The Questions Digital Leaders Are Facing Today

• Why do most digital transformations fail to deliver their expected value?

  Most digital transformations fail to deliver expected value because companies overfocus on technology and underinvest in changes to the operating model and decision making. Bain research shows only 12% of business transformations achieve their original ambition. Digital transformations are even tougher with only 5% achieving or exceeding expectations.
  
  The failure mechanism is often the same: Companies typically layer new technology onto existing ways of working. Few redesign the workflows, clarify decision rights and ownership, and back tools with incentives, so adoption stalls and value leaks away. This isn’t a tooling problem; it’s primarily an operating-model problem. Successful digital transformations tie initiatives to clear business outcomes, give business-unit leaders ownership instead of treating the effort as an IT program, and sequence process redesign before technology deployment. Companies that get this right don’t settle for dilution of value and mediocre performance. They turn digital investment into durable margin improvement and faster growth.

• What separates digital leaders from digital laggards?

  Digital leaders separate themselves from laggards by moving fast on decision making and execution, organizing around a limited number of important trends, and excelling at orchestration. In Bain’s Digital Insights survey of more than 1,200 senior executives, 54% predicted that digital would have a significant impact on their industry within five years. Yet most companies stall between experimentation and full digital transformation. In many cases, they spread their effort thin across a long list of disconnected initiatives, rather than concentrated on the handful of technology trends that matter most in their industry.
  
  Digital leaders gauge where they stand relative to peers, especially on speed. They define what digital means for their industry and where it’s heading. And they tackle orchestration issues—processes, assets, guardrails, and teams—from day one so they can scale change across the enterprise. Digital leaders widen their advantage over time, meeting their digital goals whereas laggards are stuck experimenting.

• How much value is typically lost during a digital transformation, and how do we protect it?

  Transformations typically lose value through implementation leakage, but disciplined planning and execution can protect that value. Bain’s analysis of more than 18,000 transformation initiatives shows that companies lose roughly 10% to 14% of estimated value during implementation. Top-quartile companies hold that loss to 5% or less.
  
  There are three warning signs of underperforming initiatives: early financial underperformance; missed key performance indicators and nonfinancial metrics; and delayed or missed milestones. To protect value during implementation, companies can celebrate reporting performance consistently and on time. Leaders can regularly review initiatives, clear roadblocks, redistribute resources, and scale early successes. They can also maintain a single source of truth that tracks progress and performance across business units, regions, products, or functions. Companies that close the implementation gap improve the accuracy of their estimates and capture far more of the value they set out to deliver.

• Why do digital transformations stall after a strong start?

  Digital transformations stall after a strong start because leaders pour energy into the “outer game” of digital investment while underinvesting in the “inner game”—the shifts in the business model and culture that enable speed, learning, and agility. The numbers make the case. Bain research shows that skillful management of internal risk accounts for 80% of transformation success. Leadership teams that address internal risk are nearly twice as likely to achieve their ambitions and three times as likely to sustain change.

  Initiatives tend to plateau somewhere short of broad organizational impact, or they create “two-speed” organizations—nimble in places but still anchored by legacy systems. Companies aren’t lacking in ideas about how to put digital technology to work. They have a leadership and engagement problem. Success requires a coordinated effort at every level: alignment at the top, agility in the middle, and mobilization at the front line.

  And the prize is worth the effort. When we compared the financial results for five categories of companies based on their degree of digital sophistication, revenues at digital leaders grew more than twice as fast as those at digital laggards. Leaders were also nearly twice as likely as laggards to increase profit.

• Where should a CEO focus first when setting digital strategy?

  A CEO setting digital strategy should first focus on how each digital choice connects to the business strategy and the value it creates.

  The common mistake is to treat digital as a technology deployment rather than a business transformation. It’s one reason Bain finds that only 5% of digital transformations achieve or exceed expectations.

  The ones that succeed start where digital can create the most value, not from a catalog of ad hoc use cases. CEOs can start by defining where change is needed most. Then they can build the capabilities and processes to enable the change. Finally, it’s imperative that CEOs empower people to prototype, take risks, and push concrete initiatives forward fast. Instead of deploying technology for technology’s sake or spreading resources across everyone’s pet project, the best leaders ask: “How does this contribute to a cross-functional effort to bring our critical set of digital initiatives to life?”