Dec 16, 2016 | manojranaweera |
Digital Transformation: The Age of Innocence, Inertia or Innovation? We have arrived at a significant moment in time – the dawn of the fourth industrial revolution. This new era builds on the landmark breakthroughs of the technological age that began in the middle of the 20th century – mass scale computing, unprecedented processing power, computer storage, the rise of the internet, etc. – by blurring the lines between physical, digital, and biological frontiers. It will fundamentally alter the way we live, work and relate to each other. Capitalising on this phenomenon is the key to innovation and growth. From the rise of AI, machine learning, chatbots and the Internet of Things, to the mountains of data, mixed reality and the next frontiers, the challenge for businesses will be to harness the disruptive force of technology to shape their own destiny. Naturally, this comes while navigating the expectations of a changing workforce, addressing evolving cybersecurity threats, and managing a host of other challenges. In response, companies are embarking on digital transformation journeys that are creating huge opportunities. But digital transformation is not simply about technology. This transition to the fourth industrial age is shaping entire business strategies. Indeed, this study reports that nearly half of all UK leaders believe that their business models will cease to exist within the next five years. The threat of disruptors entering new markets and reshaping entire industries is also very real with more than half of all organisations expecting disruption to impact their industries within the next two years. These are core business challenges requiring urgent attention. So, disruption is very real and heading straight for us. How will businesses and other organisations react? They will need to fully grasp the concept of digital transformation and its potential to more effectively engage customers, empower employees, optimise operations and transform products and services. This report suggests that many organisations are still limiting the scope of their digital transformation strategies to customer experience and operational processes. This is a missed opportunity – digital transformation should be regarded as a transformation of business culture in a digital age. This requires leaders to re-envision entire business models and embrace a different way of bringing together people, data, and processes to create value for their customers. But how do you transform for success in the future while running your business today? That’s the key objective for this report – to better understand how UK organisations are thinking about disruption and their own digital transformation journeys. I’d like to thank all those who have played a role in producing it, particularly the research participants and respondents who have provided the real-world views and insights on which this report is based. I hope you find it a valuable guide for your own digital transformation journey. Foreword Dr Nicola Hodson, General Manager, Marketing and Operations, Microsoft UK Introduction Page 1 Digital Transformation Perceptions Page 2 The Case for Digital Transformation Page 8 Strategic Approach Page 14 Leadership Page 20 Technology Page 26 People Page 30 Progress Page 34 Society Page 42 Conclusion Page 44 Appendix A – Industry summaries Page 48 Appendix B – Methodology Page 60 Contents Introduction Welcome to Digital Transformation: The Age of Innocence, Inertia or Innovation? The pervasive access to new digital services is changing every aspect of business — shaping growth, disrupting industry landscapes, and providing the catalyst for new business models, products, services and experiences. It is enabling businesses to reimagine their structures and become digital businesses. As such, we have conducted the most extensive study to date into the impact of digital transformation on UK organisations at a time of great uncertainty in the British economy. To this end, we sought the views of more than 1,000 business and IT leaders from large UK organisations across a variety of sectors. This was complemented by a series of in-depth interviews with digital transformation leaders and influencers, allowing for deeper insight. Whilst leaders from a wide range of industries were surveyed, throughout the report we highlight specific findings from financial services, retail, manufacturing, public sector organisations and other services sectors for the purpose of cross-industry comparisons. However, the findings are relevant to readers from all sectors. Further details on the methodology can be found in Appendix B. Digital transformation can mean many things to many people. Seeing it as simply the industrial era, only faster and more efficient, is to miss what is actually happening. In increasingly uncertain times it can be all too easy to not take time to reflect on the seismic implications this change might have on any organisation. This report is a time-effective and valuable means to get you prepared. In an age where uncertainty has replaced business-as-usual and competitive advantage is fleeting, a fundamentally new approach is required. So digital transformation is not simply an IT department initiative or reinventing services for a mobile world. If done right, it permeates the very fabric of an organisation. Everybody is in the digital transformation team and the quality of the leadership is paramount. Yet our survey findings suggest that many organisations are still in an age of innocence when it comes to digital transformation, whilst others seem bound by inertia. However, there are encouraging signs that some have grasped the nettle and are truly driving transformational strategies that will equip their organisations for success in the fourth industrial revolution. A few key findings of note from the pages that follow are: 1. Disruption is real – nearly half of all business leaders (44%) think their existing business models will cease to exist within the next five years. 2. It’s happening quickly – half of all organisations think that their industry will be disrupted within the next two years. 