5 minute read 27 Sep 2021
Businesswomen discussing ideas at information wall

How leading companies accelerate their digital strategy

Authors
Laura McGarrity

EY-Parthenon Principal, Digital Innovation, Ernst & Young LLP

Leading digital transformation efforts for clients. Extensive experience in emerging technology and start-up ecosystems. Gardening pro.

Thomas Holm Møller

EY-Parthenon EMEIA Digital Leader

Strategic thinker fostering new ways to unite business science with human science. Passionate about identifying new areas of value creation.

Peter Ulrich

EY-Parthenon Principal, Digital Strategy and Transactions, Ernst & Young LLP

Digital Innovation in Strategy and Transactions. Knowledge in industrials, automotive, machinery, construction, infrastructure, mobility, and logistics.

5 minute read 27 Sep 2021

Companies are pouring money into digital initiatives with no results. Learn how leaders succeed and why M&A can be key to outsized returns.

In brief
  • Recent EY research shows that companies can get larger returns on technology investments by taking four key steps.
  • Learn why assessing investment strategy, talent requirements, operating models and funding constraints are key to digital success. 

Amajor cruise ship company was missing out on significant revenue because its guests didn’t know about critical aspects of their vacation: ship amenities and adventure options. The company also needed to meet the demands from a new generation of customers who were digitally more adept — as nearly half of cruise passengers were under the age of 34.

The company personalized and digitized on-board experiences and tracked preferences from the moment customers boarded the ship — for example, vacation planning apps, virtual reality videos of shore excursions and augmented reality features. It also hired digital-savvy leaders and worked with EY to build an ecosystem of strategic partners to manage the transformation. These efforts positioned the cruise liner to capture significant passenger growth.

From travel to industrial to life sciences companies, organizations that get their digital transformation efforts “right” are reaping significant rewards. However, many companies that have invested heavily in digital transformation are not seeing their investments pay off – and the pressure to show results is mounting.

How digital performance leaders are boosting revenue, closing technology gaps and increasing return on digital investments

EY identified 9% of a 1,000+-respondent sample as “digital leaders” in the EY Digital Investment Index study. These leaders achieved roughly six percentage points more return on digital investments compared to non-leaders and reported stronger revenue growth.

Leaders clearly see M&A and partnerships with tech natives as a critical lever for a successful digital investment strategy with nearly three-quarters of executives noting that they are shifting to M&A and partnerships to accelerate digital initiatives. The survey results also show leaders:

  • Have a clearly defined strategy and accountability for digital
  • Prioritize digital initiatives with immediate cash returns, while discontinuing unnecessary initiatives
  • Dedicate funds to accelerate new digital products, services and business models
  • Invest in the right emerging technology to execute on that strategy

The technology mix used by leaders is more likely than others to include investments in internet of things (IoT), cloud computing, artificial intelligence (AI) and advanced cyber defense.

Higher levels of both startup acquisitions and patents result in stronger share price performance

Four steps to accelerate digital transformation

1. Capitalize on digital spend
  • Build IT and data infrastructure with both the business and customer needs in mind and not for the sake of technology
  • Start with agile sprints to test impact and drive value while establishing a digital governance to measure results and secure funding
  • Build a sustainable analytics foundation that meets current and future needs and enables data availability to all, rather than individual silos

Digital solutions in action: A $3b mid-tier mining company in Australia invested in AI and machine learning capabilities to build digital twins for its milling operations. EY helped the company develop the “twin” to run in parallel to the legacy system to predict optimal operational setpoints, identify ways to increase throughput, improve uptime and increase yield quality – all leading to a $50m+ business value improvement.

2. Align on investment strategy and leverage M&A
  • Align on proper investment mix of buy, build or partner
  • Avoid a siloed approach – the CEO should own the investment approach and strategic direction, and establish collaboration incentives and a governing body to provide oversight
  • Assign clear execution accountability for each investment vehicle based on CXO roles and strengths
  • Drive M&A value by recognizing differences in start-up vs. traditional M&A

Digital solutions in action: A leading US-based retail pharmacy player was facing questions on operational performance and its retail business model. EY advised the company to acquire technology capabilities critical to drive both operational gains, offer platform-based technology solutions to regional retail pharmacies and build new business models to compete in the emerging e-commerce pharmacy segment. Result: The company’s $100m+ investments in various companies during the last three years are reaping double-digit returns.

3. Remove barriers to scale

Digital solutions in action: One government needed scalable rapid identification, containment and treatment of the COVID-19 virus. With the help of EY, one country’s government rapidly deployed a digital care platform and care accelerator embedded with intelligence and analytics to eliminate barriers to patient outreach, monitor risk groups, understand citizen behavior and manage demand spikes. EY worked with another country on a similar scaled roll-out that resulted in a 28% reduction in emergency visits in the initial stage of the virus outbreak.

4. Establish strong governance procedures and proper metrics
  • Align on digital goals, funding mechanisms and metrics connected to the digital strategy
  • Regularly review use case portfolio and focus on strategic solutions to drive revenue, reduce costs and increase cash flow
  • Establish an effective governance model to manage incubation funnel in an agile way
  • Upgrade skills, data and tools to measure financial impact and return on digital investment

Digital solutions in action: A local government tried to increase connectivity among citizens and public services by adapting new digital technologies. EY diagnosis revealed that implementation failed because of unclear digital governance, breakdown in coordination across departments and failure to monitor critical priorities. EY designed an implementation strategy in which a central figurehead was accountable for communication and performance. A new KPI framework also monitored performance, implementation pace and coordination. Result: The governance framework enabled the city to regain the control of the digital agenda.

Time is of the essence

As companies incubate new opportunities to drive growth and digitize their core businesses, they should continuously assess talent requirements, operating models, investment strategy and funding constraints. Inadequate operating models and a lack of governance and KPIs are often the cause of stalled transformations.

M&A and other inorganic investing options often produce outsized results compared to other digital investment choices.

  • Methodology

    Study methodology: The EY Digital Investment Index is a study of 1,001 CEOs, CDOs, CFOs, CSOs, CIOs of companies with $1b+ annual revenue between September and November 2020.

This EY-Parthenon article is part of a sponsored content series as seen on hbr.org.

Summary

Digital transformation remains top priority for companies in all sectors of the economy. But despite heavy investment in digital transformation, many are not seeing results. A recent EY study shows companies that are experiencing success are using M&A and partnerships to increase returns on their investments. They are also taking four key steps to achieve better results including: managing digital spending, aligning on investment strategy, removing barriers to ensure scalability and establishing strong governance.

About this article

Authors
Laura McGarrity

EY-Parthenon Principal, Digital Innovation, Ernst & Young LLP

Leading digital transformation efforts for clients. Extensive experience in emerging technology and start-up ecosystems. Gardening pro.

Thomas Holm Møller

EY-Parthenon EMEIA Digital Leader

Strategic thinker fostering new ways to unite business science with human science. Passionate about identifying new areas of value creation.

Peter Ulrich

EY-Parthenon Principal, Digital Strategy and Transactions, Ernst & Young LLP

Digital Innovation in Strategy and Transactions. Knowledge in industrials, automotive, machinery, construction, infrastructure, mobility, and logistics.