Driving the Digital

Transformation:
Emerging Themes from
Strategists

Overview
As organizations grapple with digital disruption, strategists play a key role in charting
their companies’ paths through the changes driven by technological advancement.
Strategy leaders report that although they generally have a clear vision for how
the organization will win in light of digital disruption, the complexity and wide-
ranging implications of the necessary business changes have slowed their firms’
transformation.

To complicate matters, strategy leaders note that many digital trends have continued
to accelerate, making action in the next year a key priority for their firms. To succeed,
strategy leaders are focused on three key challenges:

■ Building the right capabilities to support transformation

■ Reducing attachment to legacy mindsets
■ Building confidence in their organizations’ options

Key Findings

■ Most strategy leaders (86%) say responding to disruption is critical to achieving

their 2018 priorities.
■ Strategy leaders have developed a long-term strategy for the organization in
response to digital opportunities. Now they must determine what business and
operational changes are needed to execute that strategy effectively.

 1

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 ■ The key challenges of digital transformation are building the right capabilities,
letting go of legacy mindsets and building confidence in the options for
transformation.

Building a Roadmap for Digital Transformation

Strategists are focused on learning which business and operating model changes the
organization must make to succeed.

As traditional industry boundaries blur and the barriers to entry fall, strategy
leaders at incumbent organizations feel the risk of disruption growing—and speeding
up. Strategy leaders are therefore looking for ways to accelerate the digital
transformation. Organizations must transform across all levels and facets, and the
strategy function needs to drive this transformation.

Early findings from digital transformation efforts show a significant upside for
organizations that get it right. When companies undergo a digital transformation,
they develop new business and operating models to unlock value created by digital
disruption. Companies capture twice as much ROI from their digital investments when
they align investments with new business models rather than protecting the current
model.[1] Most CEOs (80%) therefore expect substantial change to one or more parts
of the business model—that is, customer base, value proposition, capabilities or profit
model.[2]

With these priorities in mind, strategists want to build a roadmap to help the
organization get ahead of disruption. However, companies won’t be able to capture
this value unless they move quickly. Over 75% of CEOs say technology will significantly
reshape competition in their industry by 2022, while 60% say it already has.[3] To stay
ahead, more CEOs aspire to pioneer business innovation (41% in 2018 compared to
27% in 2013) rather than be fast followers.[4]

Most strategists have already taken significant steps on their digital journey. Through
pilots and tech partnerships, they have built a vision for where the organization needs
to go. However, they struggle to untangle all the changes that must be made to achieve
that vision. Digital transformation requires an overhaul of capabilities, mindsets and
ways of working that some strategists describe as changing the DNA of the company.
Digital transformation is hard work. While 66% of senior executives want to transform
the business’s digital capabilities, only 11% have captured substantial revenue from
those efforts.[5]

For this reason, strategists want to understand which business and operating
model changes will help them achieve their long-term strategy. By understanding
these changes, strategists can build a roadmap to guide their organizations toward
understanding and achieving success in the digital environment.

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Strategists’ Approach to Transformation
To build a roadmap for the digital transformation, strategists take several steps to
determine change readiness and evaluate potential paths for achieving the strategy.

Before they begin untangling elements of digital transformation, strategists start by

helping their firms develop a vision. They sense changes in the market, do scenario
planning to understand how those changes might impact the business and then
develop a vision for how the business might win in a digital future. They get buy-
in on the vision from the executive team, the board and key stakeholders across the
organization.

Strategists generally have a handle on the vision-building process, with just 10%
struggling to understand market shifts and 23% struggling to assess emerging
opportunities or threats.

The newly developed vision becomes a communication tool to motivate the

organization toward change. Once strategists have rallied the organization around a
new long-term strategy, they go through five steps to figure out how to make it a
reality (see Table 1). These steps move the organization from having a high-level digital
strategy to understanding what changes will lead to effective execution.

Strategists begin by working with the business to understanding what capabilities,

metrics and organizational structures the organization will need in the future state.
Then they identify gaps between the organization’s current state and the future
requirements. With this information, strategists can define potential paths that will
enable transformation.

An organization may have multiple potential paths to achieving their long-term

strategy, with different capabilities and initiatives required for each. For example, an
organization might see an opportunity to change to a new revenue model, but it has
different options for achieving that revenue model. These options may require them
to partner differently or expand across the value chain differently.

Once the organization’s potential paths are identified, strategists gather data about
risks, returns and market changes that affect each path. This data enables strategists
to select a path and move toward execution.

