Digital maturity of firms linked to higher revenue growth and profitability
A new report from West Monroe Partners has found that higher self-rated digital maturity correlates strongly with higher revenue growth rates.
Organizations are feeling great pressure to transform into digital companies, turning themselves into companies that do business like the Amazons and Googles and Apples. Transforming can often mean playing catch-up: streamlining operations, getting to market faster, and better anticipating customer shifts.
But digital transformations aren’t some consulting industry-created buzz garbage to sell products and services to companies and industries that don’t need them. According to management and tech consultancy West Monroe Partners, more digitally mature companies actually see higher revenue growth.
Based on a survey of 407 US executives across healthcare, financial services, energy and utilities, and consumer and industrial products, West Monroe found that there was a strong correlation between firms’ self-rating of digital maturity – from overall vision to utilization of digital within sales, marketing, customer service – and revenue growth. The study also found a relationship to net profit margin, though the correlation was less pronounced than with revenue growth.
"To keep up with the most digitally mature organizations, companies need to start thinking of digital as more than a buzzword that only applies to certain segments of their organizations or as the latest technology update,” said Kyle Hutchins, senior director and leader of the firm’s Digital team. “The challenge is often knowing the right digital elements to focus on and if efforts will actually drive revenue.”
The report found that four digital characteristics in particular showed a high correlation with strong financial performance (growth rates above 10%). These four characteristics were a clear vision/dedicated leadership, engaged and motivated employees, ability to leverage data, and convenient digital interactions.
According to the report, crafting a strong digital vision is a taxing process that requires both infrastructural and cultural transformations. “A digital vision should encompass not only technology, but how it will affect people and culture and change day-to-day business processes,” the report notes. As such, only 24% said their firm’s digital vision was clear and comprehensive, and used to guide strategic decisions.
The difficulty of the process means that companies need strong leadership to execute their digital vision. According to West Monroe, these digital leaders should be able to create agile and adaptive work environments, should be experts in change management, and should be able to bring in and align technologists across the enterprise.
Organizations that agreed that they were highly adept at leveraging data for insights tended to have higher growth rates. Data can be used to drive smarter decision-making, providing insights to improve products while fueling new innovations and predicting the future needs of customers. Data analytics can also optimize certain areas of a business, like supply chain management and risk management.
Higher growth was also linked to customer service divisions ensuring that customers’ digital interactions were convenient and enjoyable. Customers now want and expect convenient interactions, through technology-assisted avenues like apps and echat. Net provider scores – how likely customers are to recommend a firm to their friends and family – are 65 points higher for low-effort (i.e. easy to interact with) companies.
Finally, companies with employees who were engaged and motivated due to their commitment to customer needs also had higher growth rates. In digitally mature firms, employees put customers first, incorporate feedback, and quickly access customer insights to better solve problems. This sort of agile environment means that employees can make decisions quickly, effectively, and independently.
The survey found that some industries were more advanced than others: 47% of financial services companies said they were digitally mature (or very much so), in contrast to 31% of healthcare companies. However, each of the four sectors included in the survey had their own areas of strength in digital transformation.
Energy and utilities firms scored highest on cybersecurity defenses, which makes sense since they face real and critically important cyber risks from state and non-state actors looking to take down power grids and energy producers. Energy and utilities companies also spent the highest overall proportion of their budgets on digital, at 31%.
Healthcare organizations, meanwhile, spent more than their peers on launching new digital products and services, with 48% saying they had done so in the past three years. Meanwhile, financial services’ digital maturity was linked to their strong digital vision, another area where they led. Consumer & Industrial Products firms scored the highest in customer experience, with 72% saying that they strongly agreed that their customer service division made digital interactions ‘convenient, effortless, and enjoyable.’