3. Taking action is the only option – yet almost half (46%) of business decision makers think their senior leadership are unwilling to disrupt their existing businesses in order to grow and compete more in the future. 4. The business drivers are significant, yet respondents don’t necessarily understand the full value digital transformation can deliver to their organisations. The top three drivers were cited as: • An improved customer experience • Optimised operations • Survival as a business This last response – survival as a business – is a big statement and shows just how important digital transformation is perceived to the future success of organisations. However, as we will learn, despite digital transformation being regarded as an important step in the evolution of organisations in the years to come, many respondents are still to grasp the true value that pursuing such a strategy can deliver across their entire organisations and beyond. This report provides a benchmark on which to measure the progress your organisation is making, identify some of the obstacles ahead and provide you with recommendations for ensuring digital transformation success. 1 1. Digital Transformation Perceptions 2 To understand where the UK is in respect of digital transformation, we asked survey respondents how their organisation thinks about the concept of digital transformation itself. One immediate observation is the sizable number of respondents who view digital transformation as a customer-facing (42%) or technology enabling (36%) exercise. Sectors such as financial services and retail are operating in hypercompetitive markets, so a relentless focus on the customer, coupled with any marginal gains they can acquire by employing the latest technology, makes sense. However, a cause for concern is the low ranking of employee empowerment. If organisations do not make the connection between digital transformation and their employees making better, smarter decisions then they risk falling behind. In this day and age, younger employees have heightened expectations about what an employer can offer them so those not matching those expectations risks creating a self-imposed skills gap. How the organisation thinks about ‘digital transformation’ Customer-facing technology initiatives Technology enablers across the organisation Technology innovation/experimentation General overhaul of the business model Data, analytics and IoT initiatives Synonymous with IT / IT dept Employee empowerment/collaboration None of these or Don’t know 42% 36% 20% 16% 16% 13% 10% 16% % of respondents (maximum of 2 statements could be selected) 3 Looking more in-depth at sector-specific findings, public sector and manufacturing respondents place greater emphasis on technology, where an ongoing need to drive down costs and do more with less is the primary objective. It is encouraging to see that digital transformation is not generally perceived to be an IT project. Though, as we will see later, business leaders do not equally share the IT leaders’ perspective that it is central to digital leadership. The relatively low association of digital transformation with overhauling business and operating models, suggests a disconnect between the disruption happening in markets and its potential impact on respondents. Disruptors are redefining sectors. Collaborative consumption as a business model has become mainstream. Yet with the need to rethink existing business models ranking so low, every company should be asking itself what would happen if an Uber or an AirBnB chose to enter their market. Perception of digital transformation, by sector Customer-facing technology initiatives 55% 60% 35% 27% 31% Synonymous with IT/IT dept 15% 20% 16% 8% 9% None of these or Don’t know 22% 20% 19% 22% 8% Employee empowerment/ collaboration 11% 14% 9% 10% 9% Other Services Financial Services Public Sector Manufacturing Retail Technology enablers across the organisation 40% 27% 32% 34% 39% Technology innovation/ experimentation 17% 12% 22% 18% 15% General overhaul of the business model 21% 16% 16% 9% 9% Data, analytics and IoT initiatives 18% 14% 13% 17% 16% 4 Perception of digital transformation, Business vs. CIO/IT Customer-facing technology initiatives Technology enablers across the organisation Technology innovation/ experimentation General overhaul of the business model Data, analytics and IoT initiatives Synonymous with IT/IT dept Employee empowerment/ collaboration None of these or Don’t know 43% 36% 35% 42% 19% 25% 17% 13% 15% 24% 12% 20% 10% 12% 18% 6% Business leaders CIOs and IT leaders A sign that the IT function is, at last, blending into the organisation is the relative similarity in response from the business and IT functions. Smart CIOs align their KPIs with those of the boardroom. It is good to see that many see digital transformation as an opportunity. 5 When our survey asked what other words or statements that come to mind, top mentions included not only opportunity but also future, customer, positive, necessary, essential and priority. It’s interesting to see ‘costly’ as the highest negatively associated word. Digital Transformation should be seen as an investment in an organisation’s future rather than a cost to be kept down. However, the term ‘digital’ can all too often be seen as synonymous with the IT department alone. If not viewed as an organisation-wide investment and purely associated with one cost centre, digital transformation programmes are likely to be stunted before they have a chance to deliver the true value they are capable of delivering to organisations. Here are a couple of perspectives shared by those leading the digital charge: ‘We see digital transformation as a process involving the automation and refining of processes to deliver better services to clients and candidates. It also offers the opportunity to widen our reach and connect through a variety of channels. It enables recruiters to deliver value through good data-driven intelligence. The days of cold calling are over!’ UK Managing Director, Professional Talent Recruitment company ‘Digital is simply a lever in the toolkit for improving the experience of both the staff and the customers. It is an opportunity for us to repurpose existing market solutions, rather than reinvent the wheel in-house. Our big focus is on people and not technology’ Head of IT Partnership Management, UK Utilities company In conclusion, the perceptions of digital transformation are aligned to customers and operations. While this is quite natural, organisations need to consider the broader implications of digital transformation and how it can impact all aspects of an organisation, from empowering employees, to transforming products and services, and creating new business models for evolving markets. 6 O PPO RTU N ITY FU TU RE CH A N G E CEN TRIC BU ZZW O RD EFFECTIVE M U LTI A N A LYSIS CO N CERN CLO U D W AY FA ST BIG CO RE VITA L N EW CH A LLEN G E A SPIRATIO N RO BO TS SAVIN G D YN A M IC MARKETS ESSEN TIA L IM PO RTA N T PROGRESS PRIORITY CO M PLEX N ETW O RKIN G CYN ICISM EM ERG IN G U RG EN T D U LL N ECESSA RY EM PO W ERM EN T EXPERIEN CE AG ILE CO M PETITIO N D ISRU PTO R D ISRU PTIO N D ESPA IR EFFORT STRATEGY POSITIVE IN N O VATIO N CO STLY CO M M U N ICATE EFFICIEN TLY CH A N G IN G EN TH U SIA SM TH REAT G O O D SLO W D ELAY A PPS FO RCE CO ST EASE TIM ES CO O L CH A N N EL EFFICIEN CY SU RVIVE SM A RTER EN A BLER PRO BLEM CU TTIN G -ED G E CRITICAL CONSTANT GROWTH EXCITING GAME UPDATING ENGAGEMENT D IFFICU LT CO N N ECTIN G W O RKFLO W CAU TIO U S CAU TIO U S D ATA USTOMER AU TO M ATIO N O N LIN E CO LLA BO RATIO N CO M PLACEN CY CLO U D JO B D IG ITA L BEH IN D A N N O YIN G SCEPTICA L CREATIVE EM BRACE EM BRACE FEA R ED G E TECHNOLOGY FORWARD LOSS RAPID Words that come to mind around digital transformation 7 2. The Case for Digital Transformation 8 This section looks beyond the high-level vision and attempts to identify the drivers that have triggered digital transformation initiatives. Nearly half of all business leaders think their business model will cease to exist within the next 5 years. This is a sobering thought. When you consider the scale of the organisations surveyed, this suggests real change is coming to major parts of the UK economy. However, there are some respondents who believe their own organisation’s business model will outlive the sector model. These people might well be in disruptor-organisations. Or they might be oblivious to the reality that their very own ‘Kodak moment’ is imminent. How long does your current business model have left to run? Financial Services Retail Other Services Manufacturing % of respondents (private sector only) No more than 2 years Between 2 and 5 years Between 5 and 10 years At least 10 years Indefinitely Don’t know 14% 15% 15% 7% 23% 10% 11% 13% 36% 27% 16% 15% 12% 16% 24% 15% 14% 18% 14% 32% 18% 16% 12% 9% 9 The previous question demonstrated that the threat of disruption is real. This question shows many organisations believe it is going to happen very quickly. Half of all respondents expect sector disruption to some degree in the next two years, with financial services respondents demonstrating the highest level of anxiety (65%). Given recent changes to the UK economy it’s surprising to see a relative lack of concern from those in manufacturing (27%), which could suggest they are confident they already have the business models in place to succeed in the future. How disrupted do you think your industry sector will be, in the next 2 years? Where will the biggest disruption impacts come from? Financial Services Financial Services Retail Retail Other Services Other Services Manufacturing Manufacturing Public Sector % of respondents % of respondents (private sector only) Significantly Established companies from own sector None – we see ourselves as a disruptor None – we see ourselves as a disruptor Established companies from adjacent sectors New entrants Moderately Not significantly disrupted Too early to say Don’t know Don’t know 19% 27% 46% 33% 28% 17% 13% 14% 19% 26% 4% 7% 10% 19% 8% 16% 9% 17% 9% 15% 34% 39% 10% 30% 18% 12% 28% 36% 13% 22% 10% 25% 38% 16% 56% 9% 41% 9% 33% 16% 3% 3% 4% 6% 6% 8% 4% 6% 8% 10 It’s clear the threat of disruptors entering the market and taking significant market share is felt most keenly in financial services (33%). That said, the percentage is still relatively low considering the extent of the threats coming from innovations such as blockchain and the fintech community. Whilst previously financial services organisations may have acquired disruptors to counter threats, this is not always possible today. Fintech players know the value of what they are sitting on, so major financial services companies are having to treat single figure headcount startups as peers. While the majority of respondents from other sectors see organisations within their own industries as being the biggest disruptive threats, it’s interesting to note that only a very small proportion consider themselves to be a disrupter. Given the previous finding that a large proportion of organisation’s business models will cease to exist in 5 years, this suggests an acceptance of their own fate. % of respondents What re the main drivers behind digital transformation initiatives? Improve customer/ stakeholder experience Exploit new game-changing technologies Prevent disrupts taking market share First mover advantage Empower employees 24% 24% 10% 20% 14% 14% 17% 16% 17% Other Services Financial Services Public Sector Manufacturing Retail Optimise operations (efficiency) Survive as a business/organisation Transform products/services Develop new revenue streams 24% 23% 21% 21% Not asked Not asked Not asked 68% 67% 57% 43% 51% 61% 61% 56% 58% 58% 51% 52% 38% 42% 32% 50% 34% 39% 36% 44% 42% 37% 36% 29% 31% 39% 24% 26% 29% In the survey, we asked respondents what the main drivers are for digital transformation initiatives within their organisations. Broadly speaking, choices focussed on customers and operations scoring the highest echoes the findings we have seen so far. What’s striking is that survival as a business is seen as a key driver across the majority of industries, showing just how important digital transformation is perceived to be to the future success of organisations. 