Creating new value in new ways through digital transformation

We live in an era of unprecedented digital change – the type of change that is reshaping the relationship between customers and companies, breaking down the walls between industry sectors, and, by extension, prompting forward-thinking CEOs to question the very business they’re in.
 
To navigate this digitally-led economy, business leaders will need to understand how technology can improve their operations and bring them closer to their customers; embrace collaboration both inside and outside the business; and identify a rich and varied talent pool. More than anything, though, they’ll have to develop a flexible vision that allows them to pinpoint their company’s strengths even as their customers, sectors and markets change in front of their eyes. Sound like a superhuman challenge?
 
Welcome to 2015.

By PwC Singapore

 
CEOs no longer question the need to embrace technology at the core of their business in order to create value for customers. Beyond a shadow of a doubt, digital technologies have revolutionised how customers perceive value. Creating the personalised and ongoing experiences that are increasingly in demand requires a full view of the customer and all their relationships with the company. It requires an unprecedented level of customisation, responsiveness and innovation.
 
Doing all this effectively just isn’t possible by tinkering at the edges. Companies increasingly recognise that they need to reconfigure their operating models – and perhaps their business models. And in order to do so they need to ensure that they’re not only investing in the right digital technologies, but can deploy them in a smart and effective way.
 
As Michael Dell, Chairman and Chief Executive Officer of Dell Inc. says, “The instinct when something new shows up is to say, ‘How do we bolt this on to the old way we were doing it and deliver some incremental improvement?’.” That’s the wrong way of approaching the challenge, he explains. “What you really have to do is rethink the problem and say, ‘Now that we have all these new tools and new techniques, how can we solve the problem in a fundamentally different way?’.”
 

"81% of CEOs think mobile technologies are strategically important for their business"

 

The art of understanding

 

CEOs are in no doubt about the role information can play in gaining insight about customers and how to engage with them.
 
Mobile technologies have been around for decades, but the sheer ubiquity of mobile devices today has revolutionised customers’ ability to obtain information. The number of mobile phone users globally was expected to total 4.55 billion in 2014 – nearly 70% of the world’s population – with smartphone users totalling 1.75 billion.5 The volume of mobile traffic generated by smartphones is now about twice that of PCs, tablets and routers – despite having only surpassed them in 20136 – and is predicted to grow ten-fold by 2019.7
 
Access to information has, in turn, transformed how customers perceive value and the type of relationships they want to have with companies. So it’s understandable that 81% of CEOs see mobile technologies for customer engagement as most strategically important for their organisation – more than any other digital tool (see Figure 10). But companies that want to exploit the power of mobile technologies to engage customers face tough choices about how, and how fast, to move to mobile channels and how to integrate those with more traditional channels.
 
 
 
Data analytics, meanwhile, has transformed the ability of companies to access, analyse and circulate information about their customers, and use that information to create the type of relationships that their customers want. Indeed, there’s evidence that companies that can most effectively use analytics to inform demand-side decisions about business processes outperform those that can’t.8 Small wonder, then, that 80% of CEOs cite data mining and analysis as strategically important.
 
Companies, however, face challenges in their ability to effectively leverage data analytics tools. For one thing they’re not using analytics enough. It’s been estimated that 23% of all digital data generated annually would be useful if tagged and analysed – yet at present, just 3% of it is tagged and 0.5% analysed.9 Then there are issues about data quality, information overload and a continuing lack of trust in the value of digital data. UK business executives who were polled about how they make big decisions, for example, ranked their own intuition and experience, as well as the advice and experience of others, above data and data analytics.10
 
When companies do invest in digital technologies to deliver what customers want, that commitment would appear to be bearing fruit. The majority of CEOs think that digital technologies have created high value for their organisations in areas like data and data analytics, customer experience, digital trust and innovation capacity (see Figure 11). It’s in the area of operational efficiency that CEOs are seeing the best return on digital investment. Eighty-eight percent think value has been created in this area, with half of these CEOs seeing ‘very high value’. The transformation of cost structures is a symptom of the digital transformation that companies are undergoing as they align their business and operating models to new ways of delivering stakeholder value. Indeed, 71% of CEOs also tell us they’re cutting costs this year – the highest percentage since we began asking the question in 2010.
 
 
 
 
After having put significant funds into IT over the years, CEOs now also want to see a strong connection between digital investments and business objectives. 86% say a clear vision of how digital technologies can help achieve competitive advantage is key to the success of digital investments (see Figure 12). And 83% say the same for having a well-thought-out plan – including concrete measures of success – for digital investments. But CEOs also know it can’t happen without them: 86% think it’s important that they themselves champion the use of digital technologies.
 