Table 1: Strategists’ Approach to Transformation

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 Steps Key Activities
1. Define Strategy Requirements Collect information from business
■

units on what they need to move

toward the future state.
Determine what capabilities, metrics
■

and organizational structures are

required to ensure success of the
long-term strategy.
2. Evaluate Change Readiness Compare the current state to the
■

desired future state.

Identify gaps in capabilities,
■

structures, processes and talent.

Identify options to close gaps.
■

3. Define Potential Paths to Map capability gaps and market

■

Transformation opportunities to understand which

capabilities are critical in the future
state.
Brainstorm paths for transformation
■

that will enable the company to

overcome capability and market gaps.
4. Evaluate and Select a Path Determine ROI for individual
■

initiatives and paths to

transformation.
 Identify potential roadblocks and
■

risks.
Prioritize projects based on criticality
■

for reaching the future state.

5. Execute Transformation Plan Gain consensus with the executive
■

team and the board.

Develop accountability metrics to
■

evaluate the organization’s progress

toward transformation.
Maintain alignment between the
■

strategic plan and transformation

activities.

These steps represent a generally accepted process strategists follow as they think
about how to respond to digital disruption. Only 30% of strategists experience
significant obstacles when setting their long-term strategy, but 77% experience
significant obstacles related to moving from strategy to transformation. Although
challenges exist in each stage of this process, the greatest challenges are in evaluating
change readiness and evaluating and selecting a path for transformation.

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Strategists’ Keys to Success
Strategists believe they must solve three challenges to transform the business: building
the right capabilities, letting go of legacy mindsets and building confidence in their
options for transformation.

In our research interviews, we identified six things strategists believe they need to
build a roadmap for transformation:

1. Shared digital vision

2. Critical digital capabilities

3. Enterprise-wide digital mindset

4. Clarity of potential options

5. Confidence in the market’s direction

6. Credible ROI estimates

These six drivers represent what strategists believe will help them understand the
changes the organization needs to make. Some of these drivers impact multiple
parts of the transformation planning process; however, strategists say they are most
important in evaluating change readiness across the organization and evaluating and
selecting a path for transformation.

We interviewed strategists to gauge the importance of each driver as well as whether

organizations were struggling with it. We found that although strategists generally
focus on drivers they struggle with, there was one notable exception. While 67%
of strategists talked about the importance of a shared understanding of the digital
vision, only 29% said they were struggling to achieve that shared understanding (see
Figure 1). This speaks to the great effort strategists have put into developing and
communicating the organization’s digital vision.

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Figure 1: Drivers of Success in Building a Roadmap for Digital Transformation

Factors discussed during research interviews and the proportion of strategists who rate each
driver as important and a challenge.

Three drivers emerged as critical challenges members are trying to solve this year:

■ Critical digital capabilities

■ Enterprise-wide digital mindsets
■ Clarity of potential options

Building Digital Capabilities

Strategists put the most effort into understanding what digital capabilities they need
to support their long-term strategy. Capabilities are defined as the organization’s
ability to perform actions that enable it to create value for customers. With strategic
changes in light of digital disruption, the capabilities strategists value most include
advanced digital technologies, talent that understands these technologies, and
different ways of working, such as agile processes.

As strategists think about how the business will succeed in the future, they see
capabilities as the biggest obstacle. Without the right capabilities embedded in the
organization correctly, the new strategy will fail. Digital transformation may require
several new capabilities, including technologies that are far outside the organization’s
current competencies.

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Strategists grapple with questions such as whether to build, buy or partner to develop
these capabilities. Each option raises different challenges in scaling the capabilities
across the organization. Because these efforts are costly and the cost of a wrong
decision could be high, strategists focus on learning two things:

1. What capabilities do we need to execute our long-term strategy effectively?

2. How should we identify critical gaps in new and existing capabilities?

Given the high cost of building new capabilities, many organizations have started
their journey by focusing on capabilities that have solid use cases and associated
ROIs in their industry. Strategists believe these “no-regret” digital capabilities will help
organizations learn about implementing digital technologies while capturing value
within their current business model. Half of organizations have digital ambitions to
optimize the current business model and transform to a new business model.[6]
This two-pronged approach provides a low-risk way to gain experience with digital
capabilities before making bolder moves toward transformation.