11 The relatively low focus across all sectors on employee empowerment is a concern. Organisations that place employee empowerment at the heart of their business transformation will naturally attract and retain the best talent, who in turn will deliver the best customer experience, devise the best products and identify the most innovative ways to optimise business models. The ranking of ‘first mover advantage’, whilst seemingly low, could have a strategic impetus behind it. Being first in market at the expense of being the best is no longer a model for success in a world where immediate feedback and unparalleled choice have given power back to the user. So what do our digital transformation leaders think: ‘We believe our industry is ripe for disruption. We are concerned about potential threats. Though we work in a very traditional market, and so we see ourselves as sitting on a smouldering platform. That said, we are urgently looking at ways in which we can convert the data generated by our interventions into customer value. Our vision is to be a data- driven organisation’ Digital Transformation Director, UK and Global Engineering Consultancy ‘All the big players are reading from the same book. So disruption is likely to come from a new player. Over 50% of our revenues come from maintenance. Should clients choose to outsource the associated analytics to an organisation better placed in respect of data scientists, then we could see the guts of our business going elsewhere’ Global Head of Strategy and Architecture, UK and Global Aerospace company To conclude, there appears to be a split among respondents. Around half understand there are drastic changes on the horizon but half seem to believe it isn’t happening anytime soon. For some, they feel like we live in an age of urgency, for others it seems to be an age of innocence. So how do these overarching perceptions of disruption translate to the overall strategic intentions of the respondents’ organisations? 12 13 3. Strategic Approach 14 For an organisation to achieve its vision, it must have a strategy that realistically reflects what needs to be done, and is woven into the activities and minds of all those involved. The same is true for digital transformation strategies. When it comes to a clear or formal digital transformation strategy, financial services respondents are in a league of their own, with almost two-thirds (64%) stating that such a strategy is in place. This is perhaps understandable given the external threats they perceive are endangering their industry. Even a sector that has such a high degree of regulation and legacy technologies has the ability to innovate if the motivation is there. However, looking more broadly across other sectors, respondents that believe they have a clear strategy in place are in the minority. This is a major cause for concern – such organisations might well be vulnerable if they are not a disruptor or don’t have a plan to avert disruption. Do you agree/disagree your organisation has a clear or formal digital transformation strategy? Financial Services Retail Other Services Manufacturing Business leaders Public Sector CIOs and IT leaders % of respondents (private sector only) Strongly agree Strongly agree Agree Agree Neither agree nor disagree Neither agree nor disagree Disagree Disagree Strongly disagree Strongly disagree Don’t know Don’t know 14% 50% 16% 8% 9% 10% 9% 11% 31% 32% 24% 26% 27% 26% 12% 10% 15% 4% 8% 11% 16% 14% 11% 11% 37% 18% 17% 4% 12% 12% 35% 21% 14% 5% 12% 21% 44% 20% 8% 4% 4% 3% 15 Amongst those who stated their organisations have a strategy in place, the majority have had a plan in place for 2 years or more, with a significant minority stating their plans have been in place for over 4 years. At first this may seem surprising – but take into consideration the earlier focus on customer experience and operational efficiency. In this context this time line would seem more understandable. But it begs the question as to whether respondents truly understand the full impact digital transformation programmes can have across the entirety of their organisations. To date, have they simply been pursuing a strategy of ‘Digital Transformation Lite?’ Notably, the CIOs and IT leaders feel more confident about the existence of a digital transformation plan than business leaders. Possibly the CIOs or IT function have a better sense of the technology-driven threats and opportunities – or do they think that their IT strategy equates to their organisation’s entire digital transformation strategy? How long has a digital transformation programme been in place? Financial Services Retail Other Services Manufacturing Public Sector % of respondents (those with a digital transformation strategy) In place, but yet to start Less than one year 1-2 years 2-3 years 3-4 years Over 4 years Don’t know 5% 8% 8% 13% 28% 19% 16% 20% 19% 29% 11% 16% 13% 8% 5% 13% 28% 24% 16% 16% 10% 15% 20% 22% 15% 9% 10% 15% 12% 20% 27% 4% 7% 16 Looking at where the digital transformation strategy originates, there is a strong sense that it comes from the top. But the influence that the IT department has to play is a source of dispute – 31% of CIOs and IT leaders believe their department has been instrumental in the development of strategies compared to just 6% of business leaders. In respect of the outlier originators, there has been a perception for some time that Marketing is the driver of digital strategy and as such, the CMO has been seen as a suitable candidate to lead the digital charge. Its relatively low level of representation may therefore seem surprising. However, it is important to distinguish between digital strategy and digital marketing as they are not one and the same. Where does the digital strategy originate? Financial Services Retail Other Services Manufacturing Business leaders Public Sector CIO and IT leaders % of respondents (those with a digital transformation strategy) Board-level Board-level Finance Finance Senior leadership (below board) Senior leadership (below board) Marketing Marketing CIO or IT dept. CIO or IT dept. Other function Other function Operations Operations Don’t know Don’t know 58% 52% 56% 51% 62% 26% 19% 19% 30% 25% 5% 10% 3% 3% 15% 16% 9% 2% 5% 13% 5% 61% 23% 6% 6% 48% 17% 31% 2% 17 Whilst it is encouraging to see that the majority of respondents view digital transformation as an organisation-wide initiative, there is some cause for concern that a large proportion do not view this strategy as extending to their supply chain, customers or end-consumers. No organisation