EY Report Shows That Companies Ahead in Digital Transformation Share Habits that are Leading to Improved Financial Performance
Thursday, March 19th, 2020
Companies that are identified as leaders in digital transformation – and who are using technology to drive and enable growth – share common habits that are leading to improved financial performance, according to Tech Horizon: Leadership perspectives on technology and transformation, a multi-country and multi-industry EY report.
The EY Tech Horizon report surveyed 500 large corporations and 70 startups in nine sectors: consumer products and retail; education; energy; financial services; health and life sciences; hospitality; industrial; technology, media and entertainment and telecoms; and transportation and logistics. The goal of the survey was to determine where companies are on their transformation journey and how they use technology to enable it.
According to the survey, the leading1 companies revealed they share common practices that help them respond to disruption to their advantage and achieve better financial performance. These are:
Focusing on customers, first and foremost
Accelerating artificial intelligence (AI) to drive growth
Driving innovation through ecosystems and partnerships
Nurturing talent with new incentives and strategies
Activating governance plans for emerging tech
Powering innovation by leveraging data and being agile
In the survey, companies identified as leaders are advanced on their journey toward transformation, are generating significant financial value from technology innovations and are making efforts to build a transformative culture. Those identified as lagging behind in transformation are not advanced on their digital journeys, are not bringing tech innovations to market and are not trying hard to build a transformative culture.
The report examined three financial metrics – revenue, gross profit and EBITDA2 – on a five-year CAGR3 basis and revealed that leaders are:
50% more likely than those not deemed as leaders to annually see EBITDA increase by more than 15%
45% more likely than those not deemed as leaders to unlock annual revenue growth of more than 10%
26% more likely than those not deemed as leaders to enjoy annual gross profit increase by more than 10%
Dan Higgins, EY Global Advisory Technology Consulting Leader, says:
"With so much technology now at the fingertips of business leaders, we wanted to find out if – and how – companies are starting to achieve higher success in their transformations. We hypothesized that we would be able to correlate some common approaches and characteristics to outperformers. As it turned out, while there are many factors impacting companies' top and bottom lines, the research shows that there is a strong link between companies who embrace six core practices and their achievements in improved financial performance."
Forty-four percent of large corporations say they are making good progress in their transformation or it is fully embedded and optimized across their business. By comparison, 83% of startups – companies five years old or younger, which are typically agile and born in the cloud – currently plan to transform their businesses during the next two years, as they launch initiatives to keep pace with an ever-changing market landscape.
The survey shows that among the large corporate respondents, Europe leads the way in transformation, with 53% of corporates in the region stating they are making good progress on transformation plans, followed by Asia-Pacific (47%) and the Americas (35%). Among all the large companies surveyed, those in the consumer products and retail (52%); industrial (50%); and technology, media and entertainment and telecoms (49%) industries are making progress in their transformation initiatives, followed by energy (45%) and financial services (44%).
Leaders plan to invest in technology, but governance function is lacking
Transformation leaders are prioritizing a wider range of technology for the next two years, with the cloud and AI as the top investments (both at 53%), followed by the Internet of Things (IoT) at 49%. When deploying new digital technologies and governance related to them, 43% of leaders review selected technology under a governance model, but only 15% say their governance function for emerging technologies is well established and active.
When asked about their peoples' skills to help enable successful transformation, more than half of leaders (58%) in a technology role believe there is an industry-wide shortage in the type of skills that would help accelerate their transformation efforts; 59% of those in a non-technology role believe this. To fill the skills gaps, leaders say they took measures such as developing new incentives to encourage people to learn new skills (59%) and introducing mandatory training for all staff (56%). Forty-six percent say they took measures such as undertaking a skills gap assessment of existing staff and trying a new recruitment strategy to fill skills shortages, respectively.
Higgins says: "It's encouraging that leaders are considering their priorities and imperatives in an integrated way, through the three value drivers of transformation – humans at the center, technology at speed and innovation at scale – while including other essential elements such as collaborating within ecosystems and adopting trust by design and security and governance models. For true and successful transformation, organizations must consider their companies holistically if they are going to make meaningful change and provide long-term value to their customers, their people and society more broadly."