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Four Pathways to Digital Business TransformationTuesday, 23 April 2019

15th Annual Crossroads Conference

Dr. Stephanie L. WoernerResearch Scientistwoerner@mit.edu@SL_Woerner

Research TeamPeter WeillStephanie L. WoernerNick van der Meulen

This research was made possible by the support of MIT CISR sponsors and patrons.

© 2019 MIT Sloan CISRcisr.mit.edu

245 First StreetE94–15th FloorCambridge, MA 02142

Ph. 617-253-2348Fax 617-253-4424cisr@mit.edu | http://cisr.mit.edu

MIT CISR’s Mission

Founded in 1974 and grounded in the MIT tradition of rigorous field-based research, MIT CISR helps executives meet the challenge of leading dynamic, global, and information-intensive organizations. Through research, teaching, and events, the center stimulates interaction among scholars, students, and practitioners.

2019 MIT CISR Research Projects

• Moving from Value Chains to Ecosystems: Building & Leveraging Partnering Strength

• Coordinating Innovations: How Firms

Realize Greater Business Value from Their Innovation Portfolio

• Developing Data Monetization Portfolios That Pay Off

• Operating Models for Your Digital Business

• Investing in Employee Experience to Create Better Customer Experience

• Decision Rights in the Digital Era

• The Executive Committee & Board Relationship in Digital Transformation

• Guiding Your Enterprise to Future Ready (and Beyond)

• What’s Next for the IT Unit?

Aetna, Inc.Air CanadaAllergan, Inc.Allstate Insurance Co. ANZ Banking Group Ltd. (Australia)

Australia PostAustralian Securities & Investments Commission (ASIC)

Australian Taxation OfficeAustralianSuperBanco Azteca (Mexico)Banco Bradesco S.A. (Brasil)

Banco do Brasil S.A.Bank of Queensland (Australia)

Barclays (UK)Bayer AGBBVA (Spain)BiogenBMW GroupBNP Paribas (France)BNY MellonCanadian Imperial Bank of Commerce

Caterpillar, Inc.CEMEX (Mexico)Chevron CorporationCHRISTUS Health

Cochlear Limited (Australia)

Commonwealth Superannuation Corp. (Australia)

CPPIB (Canada)Credit Suisse (Switzerland)CSBSDBS Bank Ltd. (Singapore)EquifaxExxonMobil Global Services Company

Ferrovial Corporacion, S.A. (Spain)

Fidelity InvestmentsFortum (Finland)FrieslandCampina(The Netherlands)

General ElectricGenworth FinancialGlaxoSmithKline (UK)Hanover Insurance GroupHeineken International B.V. (The Netherlands)

Insurance Australia GroupIron MountainJohnson & JohnsonKing & Wood Mallesons (Australia)

Marathon Oil Corp.Markel Corp.

Mars, IncorporatedMLC Life Insurance (a Nippon Life Group Company) (Australia)

National Australia Bank Ltd.

New Zealand Govt.—GCIO Office

Nomura Holdings, Inc. (Japan)

Nomura Research Inst., Ltd. (Japan)

Nordea BankNorthwestern MutualOCP S.A.Organisation for Economic Co-operation and Development (OECD)

PepsiCo Inc.Pioneer Natural Resources USA Inc.

Posten Norge (Norway)Principal Financial GroupProcter & GambleQBERaytheon CompanyReserve Bank of AustraliaRoyal Bank of CanadaRoyal Philips (The Netherlands)

Scentre Group (Australia)

Schneider ElectricIndustries SAS (France)

Standard Bank Group (South Africa)

State Street Corp.Stockland (Australia)Suncorp Group (Australia)Swinburne University of Technology (Australia)

Teck Resources Ltd. (Canada)

Tenet HealthTetra Pak (Sweden)Trinity HealthUSAAWestpac Banking Corp. (Australia)

WestRockWorld Bank

MIT CISR gratefully acknowledges the support and contributions of its Research Patrons and Sponsors.

AlixPartners LLPAvanadeBTCognizant

Huawei Technologies Co., Ltd. (China)

ISACALTIThe Ogilvy Group, LLC

Pegasystems Inc.PricewaterhouseCoopers Advisory Services LLC

CISR Research Patrons CISR Research Sponsors

1 April 2019

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What’s disrupting your business?

Mobile

Cloud

IoT

Social Cognitive Computing

Biometrics

DataAND . . .?

Analytics

Digital business is driving two distinct transformations

Digital = Rapid Business InnovationThe transformation involves: Empowering

people to experiment, release, and

constantly enhance digital offerings

Digitized = Operational ExcellenceThe transformation involves: Instilling

discipline around core transaction and back

office processes

Source: Ross, Beath, Sebastian, “Digital≠Digitized,” MIT CISR Research Briefing,

Vol. XVII, No. 10, Oct. 2017.

