Tech companies win at digital transformation but struggle with leadership and governance

Boston Consulting Group analyzed projects at 950 companies and reported success and failure rates by industry.

Boston Consulting Group analyzed digital transformation work at 950 companies and found that only a third of these efforts achieve success. The report published this week measures the rates of success and predicts future priorities of digital transformations. In addition to an overall analysis, the researchers examined success and failure by industry including the tech world.

The 2021 transformation success rate was 35%, up from 30% in 2020. BCG put companies in one of three categories:

• Win zone: Meet or exceed target value and achieve sustainable change
• Worry-zone: Generate some value but limited long-term change
• Woe zone: Generate limited value and no sustainable change

In 2020, BCG set these six goals for digital transformation:

1. Craft a clear integrated strategy
2. Commit to leadership from the top through the middle
3. Put the best people in the right places
4. Adopt an agile governance mindset
5. Monitor and measure your transformation progress
6. Create a business-led tech and data platform

The analysts found that companies that addressed these six factors reported a 21% EBIT increase in the businesses within the scope of the transformation compared with only a 10% increase on average for those companies that did not.

To see how well companies have met those goals, BCG researchers analyzed 30 successful digital transformations from work with clients and surveyed 860 VPs and CxOs who acted as their organization’s primary digital transformation decision maker over the past five years. The researchers also interviewed BCG digital leaders and clients and conducted a literature review of leading publications and academic research.

BCG published reports on digital transformation in five sectors:

• Telecommunications
• Media
• Hardware
• Software and services
• IT services

Here are the top findings for hardware, software and IT services companies.

Digital transformation success among software and services companies

Software and services companies had a success rate of 60% which is the highest across all sectors. According to the report authors, this is due to the fact that these companies are inherently digital and leaders are naturally primed to be early adopters of digital advances. The researchers also identified these key findings:

• Successful digital players are prioritizing areas that have not yet emerged as universal priorities, such as automated lead generation, personalization and automated churn reduction.
• Software companies have sophisticated forward-looking digital agendas in customer experience and services, security and support functions.
• ESG is becoming more important in the digital agenda, especially supply chain, customer and employee data risk, and cyber resilience.
• Top-quartile companies nail the six key success factors, while median companies struggle most with talent.
• Software companies pursue digital initiatives more broadly than companies in other industries, emphasizing customer experience, marketing and pricing and innovation.

The research also found that nearly all software companies intend to spend 50% of investments toward customer experience and delivery of services.

Digital transformation and hardware companies

Companies that manufacture hardware devices, components and semiconductors are more successful at digital transformation than several other sectors, according to the report. Half of these firms reach the win zone, which is higher than the cross-industry average. The key findings for this sector are:

• Hardware companies outscore other industries on individual success factors, especially leadership and strategy, but they struggle on agile governance, suggesting that agile at scale remains a heavy lift for physical goods companies.
• Hardware companies emphasize customer experience less than companies in other industries, instead making their top priorities growth and business model innovation and sales and marketing acceleration.
• Successful digital players are prioritizing areas that are good fits with AI solutions, such as automated lead generation, dynamic pricing, predictive maintenance, and demand forecasting.
• ESG considerations about energy consumption reduction, data privacy and cyber resilience are becoming more important.

Organizations in the worry and woe categories should shift their focus from core operations to sales and marketing and innovation-oriented achievements, according to the report authors.

IT services and digital transformation

Most leading IT services organizations have concentrated digital transformation work on external or client-facing initiatives such as customer experience and journeys, growth and business model innovation, sales and marketing acceleration and partnerships. Only 45% of these companies are in the win zone, a lower percentage than other technology, media and telecom companies, including internet-based companies (58%) and hardware and devices companies (52%).

The BCG researchers recommend that IT service companies accelerate the pace of digital adoption and note that successful digital players are pivoting toward internal digitization efforts such as employee journeys and support functions. Other findings about the sector include:

• The IT services sector has faced significant challenges on talent and agile governance.
• The forward-looking digital agenda for IT service companies includes service delivery and operations, sales and marketing, security, support functions and R&D.
• ESG considerations related to data privacy, cyber resilience, and the use of analytics for emissions reduction are becoming more important.