 
 

 

Once more into the security breach

 
The central role of information places cyber security squarely on the CEO agenda, particularly given the series of high-profile hacks over the past year. With vast quantities of their information readily accessible around the clock, customers expect a certain amount of privacy and confidentiality. How companies honour this will mean much for their ability to engage with and retain customers, and build brand value. 
 
Yet in a recent PwC poll of consumers, 24% said that their trust in companies’ ability to protect their personal data had declined over the past 12 months.11 Cyber security incidents are now so commonplace that the number of detected incidents soared 48% in 2013 to 42.8 million.12 In the past year virtually every industry has been impacted, with many incurring significant costs as they seek to manage and mitigate the breaches.13 Small wonder, then, that concern about cyber security has seen the biggest increase of all the potential threats we asked business leaders about, with 61% of CEOs citing concerns compared with 48% a year ago.
 
But while we expect cyber security issues to continue to be a growing threat, organisations are adapting to this new reality: CEOs see cyber security technologies as a top-three most strategically important type of digital technology for their organisation. And 53% think it’s ‘very important’ strategically – a higher proportion than for any other type of digital technology we asked about. 
 
The real benefit of cyber security isn’t just in defending value. It’s about creating new value by enabling the trust that’s so central to doing business today. Cloud technology, for example, has elevated security concerns; the key to demonstrating the Cloud’s true value is to make it really secure. It’s encouraging, then, to see that the requisite shift in thinking seems to be underway, with 72% of CEOs seeing digital technologies as creating value in the area of digital trust.
 

Identifying the potential of technology

 
Given technology’s increasingly integral role across business sectors, the ability to harness it effectively is becoming a key differentiating capability, presenting opportunities for those who can – and threats for those who can’t.
 
Significant numbers of CEOs see technology as a key vulnerability for their organisations. Concerns about the speed of technological change saw the second biggest increase of all the threats we asked about, with 58% of CEOs expressing anxiety, compared with 47% last year. The pace of change is inescapable: less than a decade after its initial public offering, Google’s revenue soared from $3 billion to $60 billion. CEOs are concerned, too, about the ability of new entrants to exploit weaknesses in technological capabilities: 32% name technology as the sector from which significant competitors are emerging – far more than those who name any other sector (see Figure 13).
 
 
 
Yet for companies in which technology is a strength, there are significant opportunities for growth. The CEOs who told us that there are more opportunities for their business today than three years ago are more likely than those who see greater threats to place strategic importance on a range of digital tools, and to have derived high value from them.
 
Opportunities to leverage technological competencies are also taking companies into other sectors. The technology industry, together with the healthcare, pharmaceuticals and life sciences industry, is the single biggest sector outside their own that CEOs are targeting: 15% have entered this arena, or considered doing so, in the past three years. While it’s mainly technology companies targeting other subsectors, companies from completely different industries – for example banking and capital markets – are also looking to bring their capabilities into the technology arena.
 
However, it’s the ability to see the opportunities that technology enables that will unlock the true value of those investments; it’s not just access to increasingly affordable tools and platforms that defines leaders and laggards. For example, while nearly every organisation lays claim to being a digital enterprise, only 20% of respondents in a recent PwC survey rated their company as having excellent Digital IQ, defined as how well they understand the value of technology and weave it into the fabric of their organisation.14
 
The time is clearly ripe for partnerships between those who have technological prowess and those who don’t.
 

Tough questions about creating new value in new ways through digital transformation

 
  • What technologies do your customers, partners and other stakeholders use and value, and how do they use those technologies?
  • In what ways does your business and operating model need to change to fulfil evolving customer needs?
  • What are you doing to ensure that you’re investing in the right digital technologies – and using them most effectively?
  • How are you maximising the use of data analytics to deliver customer value?
  • How are you ensuring that your information assets are as secure as possible?
 
5. eMarketer, Smartphone Users Worldwide Will Total 1.75 Billion in 2014, January 6 2014
6. 2013 Ericsson Mobility report
7. Ibid
8. strategy&, The demand analytics premium: Getting the most out of your data, 2014
9. IDC, The digital universe in 2020, 2012
10. PwC, Gut & gigabytes, 2014
11. PwC, Analyse this: Are CEOs embracing the boom in personal data?, 2015
12. PwC, Managing cyber risks in an interconnected world: Key findings from the Global State of Information Security Survey, 2014
13. Ibid
14. PwC, 6th Annual Digital IQ Survey, 2014

 

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