is an island and each of these play a crucial part in its ecosystem. If its rate of change is not matched by those surrounding the organisation, much of the potential value digital transformation can bring will be lost. How broadly does your digital transformation strategy extend or apply? Financial Services Retail Other Services Manufacturing Business leaders Public Sector CIO and IT leaders % of respondents (those with a digital transformation strategy) For one or more functions/depts For one or more functions/depts Organisation-wide, internally Organisation-wide, internally Both internally and externally Both internally and externally Don’t know Don’t know 11% 13% 13% 45% 44% 49% 38% 38% 38% 6% 5% 53% 42% 5% 3% 45% 38% 3% 9% 47% 39% 5% 15% 36% 47% 2% 18 The perception that so many leadership teams still rely on gut feeling, which is significantly higher within the public sector that in other sectors, rather than making decisions that are grounded in data and analytics, is alarming. Is this because these leaders have got to where they are largely based on judgement and instinct and so struggle to change habits of a lifetime or is it simply the case that despite the power of data, many organisations still struggle to access good quality data and make sense of it? What do the digital leaders say? ‘In transitioning from products to services, there is always the danger of getting stuck in the middle. In order to avoid that we are running our services businesses as a separate operation to our traditional products business’ SVP UK Sales, Energy Management company ‘Our strategy is driven by the needs of our customers. I actively keep pace with the changing needs of the market by both keeping in touch with our clients and reading up, e.g. via blogs, on what is deemed important by the market’ CEO, UK Creative Design Services company In summary, digital transformation strategies, even when in place, appear to still be in their infancy, with many internally-focused and not data-driven. Perhaps the term ‘digital’ itself is the cause for confusion, with people attaching the term to the IT department and therefore focusing on internal practices. In reality, organisations should be viewing this as business transformation in a digital world. In this context, the need to bring suppliers, customers and end-consumers much more into focus is much more apparent. Are most strategic decisions based on data and analytics? Financial Services Retail Other Services Manufacturing Public Sector Strongly agree Disagree Agree Strongly disagree Neither agree nor disagree Don’t know 8% 7% 8% 8% 10% 32% 38% 31% 31% 25% 30% 22% 24% 27% 20% 9% 14% 12% 11% 10% 4% 7% 6% 4% 13% 17% 12% 18% 19% 22% % of respondents 19 4. Leadership 20 If digital transformation strategies are to move from infancy to maturity, a digitally literate leadership team is vital. Given the short lifespan that many respondents perceive their current business models have left to run, the need for leaders to make the right strategic decisions that will keep their organisations competitive in ever more disrupted markets are paramount. So do organisations currently have appropriate leaders in place to make these decisions? Does your organisation have a digitally literate senior leadership team? Financial Services Retail Other Services Manufacturing Business leaders Public Sector CIO and IT leaders % of respondents Strongly agree Strongly agree Strongly disagree Strongly disagree Agree Agree Don’t know Don’t know Neither agree/disagree Neither agree/disagree Disagree Disagree 16% 14% 12% 13% 7% 43% 24% 32% 28% 28% 16% 21% 17% 21% 28% 13% 17% 18% 17% 15% 4% 12% 8% 8% 9% 8% 12% 14% 13% 14% 14% 29% 20% 17% 8% 12% 17% 51% 12% 10% 7% 4% 21 In an era of great market disruption, it’s a real concern that almost half of business respondents feel that their leadership is unwilling to disrupt their own business in order to grow and be more competitive in the future. This suggests a high degree of indifference and inertia. Traditional business models effectively condense decision-making to a handful of people. As such, it’s important to choose these people wisely. The survey data suggests that in the digital era, this is not necessarily happening. There is a high percentage of senior leadership teams who are not perceived as digitally literate. This implies that many of our leaders in the UK today may be leading their people on a path that is increasingly deviating from the reality of the market today. There is a clear discrepancy between the CIO and IT leaders and business leaders as to whether they have a digitally literate leadership team. Possibly they are judging digital leadership on their IT skills, rather than a broader digital competence? In any case, the level of apparent digital illiteracy is significant, particularly given the extent to which our focus sectors are so data-driven. It’s also interesting that only 35% of public sector respondents believe they have a digitally literate leadership team when concepts such as e-government and transformational government have been around for more than a decade. This highlights some of the systemic problems faced by public sector organisations in embracing digital transformation. Is your leadership team willing disrupt existing businesses? Financial Services Retail Other Services Manufacturing % of respondents (private sector only) Strongly agree Strongly disagree Agree Don’t know Neither agree/disagree Disagree 17% 39% 21% 10% 4% 4% 8% 13% 42% 18% 11% 11% 14% 33% 19% 15% 14% 5% 12% 42% 14% 13% 4% 13% 22 As we identified earlier, the recognition of the task at hand for financial services organisations could be one of the reasons why they are more likely to have digital leaders in place. What is of more concern is the absence of digital leaders in sectors that are often driven by technical innovation and data. Does your organisation have any senior digital leader roles in place? Financial Services Retail Other Services Manufacturing Business leaders Public Sector CIO and IT leaders % of respondents Yes, one or more Yes, one or more No, though planned/considered No, though planned/considered Don’t know Don’t know No, not currently No, not currently 61% 45% 42% 36% 38% 12% 10% 12% 10% 10% 13% 16% 21% 