Another way to determine what capabilities to build is to look for opportunities

to strengthen the distinctive capabilities the organization already has. Distinctive
capabilities are what set your organization apart and allow you to sustain a
competitive advantage. In this approach, companies work to understand what their
distinctive capabilities are, then enhance them with digital technologies. For example,
a company may have the distinctive capability of providing high-quality customer
service. To sustain that advantage, it may invest in artificial intelligence to tailor
interactions with each customer across channels.

Without a doubt, companies need capabilities that support operations and distinguish
them from competitors. But when prioritizing capability investments, most strategists
do so based on risk. They focus on building “no-regret” capabilities to help them keep
up, and they invest in pilots to explore more transformational opportunities.

Another approach is to prioritize efforts based on capabilities’ strategic importance.

Companies can then look at how addressing capability deficits creates value for
the organization and focuses efforts on improving capabilities with higher strategic
importance.

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Case in Point

Organizations may note capability gaps based on competitive intelligence or

market trends, but they must also understand which capabilities have the most
strategic value for the organization. Strategists often feel pressure to invest in
trendy technologies that may or may not help the company grow.

At Blue Cross Blue Shield of North Carolina, the enterprise architecture group hosts
business capability workshops to identify capabilities with the highest strategic
value and determine where capabilities are less effective or efficient than they
should be (see Figure 2). Strategy defines capabilities’ strategic importance based
on their customer and financial impact. Then, business partners rate how efficiently
and effectively the capabilities are executed. These ratings are used to create heat
maps for critical capability gaps.

Stakeholders then work to understand the root causes behind poor capability health
in terms of the people, processes, technologies and data that must change to build
the capability.

To learn more, view our full case study, “Capability-Based Technology Planning.”

Figure 2: Top-Down Capability Strategic Importance Matrix

Blue Cross Blue Shield of North Carolina categorizes capabilities by their strategic importance
and then weighs this against measures of each capability’s health (efficiency and effectiveness).

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Once strategists have identified strategically important capabilities, they work
to determine critical gaps in those capabilities. One challenge is that internal
stakeholders may not agree on which capabilities are distinctive or how they relate to
the company’s potentials paths to success. To address this challenge, strategists may
consider engaging external experts in evaluating the company’s capabilities.

Case in Point

Strategists recognize the value of capability assessment when prioritizing

new growth investments. However, they often struggle to conduct capability
assessments because many of the capabilities needed to succeed in a new market
are unfamiliar to their teams and to senior decision makers in their organizations.

UnitedHealth Group combines capability assessments from external experts

with those from internal stakeholders to provide an unbiased assessment of the
company’s current capabilities (see Figure 3). Strategists at UnitedHealth group
also map these capability assessments (the “could”) to the attractiveness of growth
opportunities (the “should”) to prioritize the best opportunities for growth.

Companies may use this method to determine where they can already seize
new opportunities. But for the digital transformation, this process may also help
companies identify critical capability gaps to pursue in the new strategy.

To learn more, view our full case study, “’Should-Could’ Evaluation Matrix.”

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Figure 3: “Should-Could” Expert Evaluation

UnitedHealth uses ratings from internal and external participants to evaluate the company’s
capabilities.

Letting Go of Legacy Mindsets

Strategists say the digital transformation requires a major change for the entire
organization in how individuals think about the business and their roles in it. Across
the business, stakeholders may see digital transformation as a risky departure from
how the company has always succeeded. Particularly in times of strong growth, these
objections can be hard to overcome.

Further, legacy mindsets prevent the business from contributing ideas that will help
strategists understand the changes needed to achieve the long-term strategy. These
legacy mindsets are a powerful barrier to change, and strategists say they cannot
succeed without helping the business become more open to change.

Strategists primarily approach this challenge by engaging the business in

conversations about the value of digital capabilities and initiatives. In our research
discussions, strategists have shared many approaches to engaging the business in
such conversations. For example:

■ Some deploy tech-savvy influencers to help the organization understand how

technologies can be harnessed to do business differently. This approach helps
build digital literacy and openness to change.
■ Others directly attack barriers to implementation across key stakeholders, working
to separate real and perceived barriers to transformation. This approach looks

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 for pockets of dissent or areas where perceptions differ across the business.
Misaligned perceptions suggest the need for mindset shift.

Case in Point

Overcoming legacy mindsets can be a challenge when trying to implement

transformational growth efforts. Business partners perceive transformation as too
risky and as throwing away the very capabilities, processes and business models
that led to the company’s success. However, these risks may appear larger than they
really are.

To overcome objections to transformational change, Panduit uses stakeholder

disagreement maps that separates real from perceived internal capability risks
(see Figure 4). This overcomes legacy mindsets by reducing invalid dissent on
transformational ideas. By clarifying the real internal capability risks, Panduit can
more effectively align stakeholders and enable the leadership team to compel action
on the organizational changes needed to accommodate transformational innovation
efforts.

To learn more, view our full case study, “Panduit’s Stakeholder Disagreement Maps.”

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Figure 4: Panduit’s Aggregate Growth Project Feedback Scorecard

Panduit engages stakeholders to evaluate the organization’s readiness for transformation,

looking to separate real and perceived capability gaps.

Reducing Fear of Missing Out

Even when strategists understand what capabilities they need and feel the
organization is ready for change, it can be difficult to get the organization to
commit to a course of action. Because the digital environment changes so rapidly,
strategists and other business leaders worry that better options will make their
transformation obsolete before they even complete it. This is particularly true where
multiple technologies enable the same capabilities and companies are unsure which
will become dominant. For this reason, strategists say that to act they want to be
confident there aren’t better options around the corner.

Organizations are tempted to wait until technology stabilizes and winners are clear,
but this approach can be costly. One strategist described a challenge with competing
technologies in the same space. Because the company did not know which would
become the new standard, it developed pilots for multiple options. However, the
company was unable to scale these small pilots quickly enough to maintain market
share, and the company suffered as a result.

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Rather than trying to build confidence that the option set won’t change, some
strategists say they must reduce the fear of missing out. Digital changes are inevitable.
Some companies drive action by identifying how trends and market shifts can
interact to disrupt the business; by looking at disruption risk rather than technological
advancements, strategists can drive urgency on the most critical areas for action.

Specific technologies may change, but the need to act remains critical.

Case in Point

As strategists plan their digital transformation, they find a lot of anxiety within the
organization about the speed of change. Business leaders are reluctant to make
large investments in new technologies because better options may be around
the corner. As a result, organizations take a wait-and-see approach to investing in
technologies.

Rather than focusing on technological innovation, Shifts Inc. focused on changes

in the market that could disrupt the organization in the near term. It plotted these
digitally driven shifts on a digital disruption map to identify critical areas for action
(see Figure 5). These critical areas have a strong potential disruption impact and
close proximity to the core business. The strategy team can then use this map
as a communication tool to drive urgency to act among senior leaders in the
organization.

To learn more, view our full case study, “Digital Disruption Map.”

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Figure 5: Digital Disruption Map

Shifts Inc. overcomes fear of missing out by focusing conversations on responding to the
greatest risks for core disruption.

Conclusion
Strategists have made a great deal of progress in setting the course for future success
in light of digital disruption. Now, to drive the organization to achieve its long-term
strategy, strategists must determine which business and operating model changes
the organization needs to transform. Digital transformation has significant economic
benefits—but only if organizations can execute it quickly.

Strategists see three critical challenges in building a roadmap for change:

■ Building digital capabilities that will enable their transformation

■ Helping the organization overcome legacy mindsets
■ Developing certainty that the selected course of action will build a sustainable
advantage

Given the complexity and scale of digital transformation, strategists are well-suited
to lead this process.

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Recommended by the Authors
■ Navigating the Digital Transformation: Learn how to get the most out of your
digital investments.
■ Emerging Trends Database: Stay ahead of trends being tracked by your peers.
■ Framing the Impact of Digitization: Understand how digital shifts affect the
business environment.

About This Research

This research draws from 54 research interviews with strategists across 21 industries
about the challenges they face in responding to digital disruption. These qualitative
observations are also supplemented by quantitative data, including our 2018 Senior
Strategy Executive Priorities survey (n = 78) and our 2017 Strategy Digital Disruption
Brief Survey (n = 30).

[1] Jacques Bughin, Tanguy Catlin, Martin Hirt, and Paul Willmott, “Why Digital
Strategies Fail,” McKinsey Quarterly, January 2018.

[2] Gartner 2018 CEO and Senior Business Executive Survey.

[3] Paul Leinwand and Cesare Mainardi, “The Fear of Disruption Can Be More
Damaging Than Actual Disruption,” Strategy+Business, 27 September 2017.

[4] Gartner 2018 CEO and Senior Business Executive Survey.

[5] Gartner 2018 Digital Business Survey.

[6] Gartner 2018 Digital Business Survey.

*Pseudonym

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