanding customers. 

Consulting firms now face increasing pressure as businesses expect more and better help for their digital transformation.  Before, it was often enough for consulting firms to find ways to reduce cost and increase efficiency for their clients. Now, their clients expect improvements in innovation and processes. 

This digital transformation-driven shift is also felt in many IT departments and most of the players in the service industry.  The only way to add value to businesses is when it enables real evolution and tangible improvement.  Implementing automation just doesn't cut it anymore. We’ll go into more depth with our blog on digital transformation and IT.

Takeaway

Clearly, the impacts of digital transformation are comprehensive.  This means that every business must look beyond the obvious capabilities of technology and undertake creative approaches.  Only then can they see progressive results and survive in our digitally driven world. Many businesses are morphing from one industry focus to another; adapting expectations and attitudes will be vital during the transition from a classic, product-based to an “as-a-service” business.

For us, it is evident: Greater digital intensity transforms into success. But how? 

Thanks to technologies like enhanced connectivity and data analytics, businesses can manage more volume and make smarter decisions.  But they need to focus on the right data in the context of their business process. Just having a couple of tools on top won’t be enough. And even worse, just digitizing existing processes is NOT transformation, NOR is it innovation.

Strong leadership is needed to manage true digital transformation. Done right, it will result in coordinated investments, an engaging vision, and the linking of IT to the whole business. 

With the right combination of leadership and digital initiative, digital transformation is achievable for all businesses. You’d better start now!

Up next: digital transformation use cases

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Digital Transformation, Part 4: The Role of Leadership

Digital Transformation, Part 3: The Building Blocks

Digital Transformation, Part 2: What makes it disruptive?

Digital Transformation, Part 1: Rapid State of Change