Total digitization is a big challenge for all companies. It’s also a sizeable investment. Some companies are spending 25% of their operating budget on total digitization, so the stakes are already pretty high. It’s important for firms to implement the right approach to meet their growing digital needs.
In the first blog post of this two-part series, we identified three approaches to total digitization, based on an MIT CISR survey and studies of ten companies:
- Convergence: Focuses on integrating synergies
- Coordination: Focuses on coordinating for desired outcomes
- Separate Digital Innovation Stacks: Focuses on innovating locally
We found that 21% of enterprises primarily use a convergence approach, while 53% use coordination and 26% use separate stacks. However, when we looked at top performers, we saw that 74% of businesses with above-average profit and 54% of those with above-average growth use some form of convergence for their key areas of digitization.
Digging deeper, we saw that top performers could be categorized into two profiles that we call “disciplined and customer-focused” (DCF) and “locally responsive and informated” (LRI). Each profile uses all three of the approaches above, but in different combinations.
Companies that are DCF manage half of their digital investments using a convergence approach, a third with coordination, and the remainder in local stacks. These are often smaller enterprises with better customer experience. They also use an effective multiparty approval process for new digital investments.
Danske Bank is a good example of a successful DCF company. It uses a combination of strong convergence—it created an entirely new organization called Group Shared Services headed by the COO—with lesser amounts of coordination and local stacks to improve efficiency and promote local responsiveness in different countries. This approach worked well for Danske Bank as it absorbed six banks in five years, reduced operating costs by over 20%, and improved the customer experience.
LRI firms manage more than two-thirds of their digital investments with coordination, nearly a quarter with local stacks, and the rest with convergence. These tend to be larger businesses with a higher number of reporting units and revenues. They often rely heavily on information sharing for coordination, and they invest in the management of their disparate operations. They also have more digitization in the IT budget, which allows IT to lead consolidation, standardization, and reuse.
Ferrovial, the world’s largest commercial investor in transportation infrastructures, is a high-performing LRI company. With a focus on innovation, Ferrovial combines strong coordination with some local stacks and convergence. More than 53% of its digital investment in operations and 75% in customer-facing areas use a coordinated approach. Other digital investments in those areas and across IT and G&A use convergence. This mixture of approaches allows it to reach a balance between local innovation and enterprise-wide reuse.
There are many lessons to be learned from how high performers manage digitization. Is your company DCF or LRI? How are you using convergence, coordination, and separate stacks approaches to achieve total digitization?
This is the second blog post in a two-part series on total digitization by Peter Weill, a senior research scientist and chair of the MIT Center for Information Systems Research (CISR), and Stephanie Woerner, a research scientist at MIT CISR. (The first post—“How Are You Managing Total Digitization?”—was published on September 2. You can read a research briefing related to this second post, “How Top Performers Manage Total Digitization,” with free registration on the MIT CISR website.