Successful digital transformations are rare. But companies that get six factors right can flip the odds of success from 30% to 80%.
Flipping the Odds of Digital Transformation Success
If Failure Is Not an Option, Why Is Success So Rare?
With so much at stake to build digital capabilities that drive customer centricity and productivity, why do so many companies fail? And not just troubled companies—top performers, market leaders, and investor favorites, too. New BCG research shows that 70% of digital transformations fall short of their objectives, often with profound consequences.
Digital transformations are an imperative as today’s leading corporations need to build bionic capabilities in order to harness the potential of disruptive technologies and integrate them into new processes, organization models, and ways of working. This necessity has been accelerated by the pandemic.
Our research shows that more than 80% of companies plan to accelerate their companies’ digital transformations—and with good reason. Overwhelming evidence shows that successful digital transformations drive performance and competitive advantage and propel companies toward becoming bionic.
Digital leaders achieve earnings growth that is 1.8 times higher than digital laggards—and more than double the growth in total enterprise value. In the short term, digital technologies and ways of working offer productivity improvements and better customer experiences. In the medium term, digital opens up new growth opportunities and business model innovation. Successful transformations also set companies up for sustained success; they won’t have to digitally transform again as they master continuous innovation. Investors say that 50% of companies should invest more aggressively in digital capabilities and technology.
But there is a conundrum for management: digital transformations are difficult to execute. And with so much on the line, only 30% of transformations succeed in achieving their objectives. There are good reasons for this, too. Delivering such fundamental change at scale in large, complex organizations is challenging, especially with short-term pressures. Individual leaders must decide whether they want to jeopardize their careers against these odds or risk falling behind.
The technology is important, but the people dimension (organization, operating model, processes, and culture) is usually the determining factor. Organizational inertia from deeply rooted behaviors is a big impediment.
Failure should not be an option, and yet it is the most common result. The consequences in terms of investments of money, organizational effort, and elapsed time are massive. Digital laggards fall behind in customer engagement, process efficiency, and innovation.
In contrast, companies that are successful in mastering digital technologies, establishing a digital mindset, and implementing digital ways of working can reach a new rhythm of continuous improvement. Digital, paradoxically, is not a binary state, but one of ongoing innovation as new waves of disruptive technologies are released to the market. Consider, for example, artificial intelligence, blockchain, the Internet of Things, spatial computing, and, in time, quantum computing. Unsuccessful companies will find it extremely hard to leverage these advances, while digital organizations will be innovating faster and pulling further away from digital laggards—heading for that bionic future.
Digital transformations can define careers as well as companies. The fundamental question on the minds of all business leaders must be: “How can I ensure that my organization is among the 30% of successful transformers?”
With the insights gathered from both our empirical work with clients and a global survey of senior executives whose companies have undertaken transformations, we have carefully analyzed the main drivers of success. The work is evidence based. It shows that getting just six things right flips the odds for success from 30% to 80%.
How Winners Win
Our research involves both internal and external data sets. The internal data comes from BCG’s own experience working with 70 leading companies worldwide on their digital transformations over the past several years. The external data comprises responses offered by 825 senior executives in a detailed survey about their transformation experience.
To determine how companies succeed, we asked executives to assess their transformations on a scale of 1 to 10. We defined success to include the percentage of predetermined targets met and value created, the percentage of targets and value met on time, success relative to other transformations, and success relative to management’s aspirations for sustainable change.
Only 30% of transformations met or exceeded their target value and resulted in sustainable change; companies in this group are in the win zone. Some 44% created some value but did not meet their targets and resulted in only limited long-term change; these companies are in the worry zone. And in the woe zone, 26% created limited value (less than 50% of the target), producing no sustainable change. (See Exhibit 1.)
