Digital Masters, those organizations demonstrating a high mastery of both digital and leadership capabilities, are on average 26% more profitable than their industry competitors. Investors have taken note, as evidenced by the fact that Digital Masters generate 12% higher market valuation ratios than their competition. But what does it take for an organization to become a Digital Master, and what insights have Digital Masters acquired that empower them to outperform their market segment?
For answers to those and other key questions, we turn to Marisa Slatter, Managing Consultant of Capgemini’s Digital Transformation Institute (DTI), a think tank devoted to all things digital. A recent report put out by DTI examines why companies are struggling with their digital transformations, and offers key insights on why Digital Masters are succeeding. With global spending on this initiative forecast to eclipse the $2 trillion mark by 2021, there’s no shortage of capital being allocated on digital transformation. Is money enough however? Marisa takes us through some of the key highlights in DTI’s report, and along the way makes some specific recommendations for organizations seeking to become Digital Masters.
Guy Nadivi: Welcome everyone, our guest today on intelligent automation radio is Marisa Slatter, the manager of Capgemini’s Digital Transformation Institute. Capgemini for anyone not aware is a Paris-based worldwide management consulting firm with over 200,000 employees in more than 40 countries. The Digital Transformation Institute is Capgemini’s in house think tank on all things digital and has dedicated research centers in the United Kingdom, the US, and India. Marisa, welcome to Intelligent Automation Radio.
Marisa Slatter: Thanks Guy, happy to be here.
Guy Nadivi: Marisa, we invited you onto our show today because the Capgemini Digital Transformation Institute recently published a white paper entitled “Understanding Digital Mastery Today: why companies are struggling with their digital transformations”. This white paper has some really intriguing insights about the state of digital transformations within enterprises of all sizes, from less than 500 million in annual revenue to those over 20 billion a year, and just so everyone in the audience is aware, your just released 2018 report is a follow on to your 2012 research, and back in 2012 you established a framework for “digital mastery” that you defined as being comprised of two dimensions – digital capabilities and leadership capabilities. Pretty straight forward.
Now just for the audience’s edification, I want to explain that within this digital mastery framework, you categorized organizations according to their relative digital mastery, with everyone falling into one of four quadrants, which you laid out on a matrix. So one of those groups is “Beginners”, not surprisingly those that have a low mastery of both digital and leadership capabilities, then there were “Conservatives” who have a mastery of leadership but not digital capabilities. Their counter parts the “Fashionistas”, who have mastered the digital but not the leadership capabilities, and then the group that everybody wants to be a part of, the “Digital Masters”, who have a high mastery of both digital and leadership capabilities.
Okay, so with that background in mind, let’s get to some questions. Your research very interestingly showed that the percentage of organizations believing they have the required leadership capabilities for digital transformation actually went down since your 2012 report and in fact sentiment dropped across the board in all categories you measured.
So my first question for you Marisa is what happened?
Marisa Slatter: Sure, that’s a great question. First, we believe that expectations have risen significantly across the board since 2012. So today organizations are expected to be doing more and are being measured on goals that are much more challenging to attain today than in 2012. So it’s not necessarily that organizations have digressed on leadership capabilities or that they are not doing anything. It’s more that expectations have increased and they have not necessarily kept pace. So to my mind I think some of the early enthusiasm for digital transformation in 2012 has been dampened by difficulties in implementation. So it’s organizations are realizing that it is very challenging to execute and you know, they are struggling with implementation. You know, another aspect to this is for so long the focus and investment has been more on the technology side.
But of course we know that the leadership side is so critical, but the leadership side, you know, the “how” of digital transformations and things like … vision and governance and talent and skills and culture, these are all very challenging to implement and to master. Things like culture for example, you know, is a significant hurdle to successful digital transformation from our research but it’s also one of the hardest things to change. It can take years. So again, we see organizations are indeed struggling and you know, I think they’re realizing just how challenging implementation and execution is today.
Guy Nadivi: Another interesting statistic you report is that only around one third of organizations say both senior executives and middle managers share a common vision of digital transformation, and that even worse, organizations often start digital initiatives without the buy-in of employees. What is the correlation between an organization being a Digital Master and getting their employees to buy in to a digital transformation?