36% 20% 14% 29% 24% 19% 32% 11% 20% 23% 46% 63% 12% 14% 11 % 23 Who does the most senior digital leader report to? Financial Services Retail Other Services Manufacturing Business leaders Public Sector CIO and IT leaders % of respondents (those with one or more senior digital leader) CEO, MD or equivalent CEO, MD or equivalent CFO/Finance leader CFO/Finance leader CIO CIO CMO/Marketing leader CMO/Marketing leader COO/Operations leader COO/Operations leader Don’t know Don’t know IT leader (non-CIO) IT leader (non-CIO) Other function Other function 51% 47% 47% 39% 52% 11% 15% 13% 3% 6% 7% 8% 9% 18% 2% 3% 6% 3% 15% 2% 2% 4% 6% 4% 2% 4% 3% 3% 2% 11% 6% 3% 6% 4% 13% 14% 13% 27% 15% 53% 7% 6% 4% 4% 3% 7% 15% 42% 25% 19% 5% 1% 4% 5% For those organisations that have digital leaders in place, it is healthy to see that many report into the CEO. But the trend needs to accelerate so that the digital transformation strategy becomes the business strategy, and thus the CEO becomes the owner. The level of ‘don’t knows’ is significant. It suggests that for many, digital transformation is an isolated project happening somewhere else in the business. There is a large discrepancy between business leaders and CIO and IT leaders as to where digital leaders sit within their organisation. While 44% of respondents with IT responsibilities see the leadership sitting within their team, only 13% of business leaders agree. 24 What do our digital leaders say? ‘Our leadership is getting there in respect of digital savviness. There is an active programme in place to help our leaders keep abreast of trends. We see digital not so much as a role, but more of a leadership competence. Our leaders need to balance risk taking against the needs of a very conservative customer base, that is typically look forward in terms of 20-year time horizons’ SVP UK Sales, Energy Management company ‘The company is quite risk-comfortable. This is reflective of the youth of the organisation – average age 30 years old. However, we have become slightly less risk-comfortable, given the economic uncertainty. But we recognise that this is the new normal’ UK Managing Director, Professional Talent Recruitment company In summary, it’s encouraging that many organisations have both a digitally literate leadership team and digital leaders working at board level. However, it’s still a concern that a large proportion of those organisations are unwilling to disrupt their own businesses to grow and compete in the future. So despite a belief that digital literacy exists at leadership level, is there still a lack of understanding about the full role technology can play in the transformation of a business? 25 5. Technology 26 While technology has long been a core component of the infrastructure of business, in order for it to shape business strategy there has been a real need to translate technical discussions into language the board understands. This has manifested itself in more recent years by reducing the importance of technology competence in the role of the CIO. Business leader first, technology leader second. However, a swathe of new technologies has arrived. All with almost unlimited potential, and most with a price point that makes their commercialisation feasible. There has never been a time when strong technology leadership was so important. Not just in the CIO, but in all the leadership roles. Looking at which technology trends will be most prominent over the next three years, the relative significance of the technologies is generally reflective of their maturity, which is to be expected. However, it’s interesting to note that broadly speaking all the sectors are within a point or two across all technology trends. Where previously we have seen a significant variance between public and commercial sectors, it’s interesting to note that such an innovative and nascent trend such as virtual reality/augmented reality (VR/ AR) is generating as much excitement among public sector respondents as it is among other industries. The fact that financial services are most bullish around the significance of cloud services over the next three years is interesting and indicative of a market where regulatory authorities are continuing to gain trust in the value that cloud services can deliver. How significant do you expect these technology trends over the next 3 years? Financial Services Retail Manufacturing Public Sector Other Services Analytics/ Big Data 2 3 4 5 6 7 8 Cloud Computing Internet of Things (IoT) Sensors and M2M AI and machine learning Smart digital assistants/bots VR/AR Robots 3D printing Respondents rated each technology rated on a 1-9 scale where 1 = ‘not significant at all’ and 9 = ‘extremely significant’. Mean scores shown (don’t knows excluded) 27 We then asked which of these technologies the organisation was actively using or experimenting with. Again, there is no surprise that analytics & big data, and cloud, lead the way, given the relatively mature nature of these technologies. However, it is surprising to note that the retail sector does not have the same appetite as financial services in this respect. VR and AR have the potential to significantly upgrade the customer experience and worker productivity. It is surprising to see the public sector leading the charge in this respect. Smart digital assistants and bots can also provide an enhanced customer experience, yet the public sector is the least active in this space. The power of algorithms have long been recognised by banks and other financial services companies so it is perhaps unsurprising that respondents displayed an increasing interest in machine learning over the next three years. However, it is surprising to note the retail sector’s indifference, given its power to predict consumer behaviour and thus its ability to enable forward-thinking retailers to anticipate and capitalise on evolving consumer habits. Which of these is your organisation actively using or experimenting with? Financial Services Retail Manufacturing Public Sector Other Services Analytics/ Big Data 0% 10% 20% 30% 40% 50% 60% 70% Cloud Computing Internet of Things (IoT) Sensors and M2M AI and machine learning Smart digital assistants/bots VR/AR Robots 3D printing % of respondents (don’t know excluded) 