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The Nine Elements of Digital Transformation
GEORGE WESTERMAN, DIDIER BONNET, AND ANDREW MCAFEE
In-depth research with executives at a wide range of companies shows how
managers can use technology to redefine their businesses.
marketing heads or COOs, while the other half were IT
and technology leaders.
The companies we interviewed are moving forward with
digital transformation at varying paces and experiencing
varying levels of success. Some are transforming many
parts of their organizations while others are still doing
only the basics. Others are encountering organizational
Digital transformation — the use of technology to
issues or other challenges that prevent them from
radically improve performance or reach of enterprises —
transforming successfully.
is a hot topic for companies across the globe. Executives
in all industries are using digital advances such as But one thing we found was clear. The best companies —
analytics, mobility, social media and smart embedded those we call Digirati — combine digital activity with
devices as well as improving their use of traditional strong leadership to turn technology into transformation.
technologies such as ERP to change customer This is what we call Digital Maturity. Companies vary in
relationships, internal processes and value propositions. their digital maturity, and those that are more mature
Other executives, seeing how fast digital technology outperform those that are not.
disrupted media industries in the past decade, know they
need to pay attention to changes in their industries now. Leading digital change requires managers to have a vision
of how to transform their company for a digital world. So,
Where can you look for digital transformation where can you look? What digital activities represent
opportunities? We interviewed 157 executives in 50 good opportunities for your business?
companies to find out. These companies are large —
typically $1 billion or more in annual sales — and Analysis of the interviews shows clear patterns.
spanned 15 countries. To provide balanced perspectives, Executives are digitally transforming three key areas of
approximately half of the interviewees were business their enterprises: customer experience, operational
leaders such as CEOs, line of business managers, processes and business models. And each of these three
pillars has three different elements that are changing.
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These nine elements form a set of building blocks for companies, for example, are improving their portfolios
digital transformation. and cost structures through analytics-based underwriting
and pricing. Other companies are conducting analytics-
Currently, no company in our sample has fully based experiments to drive customer behavior. In one
transformed all nine elements. Rather, executives are case, a restaurant company is actively conducting
selecting among these building blocks to move forward in experiments in pricing and promotion across a set of
the manner that they believe is right for their franchised stores. The experiment dynamically adjusts
organizations. In this article, we highlight some of the product prices in response to demand, weather, inventory
ways that companies we studied are changing these nine levels and proximity to closing time.
areas.
Transforming Customer Top-Line Growth
Companies are using technology to enhance in-person
Experience sales conversations. For example, financial services
The three major building blocks with which companies companies are using tablet-based presentations instead of
are digitally transforming customer experience are paper-based slide decks to make sales pitches. Insurance
customer understanding, top-line growth and customer firms are introducing mobile tools to help sales people
touch points. and customers engage in analytics-based planning. A
medical device sales force is replacing in-person
Customer Understanding interactions with digital interactions. When visiting a
doctor’s office, a salesperson leaves an iPad with video
Companies are starting to take advantage of previous
and other information on new products. The aim is to get
investments in systems to gain an in-depth understanding
the doctor’s attention — without inconveniencing the
of specific geographies and market segments. Some are
physician or impacting busy office schedules — in order
exploring social media to understand what makes
to obtain a 10-minute conversation when the salesperson
customers happy — and what leads to customer
returns to retrieve the iPad.
dissatisfaction.
Better understanding helps businesses to transform the
In addition, companies are learning to promote their
sales experience. Companies are integrating customer
brands more effectively through digital media.
purchasing data to provide more personalized sales and
Companies are also building new online communities to
customer service or even to offer customized product
advise and build loyalty with clients in medical, real estate
packages. A hospitality company engaged in location-
or financial services products. Others are building
based marketing uses analytics to send personalized
products that improve branding in lifestyle communities.
mobile coupons to customers as they near a facility; the
Many organizations are building analytics capability to company can then track uptake in real time. A mortgage
understand customers in more detail. Some insurance company is setting up a CRM strategy to link customers
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to local real estate references. This system proposes new representatives in a store could not access online order
offers in real time via the Internet. history.
Other businesses are using concept stores as flagships for Several companies in our study are offering self-service
their digital selling innovations. For instance, a mortgage via digital tools. These tools allow the customer to save
company offers investors an integrated process time, while saving the company money. Many companies
combining real estate and bank services with external are now offering customer apps to enhance customer
services — and showcases the overall process in a concept touch points. In one hospitality company, smartphone
megastore. apps are linked to the customer’s profile, enabling
integration across SMS, apps and social media efforts. A
Some companies try to make life easier for the customer, media company offers apps with geo-localization and
simplifying their processes through a digital plug-in. One augmented reality to help customers find interesting
retailer automatically loads a customer’s last online places to visit and provide special offers via vouchers and
shopping list into its e-commerce site. This streamlines e-couponing.
the shopping process, allowing customers extra time to
look at other products. Customers can then decide Transforming
whether to use home delivery or a drive-through service
with a specific pick-up time. Operational Processes
Although transformed customer experiences are the most
visible — and arguably the most exciting — aspects of
Customer Touch Points transformation, companies are also realizing very strong
Customer service can be enhanced significantly by digital benefits from transforming internal processes through
initiatives. For example, a bank established a Twitter process digitization, worker enablement and performance
account to answer client complaints quickly, helping management.
customers avoid going physically to a branch. This digital
initiative also leveraged an expert community, allowing
crowdsourcing with several employees and other Process Digitization
customers. Automation can enable companies to refocus their people
on more strategic tasks. A manufacturer has begun to
Companies with multiple channels to the customer are centralize the HR function, allowing economies of scale
experiencing pressure to provide an integrated through self-service while freeing HR people to “focus on
experience. Multichannel services require envisioning enlarging manager skills, rather than counting days off.”
and implementing change across customer experience A specialty materials company has automated many R&D
and internal operational processes. Many retailers now processes. Automation allows researchers to focus on
offer home shopping with the option to receive products innovation and creativity rather than repetitive efforts. It
by mail or in a store. However, one retail executive
described customers being angry that customer service
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also creates streams of data that can be useful in later data Performance Management
mining efforts.