Marisa Slatter: Sure, so in the research we definitely see that Digital Masters are doing a much better job of bringing their employees along with them on their digital transformation journey. That starts with really setting a vision and tying it to the strategy as well as the governance structure. So we believe that to drive an organizational wide change effort, leadership must explain a clear vision of where they want the organization to go and align that to the business strategy and then they also need to explain that the importance and the need for that change effort across the firm and get employees … ensure that employees are accountable by things like aligning roles or KPI’s to the digital transformation objectives. So that’s the first part, and we see Digital Masters are doing those things well, so 65% for example of Digital Masters are … agree that their vision for digital transformation is well integrated into their core strategy compared to just 11% of Beginners.
Then so once we have that vision aligned, we also see that Digital Masters are really empowering their employees to take part. Another stat we have from the data says that 60% of Digital Masters are actually allowing their employees to take ownership in the implementation of new and innovative ideas compared to just 16% of Beginners. So again, we see a strong correlation between being a Digital Master and getting your employees to be part of the journey.
Guy Nadivi: Speaking of the employees, there’s another interesting observation in your white paper about the usage of HR analytics, “to identify current and future skills needed” and “to understand the needs and preferences of your employees”. What is the correlation between Digital Masters and the usage of HR analytics like this?
Marisa Slatter: Sure, well we did find that Digital Masters understand what skills they need today and they can also predict what skills they’ll need in the future. So they’re being very proactive in understanding their skill needs as well as upskilling their employees for future needs. This is especially important as we know … you know, we’ve done a lot of research on the digital talent gap and you know, that organizations really need to take the digital talent gap seriously and equip themselves with the talent and skills that they need to succeed. So more specifically we see that Digital Masters have the necessary tools, whether that’s HR analytics or other digital technologies to be able to accomplish this and you know, in the data we see that over 50% of Digital Masters are actually using HR analytics to predict skills needs versus just 10% of Beginners.
Guy Nadivi: And speaking of the talent gap, one of the starkest findings in your report has to do with talent development and you state quite frankly, “organizations are not upskilling employees” and not surprisingly in 2017 you found that over half of digital talent said their next job change will be a result of the new organization offering better skill development. So given how strategic and critical digital transformation is becoming, why do you think organizations aren’t investing in upskilling their employees?
Marisa Slatter: Yeah, it’s a great question and something that we’ve studied for years but still don’t have all the answers. Why is learning and development not getting the attention it deserves? I think everyone knows that it’s more cost effective to train internally than hire externally but still, it doesn’t necessarily happen in as many organizations as we’ve seen in our research. Also there’s so many potential consequences if an organization doesn’t invest in its people, things like attrition or having their competitiveness suffer or you know, financial success being impaired. It’s certainly startling that it’s still not top of mind for many companies. So in our research, in our digital mastery research, we found that only 39% of organizations say they actively recruit and hire new talent with strong digital skills, and only 38% say they have a formal program for digitally reskilling employees.
You know, to my mind it’s likely that companies have been so focused on building out and investing in their digital capabilities and the technology, and maybe they overlooked the importance of skill development and training. You know, that is until they realize that they don’t have enough skilled employees to actually execute on their digital strategy. I think the other really challenging part to this is that learning and development can be a very challenging thing to do, especially in a company culture that doesn’t prioritize and reward learning. Particularly on the soft skills side, so in our digital talent gap research that we released last year, we actually found the talent gap in soft digital skills was more pronounced than in hard digital skills, and you know, soft skills are of course critical for success across nearly every job and industry, but they are sometimes overlooked as the focus often tends to be on the technical skills side.
Soft skills are also really hard to teach, so many people might think that presentation or communication skills come naturally, but in fact those skills can often take years to master. So again, I think learning and development can be a very challenging thing to implement for some companies.
Guy Nadivi: And once again even though some companies are under investing in that, you state that Digital Masters focus on talent development, with nearly 70% of them saying they know what new skills they need to develop in the future compared to 26% of Beginners. What do you think are the top three skills Digital Masters are focused on developing in their digital talent?
Marisa Slatter: Sure, so we didn’t investigate specific skills in digital mastery but as I mentioned earlier, we did undertake research in October 2017 that we released jointly with LinkedIn on the digital talent gap, and here is where we explored the specific digital skills in greatest demand as well as challenges that are preventing organizations from bridging the talent gap and we looked at best practices as well as strategies for organizations to more effectively recruit, develop, and retain digital talent. So in that report we found that the … as I mentioned earlier, the talent gap in soft digital skills, so things like collaboration or having an entrepreneurial mindset that are really necessary for successful digital transformation and constitute digital first mindset if you will, is more pronounced than in hard digital skills.
