Published on the 29/09/2022 | Written by Heather Wright
Surprising insight into digitisation, and its benefits…
Think your business is lagging in digital? You might want to think again, with Gartner research providing some surprising insight into just how digitalised businesses really are – and to the real business benefits to be gained by increasing your digital footprint.
“This is another balance point story.”
Among the data points – taken from benchmarking more than 1,000 businesses – is that the median AI/ML adoption is just five percent of applications and, despite everything we hear about moving to the cloud, just 30 percent of applications are cloud based.
“You may think your business is a long way behind – you’re just beginning to use AI or cloud – well, you’re in good company,” says Andy Rowsell-Jones, Gartner distinguished VP analyst.
“It’s not universal, nowhere near it yet.”
Speaking at Gartner’s recent IT Symposium and Expo, Rowsell-Jones outlined a barrage of median data points across technology, data and analytics and operating models: 20 percent for modern integration API and streaming, 40 percent for modern customer UI adoption, 10 percent for data lake adoption, 20 percent for cross-channel customer data (where customer data across various channels is pulled together for use), and 30 percent for agile adoption.
“You hear a lot about cross functional teams and fusion teams being a solution to a problem. It’s already adopted by about one-third, but there’s still two-thirds of an opportunity here.
“So if you’re only beginning to experiment with this stuff, again, you’re in good company.”
Even the leaders aren’t necessarily maxing out. Fourteen percent of all revenue is from digital commerce for leaders vs five percent for mainstream, 52 percent of all transactions are fully automated, up from 30 percent for the mainstream, while 75 percent of digital customer interactions are digital for leaders, vs 40 percent for mainstream.
“If you want to become leaders, that’s the gap,” he says. “The leaders aren’t that far ahead. But they are ahead.”
But is there real value in becoming a leader?
Again, those data points come in handy for showing how much digital can improve outcomes and the benefits of going from a ‘foundational’, or beginner digital organisation to a leader.
Case in point: the use of fully paperless transactions sits at 30 percent for foundational organisations, and 80 percent for leaders. Comparative metrics show a 12 percent increase in on-time in full improvement in order and a 17 percent increase in on-time processing for leaders.
“This may or may not be valuable for you, so that change may or may not be worth the investment, but that’s the sort of change you should expect,” Rowsell-Jones says.
Leaders in connected assets and equipment, for whom 20 percent was digitised vs zero percent for foundational organisations, saw an 11 percent higher asset utilisation and 20 percent equipment effectiveness improvement – increasing the financial returns from the equipment.
When it comes to going digital, Rowsell-Jones says companies should break their business up into ‘component parts’.
There’s technical infrastructure, or how digital is the IT operating model; how much you’re using digital to optimise activities; and a transformation part where companies can create a new revenue stream using digital.
Rowsell-Jones says to start with the benchmarks and decide where you want to be and whether you need to start experimenting to catch up.
He urges companies to ‘decompose what you do’, ascertaining how digital each part of their business is, from customer experience to products and services, commerce, operations and workforce.
He cites the example of Bank of America, which built a new infrastructure to serve customers digitally and increased sales simply because they could handle increased volume, crossing 50 percent in digital sales.
The North Eastern Maintenance Alliance road authority meanwhile has harnessed technology, including AI attached to a video feed, for rapid information acquisition tasks and asset management. It identifies and tracks the condition of a ‘mindboggling’ number of assets spread across nearly 5,000km of roading and including everything from the blacktop and each individual white line on it, to control boxes for street lights. Using digital it can now do more safely and in hours and days what once took weeks and months to do manually – without needing to send staff out into traffic with theodolites and tape measures.
But Rowsell-Jones is clear: Digital is a story of balance. While it might bring a lower cost to serve and faster response times, there’s also a counter argument where the investment is too large, and digital sensitivity kicks in.
“The question is for your business case, yes you can offer all these digital services, but is there really a market in the gap? If you did offer this digital service, would you find a buyer for it? Or are you actually trying to get people to do unnatural things with their devices, or making assumptions that they have devices they don’t have?
“This is another balance point story. If we are this digital now, should we become more digital and what is the limit of that digitalisation – when does the dis-affects, or dis-economies of digitalisation start setting in?”
And that, Rowsell-Jones says, is all down to your unique business. What’s of value to one, won’t be of value to another.
And yes, you can be too digital too, and being more digital doesn’t necessarily equate to more sales or better outcomes.
US retailer Kroger – a US$140 billion company – went digital. Ecommerce jumped 92 percent, but Kroger later noted that it took four years to drive online customer profitability back to where offline customers had been because online sales were more expensive to fulfil.
An Australian financial services company also found out digital isn’t the be all and end all, when it saw its bad debt ratio soar to 10 percent – up from around one to 1.5 percent.
“Why? Because we were attracting the wrong sort of customer,” Rowsell-Jones says.
“There is a law of unintended consequences in being digital. So the point is find your balance.”
And for those companies wanting to become a tech company and create a new revenue stream using digital?
“It can be pretty pricey,” Rowsell-Jones notes.
He cites Allstate, an old-time insurance company that launched Arity, a mobility data and analytics company, in 2016.
By 2021, Arity had generated $68 million in revenue and $1 million in profit.
“That’s a lot of effort for $1 million in profit, but maybe that is what you want to do.
“The question is how far should you go?”
Which takes us neatly back to those data points. Mainstream companies are generating two percent of total revenue from digital products and business models.
“Even for the leaders, only eight percent of their revenue is tech products,” Rowsell-Jones notes.
“This ain’t blow the doors off stuff.”
So how digital should your company be?
Rowsell-Jones calls on the three elements of operating infrastructure, business models – using digital to amplify what you do and extend the range of your business, or ring new savings to your operations – and the transformation piece of investing a whole new digital product.
“The stats from the mainstream for cloud-based services, digital customer services, new revenue, they’re relatively modest numbers. So when you’re thinking about [operating infrastructure] maybe you want to surpass benchmarks because maybe that is the future driver, an amplifier for the future.
“For the optimisation [or business model], maybe you need to find the balance point. Find where you are today and expose the business case. If you became more digital and moved from mainstream to a leadership position, what would it do? Would it amplify your sales and operational efficiency, reach and range?
“ Then there’s the transformation piece. And if you want to be a tech company with all the cost and complexity that entails, go for your life, but think about it in terms of even the high performers are only earning a few percent more than that two percent.”