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Digital business transformation: Becoming Future Ready

Source: MIT CISR 2015 CIO Digital Disruption Survey (N=413) and a series of executive interviews conducted between 2015 and 2017.

Cust

omer

Exp

erie

nce

Incr

easin

g cu

stom

er d

elig

ht

Increasing automation, standardization, reuse, and productivityOperational Efficiency

TRAD

ITIO

NAL

TRAN

SFO

RMED

TRADITIONAL TRANSFORMED

Future Ready• Both innovative and low cost• Great customer experience• Modular and agile• Data is a strategic asset• Ecosystems ready

Integrated Experience• Customer gets an (simulated) integrated

experience despite complex operations• Strong design and UX• Rich mobile experience including

purchasing products

Industrialized• Plug and play products/services • Service enabled ‘crown jewels’ • One best way to do each key task• Single source of truth

Silos and Spaghetti• Product driven • Complex landscape of processes, systems

and data• Perform via heroics

Future Ready

• Both innovative and low cost• Great customer experience• Modular and agile• Data is a strategic asset• Ecosystems ready

Integrated Experience

• Customer gets an (simulated) integrated experience despite complex operations

• Strong design and UX• Rich mobile experience including

purchasing products

Industrialized

• Plug and play products/services • Service enabled ‘crown jewels’ • One best way to do each key task• Single source of truth

Silos and Spaghetti

• Product driven • Complex landscape of processes, systems

and data• Perform via heroics

Future Ready firms have the best net margins

Source: MIT CISR 2015 CIO Digital Disruption Survey (N=413) and a series of executive interviews conducted between 2015 and 2017.Note: Quadrants are splits at 2/3 along each axis. Net Margin is reported relative to industry average.

Cust

omer

Exp

erie

nce

Incr

easi

ng c

usto

mer

focu

s

Increasing automation, standardization, reuse, and productivityOperational Efficiency

TRA

DIT

ION

AL

TRA

NSF

ORM

ED

TRADITIONAL TRANSFORMED

Integrated Experience Future Ready

Silos and Spaghetti Industrialized

15%% companies

Percentage points above or below industry average net margin

| -3.6 23% | 16.0

51% | -5.1 11% | 4.6

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The four pathways to Future Ready

Note: Pathway lines are based on a series of informal interviews (conducted between 2015 and 2017) on digital transformation with senior executives globally. The lines were confirmed via the MIT CISR 2017 Pathways to Digital Business Transformation survey (N=400). Explosions represent significant organizational changes.

Cust

omer

Exp

erie

nce

Incr

easin

g cu

stom

er fo

cus

Increasing automation, standardization, reuse, and productivityOperational Efficiency

TRAD

ITIO

NAL

TRAN

SFO

RMED

TRADITIONAL TRANSFORMED

Integrated Experience Future Ready

Silos and Spaghetti Industrialized

PATHWAY % ON PATHWAY % COMPLETE

20% 33%

18% 34%

41% 38%

14% 48%

The four pathways to Future Ready

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PATHWAY MARGIN GROWTH

All pathways pay off

Average margin 66% higher and growth 84% higher comparing firms above and below 50% complete on transformation

Four types of organizational explosions to manage

Decision RightsChanging the status quo of who makes and is accountable for key decisions (like deciding on the one process is used for on-boarding a new customer)Challenge: Getting the right people to lead key areas

New Ways of WorkingDeveloping very different ways of working, such as cross-functional teams using agile methodologies, new partnerships to speed time-to-market, evidence-based decision-making, test and learn experimentation and co-development with customers. Challenge: Changing the culture

Platform MindsetTaking a lesson from platform companies, creating reusable platforms (e.g., modular, service-enabled, automated) allows an enterprise to take what makes them great and provide them as digital services. Challenge: Connecting organizational silos

Organizational SurgeryRestructuring to improve both customer experience and operational efficiency as most companies were typically not designed to operate in the digital era. Challenge: Removing organizational complexity

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Decide on a transformation pathway

The Challenging Path to ValueFirst agree on which pathway(s) the company will follow. Then create a common language around how you will transform.

You will need to anticipate the impact of the explosions, and envision how you will…

Change the status quo to ensure the right people lead key areas.

Establish a culture change.

Restructure the organization to remove complexity.

Connect organizational silos through reusable platforms.

What’s Your Digital Business Model? Six Questions To Help You Build The Next-Generation Enterprise

Six Questions to help you build the

NEXT-GENERATIONENTERPRISE

Competitive Advantage

CapabilitiesBusinessModel

Connect

Threat Leadership

©HBR.org