A select group of leading companies have cracked the code for success in a world defined by digital engagement, embedded artificial intelligence (AI), and low-emission products, processes and supply chains. They have mastered the ability to realize business value from their digital and data investments, avoiding the trap of long-running IT projects with large cost overruns. Their financial and non-financial performance is dramatically better than companies that are still playing by the old rules, and as a result, they face an existential crisis.
BCG’s latest research provides a compelling, actionable blueprint for how CEOs can accelerate their transformation agendas, de-risk and rank as winners, putting their companies in the lead.
Change in base of advantage
All CEOs are optimizing investor expectations for current performance while dealing with a myriad of other issues, including rising interest rates, supply chain shortages, geopolitical tensions, cybersecurity risks, and activist investors. face the challenge of responding to Current cost pressures add to the challenge. And while 60% of businesses worldwide plan to increase their digital investments in 2023 compared to their 2022 allocations, BCG research found that many, if not most, CEOs indicate that they are frustrated by a poor business case, increased demand for large capital expenditures, and unclear realization value. for business. Nearly 85% cite cumbersome coordination with vendors, and 74% believe their company implements cookie-cutter solutions. Nearly 70% say their company is not properly prioritizing investments in executing a digital transformation program.
Importantly, the fundamental drivers of both current superior performance and sustainable competitive advantage are changing as the growth opportunities and capabilities needed to win in new markets are changing. about it.
Growth rates that account for 60% to 70% of shareholder returns over the medium term are plateauing in traditional markets. Its behavior is shifting to new markets, including e-commerce, streaming media, cloud-based interactions, mobility solutions, smart energy solutions, and others created by technology disruption. Growth opportunities are expanding in areas related to the energy transition, low-emission technologies, gene therapy, the metaverse and quantum computing.
Many incumbents struggle to justify investing in these disruptive new opportunities, instead making only additional investments in their current business (or investing in the wrong areas). doing). Their future looks bleak as they lack the necessary competencies (talents and processes) to access new markets and gain an edge in AI and other technologies. Growth will slow and rebels will target the profit pool.
Meanwhile, a few companies have built the capacity to succeed and break away from the herd. They found ways to invest not only in smart technology, but also in people, processes and culture to realize value from their investments. For example, these companies adhere to the 10-20-70 rule when investing in AI. 10% of the effort goes into building good AI models. 20% is to make high quality data available. 70% focus on people, developing new business processes, and transforming how business functions operate. Likewise, these companies are responding to the rapidly changing skill mix required to win in new and growing markets. For example, consider the skills required for generative AI. A new study from Goldman Sachs says the technology could automate him 300 million jobs worldwide. At the same time, new technologies will create many other jobs. These companies understand such changes and are planning for the future.
Regardless of sector, these future winners share common attributes—six to be exact—that underpin their success. These attributes enable companies to perform better, be more resilient to shocks and disruptions, and leverage innovation faster for value-creating growth. They are widening the gap with their competitors, generating nearly three times the shareholder return of the S&P 1200, with two-thirds of the value created coming from revenue growth. These leading companies are built for the future.
A clear blueprint, or playbook, has emerged for how to become a company built for the future. Blueprints coordinate the following challenges: What these companies need do (Identify which initiatives will provide the most value by sector) how do you do (Determine which features drive success and how to build them quickly). CEOs can tailor this new playbook to their company-specific change agenda. Click here for details.
Six attributes of performance, advantage and success
Against this backdrop, CEOs must strengthen their company’s competitive advantage, which will be the foundation for future performance. In the past, advantages derived from structural differences such as scale could often be replicated and neutralized. The foundation of the new advantage is rooted in superior capabilities, especially related to digital, AI and innovation.
These functions are more difficult to establish, but much more permanent for two reasons. First, the technology itself is evolving rapidly. So, for example, companies that have built capabilities around data and analytics can ride the wave as AI algorithms become more sophisticated and better trained, and companies roll out further innovations around new developments (such as generative AI). can. Second, companies with these capabilities benefit from the flywheel effect. This means you can invent, deploy, adapt and reinvent, faster and with greater impact than your competitors. It also improves co-creation with customers, ecosystems and his partners, and democratizes the use of data across the organization.
BCG’s latest research concludes three years of empirical research on digital transformation and the shifting nature of competitive advantage, providing the blueprint CEOs are looking for. (See About Our Research.) New research reveals groups of attributes or abilities that correlate best with superior current performance and future advantage. The following six specific attributes are unique to companies that are built for the future and enable them to enter new high-growth markets beyond the reach of less capable players.
- Purposeful leadership that integrates sustainability and social impact goals and builds trust and transparency among stakeholders
- A clear talent advantage to attract, retain and develop world-class talent
- An operating model that enables agility and resilience to combat exogenous risks
- Innovation driven culture
- A decoupled data platform and a flexible and scalable technology platform and applications to facilitate data access and easily and flexibly support business needs
- Fully embedded AI that can create value for your organization
Journey Reveals Widening Rift
The journey to achieving these six attributes is the same for every company, but each sector, company background, and starting point is different and needs to be adjusted. BCG surveyed 725 C-suite members to assess executive commitment, strategy and approach, governance, people, and technology. We then analyzed which of these features would most contribute to the organization’s future readiness. This can be related to financial and non-financial metrics evaluated by investors such as shareholder returns, interest and income before interest and tax growth, customer satisfaction, and talent attractiveness. For each company surveyed, he scored their position on the road to building the future, and based on their progress, he identified four groups of companies: Stagnation, Emerging, Expansion, and Building the Future. (See Attachment 1)