28 When it comes to the security of cloud services, there is a significant disparity between the private and public sector. Almost three quarters (70%) of commercial organisations believe cloud services to be at least as secure as their in-house systems. This drops to 43% for respondents in the public sector which has the highest number (38%) believing that their in-house systems are more secure. Recent moves to the cloud by major government departments would suggest a growing confidence in cloud security but the message is yet to permeate throughout the sector. In conclusion, the use of big data and analytics and cloud technologies is expected to continue growing across all sectors in the years ahead. However, what is clear is that many organisations are starting to experiment with newer innovations such as VR and AR, chatbots and machine learning. These technologies are often associated with startups who lead the charge on experimentation and establishing new business models. But the respondents to this survey represent much larger organisations and they are clearly keen to explore the value these nascent technologies can deliver. Perhaps there is a desire to counter the threat of disruptors after all. Do you think the security of cloud services available in the UK today are better or worse than your existing in-house systems? Financial Services Retail Other Services Manufacturing Business leaders Public Sector CIO and IT leaders % of respondents (those without any in-house systems excluded) Probably better than in-house Probably better than in-house Probably just as good as in-house Probably just as good as in-house Don’t know Don’t know Probably worse than in-house Probably worse than in-house 22% 38% 24% 17% 31% 28% 13% 28% 19% 44% 19% 18% 17% 35% 23% 25% 18% 25% 38% 20% 19% 35% 23% 22% 25% 46% 24% 5% 29 6. People 30 One of the great ironies of the fourth industrial revolution is that it is not only about technology, but also about people. In a world where technology is ‘on tap’ it will be increasingly difficult to gain a competitive advantage through technology differentiation alone. The difference will come from the creative individuals whose innovative thoughts lead to differentiated services that command a healthy margin in the market. So the logic follows that organisations should be developing and empowering their people to evolve from task-oriented workers to innovators. Whilst organisations are implementing new technologies to improve collaboration and there are efforts in place to drive organisational-wide cultural change programmes, empowering employees and decentralising decision-making ranks worryingly low in the list of actions taking place. Given the fluidity in the market for talent, organisations need to ensure they are meeting the needs of their employees or they will go elsewhere. Indeed, with Millennials now accounting for a significant portion of the UK workforce, it is worth reinforcing they have high expectations in respect of what work offers them, and have no compunction leaving an organisation because the opportunity is better next door. The financial services sector shows a degree of boldness regarding innovation and experimentation. It will be interesting to see how far this can be taken in respect of service innovation in such a heavily regulated industry. % of respondents Is your organisation taking any actions to change the workplace and culture? New technology to improve employee collaboration Empowering employees, less centralised decision-making Don’t know None of these Other Services Financial Services Public Sector Manufacturing Retail New technology to improve external collaboration Organisation-wide cultural change programme More innovation/ experimentation Hiring more people with digital skills/expertise 41% 28% 42% 38% 33% 31% 26% 26% 34% 30% 17% 34% 21% 21% 28% 33% 19% 22% 22% 22% 22% 33% 21% 19% 21% 24% 18% 14% 12% 11% 10% 11% 16% 10% 22% 14% 11% 11% 21% 17% 31 We asked respondents about how attractive they think their workplace is for Millennials. For the purposes of the survey we defined this as people between the ages of 18 and 35. By this definition, Millennials already represent over a third of the UK workforce. A significant percentage seem to believe they have this nailed. Only around 20% of those in commercial organisations think their workplace is less attractive than average, though this rises to more than 25% amongst those in the public sector. The top reasons cited by those who say they are Millennial-friendly include flexible working, a good career path & prospects, pay & benefits, use of the latest technology or being ‘a digital company’, culture and being an ethical and responsible employer. A significant number also say they have specific initiatives to engage and recruit younger workers, or that they have a strong graduate and apprentice recruitment programmes. For those who think their workplace is less attractive than average the top reasons cited include being in an unglamorous industry sector, or the perception of being somewhat old-fashioned and unexciting. Other top mentions include being behind on technology, organisational inflexibility, and being cautious and risk- averse. Some respondents also mentioned lack of flexible working options or poor work/life balance. Is your organisation more or less attractive than the average UK workplace, for Millennials? Financial Services Retail Other Services Manufacturing Public Sector % of respondents Definitely more attractive Definitely less attractive Probably more attractive Don’t know About average Probably less attractive 13% 17% 18% 17% 9% 32% 20% 27% 30% 22% 29% 28% 29% 24% 31% 16% 13% 14% 12% 16% 5% 10% 4% 10% 10% 5% 13% 8% 7% 11% 32 Here are some more enlightened perspectives: ‘We recognise the value in young talent, what with their unconstrained perspectives. This does need to be tempered with experience of the older workers. Nonetheless, their thoughts are generally considered to be of high value’ Digital Transformation Director, UK and Global Engineering Consultancy ‘We are well placed to witness what constitutes talent management best practice. Money is a short term incentive. Flexibility in how people work is highly valued. People also appreciate the investment our organisation makes in terms of their professional development’ UK Managing Director, Professional Talent Recruitment company To sum up, in some instances there appears to be a real gap between best practice and actual practice. Organisations that do not recognise the importance of employee empowerment have probably not made the mindset transformation required to operate in the digital economy. This puts those have made the leap at a strong advantage. And given that the talent pool is in short supply, this will put the long-term prospects of the old school players into question. 