Transactional systems give executives deeper insights into
One paint manufacturer has created fully automated products, regions and customers, allowing decisions to be
plants that significantly reduce labor requirements, made on real data and not on assumptions. This is
improve product quality and enhance environmental, happening in both internal processes and customer-
health and safety performance. An apparel company has facing processes. The level of detail is also increasing,
moved to digital design processes when collaborating allowing managers to compare status across sites or
with manufacturing partners. Going digital eliminates reallocate product manufacturing capacity in ways they
most need to ship physical prototypes back and forth, could not do before.
reducing the product development lifecycle by 30%.
Beyond being better informed, digital transformation is
actually changing the process of strategic decision-
Worker Enablement making. Top executives in a medical device manufacturer
used the company’s existing collaboration tools to extend
Individual-level work has, in essence, been virtualized —
strategic planning sessions from 12 people to more than
separating the work process from the location of the
300 of the business’s top managers. This enabled better
work. A financial services business rearranged its
input into the process and better uptake of the vision after
headquarters so that nobody had an assigned desk, even
decisions were made.
the CEO. Employees now work from home one or two
days per week and, when they are in the office, sit near
people with whom they are temporarily collaborating.
Transforming Business
Meanwhile, the company’s collaboration and networking Models
tools allow employees to talk with anyone in the Companies are not only changing how their functions
organization from wherever they are sitting. This is work, but also redefining how functions interact and even
setting the stage for further changes related to evolving the boundaries and activities of the firm.
globalization.
The three building blocks of this transformation are
The tools that virtualize individual work, while digital modifications to the business, the creation of new
implemented for cost reasons, have become powerful digital businesses, and digital globalization.
enablers for knowledge sharing. Salespeople and frontline
employees, for example, are beginning to benefit from
collaborative tools in which they can identify experts and Digitally Modified Businesses
get questions answered in real time. They are also One media executive said: “We’ve realized that if we don’t
increasingly gaining access to a single, global view of the transform the way we do business, we’re going to die. It’s
company’s interactions with a customer. not about changing the way we do technology but
changing the way we do business.” The company is
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finding ways to augment physical with digital offerings information on airplane traffic and reservations, duty-free
and to use digital to share content across organizational shopping promotions and other benefits.
silos.
A grocery company is staying true to its traditional Digital Globalization
business but using digital to transform a new growth Companies are increasingly transforming from
business. As one executive reported, “After two years, our multinational to truly global operations. Digital
e-commerce platform is bringing us 20% of our new technology coupled with integrated information is
clients and our traditional clients are consuming 13% allowing businesses to gain global synergies while
more on average.” remaining locally responsive. These companies benefit
from global shared services for finance, HR and even core
Other businesses are building digital or service wrappers
capabilities like manufacturing and design. Global shared
around traditional products. A national post office is
services promote efficiency and reduce risk. They even
creating a free digital mailbox attached to each physical
promote global flexibility. One manufacturer can shift
mail address that companies can use as a substitute for a
production around the globe with only a few days’ notice
person’s physical mailbox. A business credit company is
in response to interruptions or excess demand.
developing a digital business for some credit products
that requires less involvement than their traditional high-
touch offerings.
The Take-Away
Digital transformation requires strong leadership to drive
change. But it also requires a vision for what parts of the
New Digital Businesses company you want to transform. Companies in all
Companies are also introducing digital products that industries and regions are experimenting with — and
complement traditional products. For example, a sports benefiting from — digital transformation. Whether it is in
apparel manufacturer started selling GPS and other the way individuals work and collaborate, the way
digital devices that can track and report on a customer’s business processes are executed within and across
workout. Other companies are changing business models organizational boundaries, or in the way a company
by reshaping their boundaries through digital. A understands and serves customers, digital technology
mortgage company is moving from being a link in the provides a wealth of opportunity.
value chain to being a global assembler of investment
Focus is important; no company we studied is
products. An airport authority is aiming to become the
transforming all nine areas at once. But the best-managed
owner of a traveler’s end-to-end process by providing an
firms are constantly identifying new ways to redefine the
integrated multichannel experience, including
way they work in the new digital era.
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About the Authors sponsor of Digital Transformation at Transformation: A Roadmap for
Capgemini Consulting. Andrew Billion-Dollar Organizations, which
George Westerman is a research McAfee is assistant director at the was named one of the top five
scientist at the MIT Center for MIT Center for Digital Business. thought-leadership pieces of the
Digital Business. Didier Bonnet is This essay was excerpted and decade by Whitespace/Source.com.
global practice leader and executive adapted from their report Digital
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Reproduced with permission of copyright owner. Further reproduction
prohibited without permission.