From Transforming to Being a Digital Business

One of the key measures I like to use when talking to the C-Suite about their digital transformation initiatives is to ask how much revenue do digital products, services and experiences bring to the business, as well as how much is expected. This simple, but telling, question lets me know how mature they are, and if they are well on their way to employing a digital-first strategy.

Back in 2019, the percentage of revenue attributed to digitally enhanced products, services and experiences was less than 5% of total revenue. Today, our recent IDC CEO Sentiment Survey shows that it’s over 20%, and by 2027 it’s expected to be more than 40% of total company revenue.

How a business operates during its experimentation stages of digital transformation is vastly different from more mature digital businesses. As enterprises scale their innovation and transformation capabilities, a trigger point is reached that causes it to start to think about a digital-first strategy. We’ve seen this accelerate because of the pandemic, with examples from the health sector, port authorities, retail, financial institutions, as well as government services. Today, 90% of Asia/Pacific organizations are in various stages of executing their digital-first strategies.

At the same time, IDC’s Future Enterprise Wave 7 Survey (Aug 2022) show that CEOs who champion digital-first strategies are more concerned about reaching ESG (Environmental, Social and Governance) goals and creating an innovation culture, and use these as critical levers in running a digital business compared to their peers. Project failure rates also drop by as much as 13 percentage points as a result of a CEO champion.

While there are many benefits, one of the biggest challenges mentioned when running a digital business is transitioning to new metrics on how business value is measured. Even mature digital businesses say that business value realization can be difficult to achieve partly because of how legacy metrics and measures are used during this critical time of transition.

A more holistic approach is to use a mix of internal and external oriented metrics to align financial performance in the short term, and ecosystem and sustainability impacts over the longer time horizon. The same Future Enterprise Survey shows that close to half of organizations who consider themselves a digital business agree that ESG impacts, and ecosystem contributions constitute part of the enterprise business value. Yet, in practice, only 28% of the same organizations are using sustainability metrics and 26% are using ecosystem metrics as success measures.

Over the last 12 months we have seen measuring ESG impact and value generated from digital ecosystems rise above more traditional and lagging financial metrics. I think these measures will only rise in importance, as purpose-driven culture and shared values across the digital ecosystem creates new businesses that have social, economic and sustainable outcomes.

One such example is Tsingtao Brewery in Qingdao, China, which has not only successfully deployed digital solutions to reduce lead time to address consumer demands for customized orders but is also looking at using technology to achieve sustainable business growth.

Kexing Huang, Chairman and CEO of Tsingtao Brewery, said “Consumers expect a good product, but also a company that has values and produces in a green and simple manner. By using new technology, we can improve our efficiency and reduce energy consumption and incorporate green and sustainable development to the whole value chain.”^{^[1]}

In transforming into digital business that can align both short- and long-term goals, it’s not only business models that are undergoing complex changes, but as a result, organizational and operating model changes are occurring to support a more agile, data-driven and collaborative culture.

The same Future Enterprise Wave 7 Survey mentioned earlier shows that Asia/Pacific organizations’ top challenges in running a digital business are (1) building a data-driven business and culture, (2) engaging with new digital ecosystems, and (3) modernizing their operating models. Digital ecosystems are integral to digital business models where value creation activities are orchestrated across the value chain using technology, connectivity, and shared data. This brings in cascading ramifications to the enterprise’s operating and organizational models which needs to change in a lockstep fashion to be executed successfully.

It is in my belief that building up next generation digital business platforms forms the core part of the solution in addressing these complex and interconnected challenges.

To become a digital business, organizations must orchestrate change – rebuild one’s digital foundation, while competing and innovating in the digital marketplace. I akin this to an orchestra where each part of the symphony plays an equally undismissible role. The foundational bass, the harmonic brass, and the melodic strings each represents the sturdy digital foundation, compelling digital offerings, and delightful innovations required to bring a masterpiece composition to life. With its data fabric, the platform represents an orchestration point in harmonizing change so as to manifest the melody of a purposeful business.