The top skills, the top soft skills in demand that we’ve found from employers included customer-centricity, having a passion for learning as well as collaboration, and then on the hard digital skills side we still see demand of course outpaces supply and the top three digital skills in greatest demand from employers there included cyber security, cloud computing, and analytics.
Guy Nadivi: Intriguing. Some other interesting attributes you’ve found which distinguish Digital Masters are that they stay abreast of innovations in their market by constantly exploring emerging technologies in business models. They have a better understanding of their customers and close to 70% use analytics to better segment their customers with more than 3 out of 5 regularly conducting market research to gauge their customer needs. And 71% use digital technology to link customer-facing and operational processes in new ways. Did you find that there was a difference in profitability, share price growth, et cetera between Digital Masters and the other three categories of organizations; Beginners, Conservatives, and Fashionistas?
Marisa Slatter: Great question! Yes, we found a significant difference between Digital Masters and the other groups. Now this dates back to our original 2012 research that we conducted with the MIT Center for Digital Business. And in that research we established that a high performing cohort organizations, so companies that are mature along both the digital and the leadership capabilities front, outperformed their peers in every industry. So we wanted to understand the relationships between digital mastery and financial performance, so in that research we analyzed the financial performance of the publicly traded firms in our sample and we looked at things like revenue generation, profitability, and market valuation.
So when we compared digitally mature companies to their less mature competitors, we did find some striking differences. So on average, Digital Masters are 26% more profitable than their industry competitors. They generate 9% more revenue than their employees … sorry, through their employees and their physical assets. And they also create more value, generating 12% higher market valuation ratios.
Guy Nadivi: Wow, very significant. Now speaking of industries I was surprised to read that the consumer products industry has achieved the greatest level of digital mastery. My guess would have been financial services, and in fact the banking industry was kind of close, or healthcare, which actually wasn’t mentioned. I’ve always been under the assumption that the consumer products industry in aggregate was a laggard when it came to deploying digital technology. How do you explain the paradox?
Marisa Slatter: Sure, it’s certainly important to remember that our sector analysis is all relative to one another and to the companies participating in our survey. So I don’t necessarily believe that there is a paradox here. In our 2012 research we also found that consumer packaged goods was right at the midpoint of both leadership and digital capabilities. So we have seen an improvement since then in terms of where that sector is placed on the 2 x 2. And I think that can be attributed to their focus on customer experience as well as development of their leadership capabilities. So we’ve seen many examples in recent years where CPG has been building out the customer experience and adapting innovative business models such as direct-to-consumer. They also make use of data and mobile and social to analyze consumer trends very well. We also see in our current data that consumer goods is more advanced on the leadership capability side than financial services, so meaning that they do better on creating those necessary conditions to drive the transformation in the organization. So the things I mentioned earlier like vision, articulating a clear vision, and having a strong governance structure, and understanding their talent and skill needs, and having that digital culture that really enables the transformation. So in our data, we do see consumer goods faring better on those capabilities.
Guy Nadivi: Looks like consumer products has quite a bit to teach us about digital mastery. Marisa, based on your report’s findings, what one piece of advice would you offer CIO, CTO’s and other IT executives on the best path to take in order for their organization to become a Digital Master?
Marisa Slatter: Sure, I think the piece of advice I would offer is to not overlook the importance of investing in the necessary leadership capabilities so that’s the “how” of digital transformation. So this is where we saw the greatest challenge for organizations between 2012 and 2018, and it is often something that is either overlooked or deprioritized in … because of the focus on the technology side. Organizations might have been too focused on technology rather than how the organization and the people can adapt to the change and embrace it. So I would definitely offer that piece of advice, to focus on the leadership capabilities side.
Guy Nadivi: Some great advice. Alright, looks like that’s all the time we have for on this episode of Intelligent Automation Radio. Marisa, thank you very much for joining us today and shedding some light on the state of digital transformations, I really enjoyed having you as our guest.
Marisa Slatter: You’re very welcome, Guy. Happy to be here.
Guy Nadivi: Marisa Slatter, manager of Capgemini’s Digital Transformation Institute. Thank you for listening everyone and remember, don’t hesitate, automate.