Digital transformation for businesses

Authored by Diana Kearns-Manolatos, Nicole Scoble-Williams, and Rupert Darbyshire

Business transformation in the digital era

The digital revolution is upon us, pushing organizations to adapt—yet, despite significant investments in technology, many struggle to reap the anticipated rewards. A recent Deloitte study uncovers a crucial component that can make or break a transformation: digital change capabilities. This action is not just about implementing new technology; it’s about cultivating a culture and workforce ready to embrace the change that accompanies it. This is where digital transformation becomes a double-edged sword for businesses: Wielded effectively, change drives substantial market value; mishandled, it can hinder progress and erode value.

The market value imperative: The digital change upside and downside

Deloitte’s analysis of 4,600 companies’ financial reports over the past 10 years paints a compelling picture: Those effectively aligning digital change initiatives with their strategy and technology investments experience a 14% market cap differential compared to those that have a strategy and are investing in technology but fail to effectively manage the change.¹ This translates to a staggering $2.75 trillion potential advantage for Fortune 500 firms alone, highlighting the immense value at stake.

Indeed, change without a clear direction is a recipe for disaster. Organizations focusing solely on change without a digital strategy experience three times less market cap growth. This underscores the need for a strategic and intentional approach to digital transformation that encompasses a number of themes.

The expanding digital change agenda

Deloitte’s research reveals a growing prominence of “digital change” capabilities within the business agenda—actions that have to do with organizational design, workforce transformation, skills strategies, and more. Over the period from 2016 to 2022, organizations discussed digital change-related ideas more than 600 times in the business filings Deloitte Global analyzed.² The analysis found that 55% of these themes are trending upward, meaning the digital change agenda leaders need to manage is only getting bigger (figure 1).

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Digitization dominates the change agenda: Efforts to digitize customer relationships, operations, and business processes have seen significant growth (+253%, +168%, and +135%, respectively) and are areas in which leaders have shown an increased focus from 2020 to 2022, according to the filings (figure 2). Likely, these efforts were driven by the COVID-19 pandemic pushing organizations toward more digital business models. For example, many organizations invested in modernizing their call centers to address high-volume demand and reduction in available workforce.

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The same period also showed new or emerging priorities begin to surface as several previously less prominent themes gained traction (figure 3).³

Bridging the IT-organizational transformation gap: As digital technologies advance, the distinction between information technology (IT) operations and business operations has continued to blur. Successful digital transformation now demands a seamless integration of technology with every aspect of organizational operations, necessitating leaders to rethink about how IT and business units collaborate. This integration is essential for fostering an environment where digital initiatives thrive, supported by agile IT practices and a culture of continuous innovation. Our data shows that mentions of technology enhancements in relation to digitization increased from 81 mentions to 212 mentions—more than two-and-a-half times over the period.

Sustainable solutions: Additionally, four separate themes related to environmental, social, and governance (ESG) emerged related to digitization (29 mentions), customer service (35 mentions), IT (17 mentions), and technological changes (9 mentions). This topic went from a nonagenda item to 90 mentions over the analysis period, rising in prominence, and rightly so. Balancing technological advancement with a focus on sustainability is no longer optional—it’s a necessity. Therefore, ESG is seeing a notable upward trend on the digital change agenda, perhaps as a response to the growing consumer and stakeholder demand for environmentally conscious business practices. This movement is not just about adopting green technologies, but also leveraging digital transformation to achieve sustainability goals, such as reducing carbon footprints and ensuring ethical supply chains, in which mentions of digital supply chains and digitization went from 51 mentions to 155 mentions over the period—a three times change.

Data-driven decision-making: A notable increase in the frequency of data-related keywords highlights the growing recognition of data as a strategic asset with mentions of “data-enabled,” plus “digitization” growing from 28 mentions to 125 mentions—or by more than four times. In today’s digital economy, the ability to collect, analyze, and act upon data can distinguish market leaders from their competitors. Data-driven decision-making extends beyond traditional analytics to encompass predictive modeling, machine learning, and artificial intelligence-powered insights. Organizations that master the art of deriving actionable insights from their data can enhance operational efficiency, personalize customer experiences, and innovate product offerings. This emphasis on data-driven strategies is encouraging a shift toward more sophisticated data governance, quality management, and analytics capabilities.

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Charting the course through decisive action

Deloitte’s research offers valuable, data-backed guidance for navigating the complexities of digital change:

• Align strategy and IT: Facilitate communication and ensure alignment between technology investments and overall business strategy. Larger companies, often burdened by legacy systems, particularly benefit from this alignment.
• Calibrate for scale: Organizations of all sizes must carefully consider their unique context and competitive landscape when implementing digital initiatives. Our analysis highlights the importance of developing a tailored digital strategy that aligns with the specific needs and goals of each organization to achieve sustainable growth and competitive advantage.
• Experiment and learn: Embrace an iterative approach to digital change, experimenting with different strategies and continuously learning and adapting based on results.

Digital change capabilities are no longer optional, but essential for transformation and success in today’s dynamic business environment. By understanding the evolving trends, prioritizing emerging focus areas, and implementing data-driven strategies, organizations can harness the power of digital change to unlock new possibilities, achieve lasting success, and maximize market value.

Explore the complete findings and in-depth analysis in the full Deloitte report.

Authors:

• Diana Kearns-Manolatos
• Nicole Scoble-Williams
• Rupert Darbyshire

Endnotes:

¹ Greg Dost and Diana Kearns-Manolatos, Unleashing digital transformation value: Paths and pitfalls, Deloitte, February 14, 2023.
² Ibid.
³ Rupert Darbyshire, Nicole Scoble-Williams, and Diana Kearns-Manolatos, Digital change capabilities can make or break a digital transformation, Deloitte, 2024.