Digital Transformation, Part 5: Transformation by ...
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From businesses to entire industries, we find leaders and followers. And as Steve Jobs once said, "Innovation distinguishes between a leader and a follower." This saying applies to all realms of life, including, of course, digital transformation.
Digital transformation has hardly been uniform across or within industries. It's clear that some industries surpass others in their transformation. Just compare pharmaceutical giants to the high technology companies of Silicon Valley. It's also no secret that within every industry, we find digital beginners, the digitally mature, and everything in between.
Digital Transformation by Industry
Digital maturity
For the purposes of discussing digital maturity on the industry level, I'm going to borrow the classification and definition of digital maturity outlined by Capgemini Consulting and MIT Sloan.
Digital maturity is determined by a firm's initiative in incorporating technology and by its leadership in this direction.
Digital maturity stems from two factors: digital intensity and transformation management intensity. In other words, digital maturity is determined by a firm's initiative in incorporating technology and by its leadership in this direction.
From these two metrics, digital maturity sorts businesses into four profiles:
Digital beginners: low digital intensity in both technology and leadership
Digital fashionistas: some digital initiatives, but not really maximizing business benefits
Digital conservatives: holding back and may miss opportunities as a result
Digirati: digital culture and investments, plus competitive advantage. Simply put, the digital elite.
Looking at the numbers is proof enough that Digirati are, by far, the most profitable. Unsurprisingly, the same study also finds that digital beginners are the biggest losers in all categories: revenue generation, profitability, and market valuation.
On average, Digirati enjoy 9%, 26%, and 12% higher rates of revenue generation, profitability, and market valuation, respectively. Digital beginners, on the other hand, are losing on all fronts, lagging in those three areas by 4%, 24%, and 7%.
Need more proof?
A different study from McKinsey came to similar conclusions. After comparing the intensity of digital transformation across 10 industries, McKinsey finds that digital leaders have a 50% boost of net profits over the next five years compared to less-digital businesses. Part of this success is fueled by the 2.5 times greater growth of digital sales.
Variation across industries
The nature of certain industries makes them more likely candidates for digital transformation. It's expected that businesses offering virtual products, like a telecommunications company, have obvious opportunities for digital transformation.
Anything is possible, but start early to avoid having to play catch-up.
But take, for example, grocery and apparel stores, for which sales are anticipated to still come primarily from brick and mortar stores in coming years. Only 10% and 24% of sales, respectively, are expected to be digital by 2018.
Most customers still prefer picking their product and trying on clothes before purchasing them. Going shopping with friends also has a social aspect to it that, as of yet, cannot be entirely replicated online. Nevertheless, every sector has digital transformation opportunities.
Trips to the grocery store could be complemented by digital initiatives like mobile apps, promotions, and more.
Some examples
Robert Bosch is undergoing his digital transformation by pursuing digital initiatives while also future-proofing itself. First, Bosch recognized that paper processes are bogging down production sites. For that reason, Bosch is looking into developing a mobile device and smart glasses for its warehouses so that workers can instantly scan and move products. With over 250 manufacturing sites, implementing this would reduce inefficiency significantly. It should look something like this:
