What Do Companies With the Most Digital Revenue Do Differently?

As we indicated in the previous sections of this report, many companies are feeling their way through the digital revolution. Only a minority (41%) said they had one digital strategy that guides all the customer-related digital initiatives in their companies. More often (in 51% of companies), each business function has its own digital strategy.

Those and other findings point to a large degree of uncoordinated functional experimentation going on with digital technologies. This is not surprising. Given the technology and the growing infrastructure of cloud, Big Data and analytics and other vendors, it’s easy for such grassroots initiatives to operate. Companies don’t necessarily need their IT functions to launch digital initiatives.

For example, a marketing department can outsource a mobile application, and then store the customer data from that app in the cloud. Another agency can process and analyze that data. And all this can – and does – happen outside the purview of a digital strategy group, the IT function or anyone at corporate headquarters.

But is that good? Is having a singular digital strategy essential to success with these technologies? Or is focusing on only one type of digital technology (e.g., Big Data and analytics software to discern patterns in mountains of consumer data) more important than focusing on other digital technologies? Is a certain minimum level of investment necessary to do truly beneficial things?

And in addition to technology and money, with a digital revolution going on around them, what about the way executives view their business? Do many managers, like the top team at Netflix, believe they need to get into their suppliers’ business (in this case, making TV series, not just distributing them)? Or their customers’ business?

Is rethinking the business model important in an age in which the ever-expanding digital pipeline to customers opens the doors to whole new businesses? (Consider that companies like Uber, which provides mobile apps by which people can flag down taxis at a moment’s notice, would have not been possible before huge numbers of travelers had smartphones.) Or does it make the most sense to just use digital technology to improve the business that you’re in – i.e., your current product and service offering?

In other words, what strategies and tactics lead to the best results with digital technologies?

Of course, that’s a difficult question to answer: A digital strategy that may work for one company (e.g., move into your suppliers’ business) may be inappropriate for another. What’s more, the digital technologies of focus in this study are not standing still. If anything, they’re evolving at warp speed. What can be done on a smartphone today – phone, camera, web surfing — is likely to look trivial by the end of the decade. At the very least, the smartphone as a ubiquitous payment tool appears imminent.

So while there cannot be one-size-fits-all digital advice for every company, this study has helped identify patterns that distinguish the digital leaders from the followers. Of the several possible parameters, we used the revenue impact of companies’ digital initiatives to separate the leaders (companies that say they’re gaining the greatest ground with digital technologies) from the followers (companies that say they’ve gained the least ground).

Of the 820 survey respondents, 10% said their digital initiatives had increased business unit revenue by more than 50% last year. So this was a very small group – only a tenth of all surveys. We refer to this group of survey respondents as the leaders. All told, leaders’ digital initiatives boosted revenue by an average 71%.33 (See Exhibit IV-1)

The followers were on the opposite end of the spectrum of the revenue impact. These 531 survey participants (or 65% of the entire survey population), said their initiatives increased business unit revenue no more than 20% last year. In fact, 104 of them said their digital initiatives had zero impact on revenue. Six said they actually lowered revenue. All in all, the followers’ initiatives increased business unit revenue only by an average of 7%. In other words, leaders’ digital initiatives had 10 times the revenue impact of followers’ initiatives.

Exhibit IV-1: The Impact of Digital Initiatives on the Revenue of Leaders and Followers

Exhibit IV-1 The Impact of Digital Initiatives on the Revenue of Leaders

In the pages that follow, we explore what we found to be the biggest differences between digital leaders and followers.

Acknowledgements
Size Really Does Matter in the Digital Game