Digitalization is a vital ingredient in helping businesses overcome increasing competition while navigating geopolitical and economic disruption. It also can allow them to meet higher customer expectations regarding quality, performance and value.
To understand how different businesses use digitalization, researchers Economist Impact looked at the adoption and maturity of digital business models in five sectors: construction and infrastructure; manufacturing; transportation and logistics; energy; and healthcare and pharmaceuticals.
New streams of data
The research – Accelerating Digital: a win-win-win for customer experience, business and the environment – found that companies that capture and derive value from new data streams and offer new products and services rooted in digital capabilities can improve their operational efficiency, reduce their carbon footprint and boost customer satisfaction. This can translate into improvements in both revenues and profit margins. Eighty percent of survey respondents stated that some form of digital transformation contributes over half of their profits today. Moreover, 95% expect that some, most, or all of their revenue will be digitally enabled within five years.
Overcoming challenges
However, the research found that there is often a gulf between the digital ambitions of firms and their ability to use data insights at scale, which would enable employees to make better real-time decisions and drive higher levels of innovation.
To understand the barriers to executing digital strategies and how to overcome them, Economist Impact studied 500 multinational firms. The analysis looks at how these barriers are being overcome based on an economic analysis of firms that are successfully using digital business models to boost their customer satisfaction, sustainability metrics and revenues, along with interviews with experts.
Six key findings
The report’s key findings cover a range of insights, as summarized below.
1. Today, digital business models are not a choice but the default.
Of the 500 firms surveyed for the report, 99% have adopted at least one of four broad types of digital-first business models:
- Digitalized processes
- Smart products and services
- Platform-based business models
- Digital ecosystems
Moreover, 95% have adopted more than one of these, and 25% claim to have adopted all four.
2. The primary motivation for digital transformation is to enable businesses to serve their customers better.
Globally, across all five industries studied, businesses are using data to improve customer experiences and create more personalized products and services.
For example, in healthcare, sensor-enabled products are driving a shift away from traditional provider-delivered healthcare towards greater self-monitoring and care management by patients. While in the transport sector, vehicle manufacturers, such as Volvo and Toyota, are using telematics, sensors and the data they provide to help people drive more safely.
3. Digital transformation is also motivated by a drive for improved environmental, social and corporate governance outcomes.
A recent survey by PwC found that 80% of consumers are more likely to buy from environmentally- and socially-conscious companies. Firms are responding: 39% of those surveyed in the Economist Impact report indicate that health and safety benefits are their primary motivation for digital transformation, and 38% are pursuing environmental benefits.
For example, hotel group Marriott International has made energy savings of 15% by using automated smart meters to track and manage consumption. And manufacturer John Deere has been investing heavily in computer vision and machine learning (ML) to allow farmers to minimize pesticide use and environmental harm.
4. Evidence shows that digitally transformed businesses see competitive gains over time.
The use of data has allowed businesses to optimize and automate functions resulting in greater efficiency, fewer errors and faster time to market. According to 32% of survey respondents, data also allows businesses to better collaborate across both their value chain of suppliers and distributors and the end-to-end life cycle of their products and services. Construction contractor Skanska, for example, has achieved a 65% cost saving by using digital tools to liaise across project teams and improve construction accuracy.
5. But the biggest challenge to successful digital adoption is applying the right data insights across the entire value chain and the lifecycle of products and services.
When asked about the biggest challenges to digital transformation, the top responses in the Economist survey relate to infrastructural concerns, including:
- Cybersecurity (37% of respondents)
- Data interoperability (29%)
- Legacy technology (22%)
Without standards helping us share data using common languages and formats, firms cannot fully leverage the insights they offer for improving every aspect of business. According to analysis by Forrester Research, up to 73% of the data firms collect today is unused for analytics purposes. The challenges around data management and governance also hinder the adoption of artificial intelligence (AI) and ML. Only 25% claim that the use of AI across their business is mature.
6. Digitally mature firms have a first-mover advantage and can sustain success by attracting and retaining the right talent.
Access to digital talent is one of the key differentiators between businesses that have extensively adopted digital business models and those that have not. The former group appears to have an edge in hiring digital talent—around 60% of these businesses believe that the expertise of their employees in digital technologies is mature, compared with 40% of businesses that have not extensively adopted digital business models believing this to be the case.
However, digital transformation is by no means a once-and-done endeavor. More appropriate terminology would be to describe all businesses as “digitally transforming” on a journey with no endpoint. It is disruptive: 69% of respondents to the Economist Impact survey have been moderately or severely disrupted by the adoption of digital business models.
These are some of the top-line results from the exclusive research from Economist Impact. To drill down into all the findings, including in-depth interviews with leading digital adopters, head over to Make smart connected products work for your business.
After a Masters in Computer Science, I decided that I preferred writing about IT rather than programming. My 20-year writing career has taken me to Hong Kong and London where I've edited and written for IT, business and electronics publications. In 2002 I co-founded Futurity Media with Stewart Baines where I continue to write about a range of topics such as unified communications, cloud computing and enterprise applications.