Research Updates

When does digital transformation have a positive financial impact?

The context


Embarking on a digital transformation is a tremendous opportunity in many ways. Companies can lower costs, enhance internal efficiency, generate more value in the eyes of customers, and prime their organizational structures to face future challenges. But the sad truth is that around 70% of such projects don’t live up to expectations. 


When does an attempt at technological transformation run the risk of failing? When it isn’t fully integrated and aligned with the broader growth strategy of the organization, for one.  Of course, a reliable acid test for a successful digital transformation project is the company’s market value, so financial analysis can provide a vital roadmap for guiding a company’s objectives and actions. 


Getting digital transformation right is critical. Because it’s true that innovation offers enormous potential to boost your company’s market capitalization. But by the same token, if you get it wrong due to poor planning and bad management, innovation can be counterproductive too. 


Before tackling digital transformation, you need to give some serious thought to a number of aspects of the project, from corporate strategy to a broader process of organizational growth, from the potential embedded in innovation to the company’s market value, and how that value is shaped by all those contextual parameters such as the industry and the financial structure. The aim here is to prioritize the actions that you need to take to make a difference and generate a value gain. 


Highly integrated digital transformation that aligns with the organizational strategy bolsters company value. But when innovation is inconsistent with the broader business strategy, and the process isn’t clearly defined or properly structured, there is danger of market capitalization erosion: as much as three times less value than when the digital strategy is well-planned and articulated. In other words, integration and alignment are synonymous with efficiency and competitiveness. 


Despite all this, only one-third of all Fortune 500 companies take an investment approach to technological innovation that’s truly strategy based and future forward. 

The research

As we learned from the experience of some leading companies in technology services and infrastructure sectors [LINK:], it’s risky to launch a digital transformation project that lacks planning and strategic substance. Here are some case studies that illustrate what we mean.  

The first example is a leading technology service provider that wanted to shift focus to a more digitally-driven strategy. This meant big investments in a new cloud platform for B2B2C services. With initial optimism running high, the company came up with a waterfall action plan at launch, and expanded its business into a new market. Everything appeared to be primed for success, but instead the entire digital innovation process was compromised by value decelerators from the start. The solutions that the company deployed weren’t yet technically mature, the organizational culture did not embrace change, and the partners for the platform business were too few to scale: all this debilitated the transformation process. In short order, the waterfall approach proved unsustainable and the CEO abandoned ship not long after that. The project ended before it got started. 


The second example is a major player in infrastructure that decided to upgrade its legacy IT system, delegating the task to a single digital technology vendor and its mainly out-of-the-box solution. Despite the misgivings of some of its leaders, the company placed its faith the vendor’s proposal, which was supposed to cover up to 90% of the organization’s requirements. But the actual outcome came nowhere close: the new system only covered 30%. This meant substantially redrafting the initial plan, which in turn led to major delays in implementation, plus the total cost mushroomed, and more qualified staff had to be brought on board. Eventually the company axed the project even before it came online. Then, after a year-long internal reorganization, the company changed course, rather than relying on a single vendor, opting for a series of bespoke solutions instead. In the end the legacy systems were replaced with a cost savings of 30%. 


In contrast to the two examples above, we have the success story of a hardware solutions provider that’s outpacing its competitors thanks to a digital strategy which is intricately integrated with organizational processes in all its business areas. But the secret sauce here is the corporate culture: creating work teams with curious leaders who seek to understand their customers’ needs and keep an eye on market challenges: this was the winning move. This is where the company started from to build a digital strategy aligned and integrated with the overall organizational structure. And this is where it planted the seeds to promote a vision of technology that’s flexible, dynamic, and future forward. 

Conclusions and takeaways

A digital transformation process, to be impactful and generate value, must always follow a highly personalized pathway. Just because a strategy works for one company doesn’t mean it will work in a different business context. So, an effective project, one that actually gives us the results that a company is looking for, has to be designed and built on the specific needs of its ecosystem. Uniqueness is the prerequisite for success. 


How can we create the optimal conditions for building an effective digital transformation strategy? Before we start, we need to think about the impact that the project will have on the entire organizational structure, and then set down specific, strategic indicators that enable us to measure its actual effectiveness. What’s critical is to construct a strategy with an eye to detail, leaving nothing to chance, but at the same time, staying focused on the big picture to grasp interdependencies that emerge at a structural and managerial level. 


Last of all, don’t forget that what really makes the difference is the culture: without a solid, change-oriented corporate culture, any attempt at innovation risks falling flat. 


Tim Bottke, Diana Kearns Manolatos, and Gabriele Troilo, “Do You Really Know the Financial Impacts of Your Digital Transformation?”. Harvard Business Review, 20 April 2023.