33 7. Progress 34 Up until now the report has focused mainly on perceptions and opinions around digital transformation. This next section takes a look at the tangible actions in place and subsequent progress being made. Overall, respondents from financial services report more actions taking place than those in other sectors. The big push on customer experience, especially in financial services and retail, is very much in keeping with sentiments earlier in the report. However digital transformation is much more than creating a digital façade. The notion of IT agility is not new. That it has been around for over two decades could suggest a challenging environment that IT leaders have had to operate within. Many financial services organisations will have a challenging balancing act in respect of embracing an agile approach to IT, and meeting the governance needs of the regulators. It is interesting to see people-related initiatives ranking relatively highly, though still in only a minority of organisations. Acquisition and joint venture activity is cited by around one in six of those in financial services and the other services sectors. The number of organisations across all sectors embarking on this activity seems low. Acquiring new businesses can be a smart way to acquire new business models, and new kinds of experience and skillsets. % of respondents What actions is the organisation taking now to address or exploit digital? Creating better customer experiences Acquisitions or joint ventures around digital Don’t know None of these Other Services Financial Services Public Sector Manufacturing Retail Creating more agile IT Changing organisational culture Improving employee collaboration Creating a team to experiment with new technologies Creating radically different products or services Appointing senior digital executives 58% 48% 40% 28% 30% 50% 43% 34% 36% 43% 32% 28% 28% 24% 33% 25% 25% 33% 23% 29% 38% 26% 20% 20% 14% 22% 18% 18% 13% 30% 19% 17% 26% 16% 11% 16% 8% 16% 11% 6% 2% 6% 9% 10% 14% 12% 20% 20% 20% 29% 35 For those organisations embarking on acquisitions and joint ventures, the most common cited drivers are to generate new sources of revenue and to gain digital technology. Relatively few see elimination of potential competitors, or to act as a hedge against possible disruptors, as key reasons. It is notable that up to a fifth of leaders in commercial organisations say they simply ‘don’t know’ whether any of these actions are taking place – even higher amongst those in the public sector. Might this be due to poor communications, or are they just not seeing the benefits? What are the main reasons for acquisitions or joint venture activity? To generate new revenue streams To gain digital technology to apply to existing business To acquire digital skills (people) To survive as a business/organisation To eliminate potential competitors/disruptors To act as a hedge against possible disruptors 42% 41% 30% 24% 17% 16% % of respondents (those who mentioned acquisition/JV activity) 36 When asked about potential barriers to successful transformation, the leading causes are all indicative of an industrial era model – slow decision making, risk aversion, legacy investments and poor IT agility. So it is no surprise they are ranked highly. This response suggests these issues are seen as getting in the way of digital transformation, as opposed to being the very things digital transformation needs to address. Interestingly, the relatively low culture change response suggests that the workforce is generally not seen as obstructing the transformation. However, a lack of management sponsorship is a fatal condition, and may be indicative of a digitally illiterate leadership team. The percentage of respondents citing this as a barrier seems surprisingly low, given the leadership findings covered earlier. % of respondents (private sector only) What are the potential barriers to successful digital transformation? Slow decision-making / excess caution Unable to attract talent None of these or Don’t know Too much focus on pure technology Other Services Financial Services Manufacturing Retail Lack of agility in IT Investments in legacy systems Unwilling/unable to change culture Unwilling/unable to rethink business models Privacy/security considerations Knowing which digital trends to respond to Lack of management sponsorship 33% 28% 32% 33% 39% 35% 29% 26% 38% 29% 24% 21% 19% 26% 21% 18% 14% 13% 17% 15% 15% 15% 15% 21% 4% 15% 18% 14% 23% 16% 14% 10% 13% 12% 8% 8% 8% 11% 5% 8% 11% 15% 23% 27% 37 Amongst public sector respondents, budget constraints are cited most often as a potential barrier (note, we did not present this response option to respondents working in private sector organisations). While budgetary pressures are clearly important and very real, it’s possible some leaders in public sector organisations see digital transformation more as a cost than an invest
With digital services rapidly changing every aspect of business, how do you measure the progress your organisation is making with its digital transformation? To that end, Microsoft has conducted the largest study of business and IT leaders to date around this subject. The report provides you with a digital transformation benchmark to help identify some of the obstacles ahead and provide you with recommendations for ensuring digital transformation success.
Founder of UnifiedVU and Venture 9. Previously Founder and CEO of edocr.com
Help companies with digital and business transformation via process optimisation and system design, especially in the areas of bringing everything together for increased productivity and revenue growth.