Connecting the dots between digital maturity and financial performance

MORE businesses went digital in 2020 than ever before, owing to extended Covid-19 lockdowns and evolving customer needs. It's clear, even pre-pandemic, that the future is digital. Having a business without an online presence today is like organising a party and not inviting anyone.

Last year, Deloitte launched its Digital Transformation 2020 report to examine the state of technology readiness among businesses and the findings were telling. The report found that companies identified by their executives as "well along the road to digital transformation" were three times more likely to achieve revenue growth in the last year.

Additionally, 45 per cent of high-maturity companies achieved net revenue growth above industry averages, compared to 15 per cent of companies not rated as highly mature. This isn't breaking news given the recent developments in artificial intelligence, data analytics and technology on the whole, but a closer look at these findings proves baffling.

According to the Deloitte report, growth is significant at organisations whose digital strategies centre on innovation and developing new models of business. In simpler terms, organisations that are digitally mature grow more and earn more. This is because digitally mature companies not only use data and digital technology to do things differently but also to do different things. This sets them apart from their competitors.

In Deloitte's follow-up investigations into why digital maturity might be associated with better financial performance, it was found that digital maturity brings companies a wide range of specific benefits that include higher efficiency, improved product quality, employee engagement and customer satisfaction - all of which contribute to better financial performance.

Then there are other benefits of being digitally mature, such as reducing environmental impact and increasing workforce diversity, which contribute towards companies' broader social responsibility.

Link between digital maturity and financial performance

Digital maturity's direct impact on financial performance has been probed and proven. Through digital innovation, businesses can expect to see a multitude of improvements that ultimately lead to better financial performance. These improvements include:

• Efficiency: Insurance giant Guardian Life migrated over 200 applications to the public cloud allowing it to shut down its data centres and cut costs by up to 30 per cent.

Additionally, digitalisation meant flexible infrastructure and agile operations, which has freed their IT teams from the burden of managing data centres so they can focus on testing new applications and integrating new tools and solutions with startups.

• Revenue growth: Digital maturity empowers companies to offer well-integrated products and services to their customers, which means they are reachable by customers 24/7 via mobile apps or Web and can generate revenue without constraints. Take fast-casual restaurant chain Chipotle, for example. After the company upgraded its mobile app to allow customers to more easily customise orders to their liking, its digital sales grew by more than 100 per cent, accounting for 18 per cent of total sales in Q3 2019, compared to 11 per cent previously.
• Product or service quality: There is another benefit to businesses going digital that non-digital businesses simply can't compete with: data-driven insights. Data, captured through millions of devices connected through Internet of Things (IoT), helps businesses gain valuable insights that can continually improve their products and services.

For instance, Rolls-Royce analyses sensor data from its jet engines to improve its fuel efficiency. Based on this capability, the company can promise to lower its airline customers' fuel costs, allowing it to evolve its business model to offer subscriptions to lease jet engines rather than selling them outright.

• Customer satisfaction: Since digital maturity helps companies offer better products and services, it translates to higher customer satisfaction and a rise in both new customers and repeat sales from existing ones.
• Employee engagement: Upskilling the workforce to become more digitally-savvy has an array of benefits including higher employee engagement and productivity.

Digital maturity: More than a one-time experiment

There's a caveat to the endless benefits that digital maturity brings to businesses, which is that in order to reap these benefits, organisations must do more than simply implement new technologies. What distinguishes digitally-mature companies from their peers is their ability to ramp up digital experiments. Instead of preparing for plan B when experiments fail, deciding what to do when experiments succeed can be an even bigger challenge.

One executive describes the challenge in the 2017 Digital Business Global Executive Study and Research Project, in terms of "small i" innovation (experimental efforts) and "big I" innovation (enterprise-wide efforts).

Leaders at this company seek to identify experiments that could potentially tackle the most critical business challenges at any given point in time, which could, in turn, lead to enterprise-wide implementation. They conduct smaller experiments to figure out how innovations with a "small i" can lead to this bigger breakthrough.

Overall, a tolerance for failures and the ability to learn from them underpins the ability to ramp up "small i" experiments and drive large-scale digital success.

The real takeaway here is that digitalisation is not only about doing things better and faster - it's also having the courage to do things that weren't possible before. While cost-savings and organisational efficiency are low-hanging fruits that will motivate most digitally immature organisations to transform digitally, businesses shouldn't lose sight of the bigger picture, which is to continue to innovate until they have fulfilled their businesses' full potential.

• The writer is co-founder & CEO of Builder.ai