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Digital Transformationian overview

Ron TolidoRon TolidoCTO Capgemini Application Services – Continental Europe16 September 2013

Transform to the power of digital

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Digital Transformation ‐ AGENDA

1. The Basics

2 Digital Transformation framework2. Digital Transformation framework

3. Digital Maturity

4 Digital Governance4. Digital Governance

5. The Roadmap

6 Some relevant Technology Trends6. Some relevant Technology Trends

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1. Digital transformation: The BasicsgHow digitization fundamentally transforms businesses

A multi‐year research project with MIT …

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… leading to several important insights …

2011 2012 2013“Digital Transformation 

k”“Digital Transformation 

f ”“Digital Transformation 

i ”

Research themes

Framework” Performance” Execution”

Research

160 in‐depth interviews in 50 companies (15 countries)

400 companies surveyed in 30 countries (5 continents)

11 industry sectors

> 2,500 companies surveyed

Europe (54%), NA (35%), APAC (16%)

11 industry sectors benchmarked

Global scope

Understand the digital  Establish link between 

digital leadership and  Establish how digital 

Objectives

gphenomenon in $ billion global organizations

Define a “digital maturity” framework

financial performance Understand digital maturity 

at sector level Define “DNA” of digital 

leaders

gtransformation is managed in practice

Understand execution challenges

Outputs The Execution 

f DT

leaders

Deep dive on governance

Digital leaders cases

Deep dive on digital vision and engagement

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of DTg g

Digital leaders cases

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DIGITAL TRANSFORMATION IS THE USE OF DIGITAL

TECHNOLOGIES TO RADICALLY IMPROVE PERFORMANCE ORT CHNO OGI S TO RA ICA Y IMPROV P RFORMANC OR

REACH OF ENTERPRISES

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We are in midst of the third industrial revolution powered by digitization

3rd Industrial Revolution2nd Industrial Revolution1st Industrial Revolution

ElectricitySteam Engine Digitisation

Shift to an economy based on Centralised manufacturing Machine‐based manufacturing

Driving agent

Shift to an economy based on information

Fuelled by advances in computer miniaturisation, mobile, and Internet

Centralised manufacturing Revolved around steel, railroads, 

electricity and chemicals

Machine based manufacturing Centred on iron, steam 

technologies and textile production

Technical Innovation

PC Internet and mobile networks Smart devices

Internal combustion engine Diesel engine Telephone and telegraph

Cotton spinning Fossil fuel Large scale production of chemicals

Innovation

S i Explosion in ICT‐enabled 

productivity Massive economic growth 

I t i li i t d d Creation of factory system and 

trade unionsSocio‐Economic Impact

productivity Globalisation of markets and 

workforce Growing income inequality

Improvement in living standards Rising unemployment Greatly increased international 

trade

trade unions Increased life expectancy Massive urbanisation

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Source: Capgemini Consulting‐MIT Analysis

As opposed to previous industrial revolutions Digital Transformation is mainly driven by consumer behaviour and demands …

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… a powerful combination of technology forces …

SocialInternet of ThingsBig Data

Cloud

Mobile

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… and catalogs full of inspiration …

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… making it a major challenge on CXOs’ agendas

“People have a tendency to overestimate technology in the short term, and underestimate it in the long term.” – (Bill Gates, Microsoft)

“I can’t think of any industry sector or company which is immune from Digital p y gTransformation.” – (Andrew McAfee, MIT)

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This trend is intensified by new entrants …

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… taking advantage of digital innovations to oust traditional companies …

Example: Blockbuster’s lack of adaption

Market valuation (million USD)

Blockbuster(established in 1985) (established in 1999)

8.400

Value Proposition

DVD rental through brick and mortar stores and online

Launched online DVD rental business in 2004

Started as an online DVD rental company in 1999

Launched personal movie recommendation system in 2000

8.400

Proposition Introduced streaming service in 

2007

More than 6,000 stores in 2010 No physical presence

Operations/ Customers

48,000 employees as of Jan. 2010 2 million online subscribers in 

2006 Decreasing physical customer 

base

900 employees 26 million streaming members as 

of Dec. 2011

24

Bankrupt in 2010Bankrupt in 2010

base

Valuated at $4.9 billion as of April 2012

Valuated at $4.9 billion as of April 2012

24

1994 2010

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Quelle: Capgemini Analysis; Company Websites, Annual Reports

as of April 2012as of April 2012

… with new business models …

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… that are changing the game …

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2. Digital Transformation FrameworkgDigging Deeper

Digging deeper: In a joint study with the MIT we achieved a better understanding how companies leverage Digital Transformation

Digital transformation study

157 Interviews 50 Companies 15 Countries

Billi D ll C i IT d B i E i

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Billion‐Dollar Companies IT and Business Executives

The MIT study shows that organisations are digitally transforming three key areas: customer experience, operational processes and business models

Building blocks of Digital Transformation showing customer’s key challenges

Customer Operationali d l

Customer understanding Digitally‐modified businessesProcess digitisation

Customer Experience

eOperational 

Processe Business Model

g Analytics‐based segmentation Socially‐informed knowledge

Product / service augmentation Transitioning physical to digital Digital wrappers

g Performance improvement New features

New Digital Businesses Digital products Reshaping organisational 

boundaries

Worker enablement Working anywhere anytime Broader and faster communication Community knowledge sharing

Top line growth Digitally‐enhanced selling Predictive marketing Streamlined customer processes

Digital Globalisation Enterprise Integration Redistribution decision authority Shared digital services

Customer touch points Customer service Cross‐channel coherence Self service

Performance management Operational transparency Data‐driven decision‐making

Shared digital servicesSelf service

Digital Capabilities Unified Data & Processes Analytics Capability

Business & IT Integration Solution Delivery

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Source: Capgemini Consulting‐MIT Analysis

3. The Digital Advantageg gDigital Leaders Outperform their Peers in Every Industry

Digital maturity is a combination of two separate but related dimensions: Digital Intensity and Transformation Management Intensity

Digital Intensity is investment in technology‐enabled initiatives to change how the company operates – its customer engagements, internal operations, and even business modelsbusiness models.

Location‐based marketing

Customer Service in Social Media

Transformation Management Digital Design

Connected Products

Mobile sales

Intensity consists in creating the leadership capabilities necessary to drive digital transformation in the organization.

Digital Design…

Digital Vision

Cross‐silos coordination

New skillsCultural change

…

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The two dimensions spell out four different types of digital maturity

• Beginners do very little with advanced digital capabilities,although they may be mature with more traditionalapplications such as ERP or electronic commerce Although

nsity

applications such as ERP or electronic commerce. Althoughcompanies may be Beginners by choice, more often than notthey are in this quadrant by accident.FASHIONISTAS

F hi i

DIGIRATI

Digital In

ten

BEGINNERS

• Fashionista have implemented or experimented with manysexy digital applications. Some of these initiatives may createvalue, but many do not. While they may look good together,they are not implemented with the vision of gaining synergiesamong the items.CONSERVATIVES

Transformation Management Intensity

BEGINNERS among the items.CONSERVATIVES

• Conservatives favor prudence over innovation. Theyunderstand the need for a strong unifying vision as well as forgovernance and corporate culture to ensure investments aremanaged well. However, they are typically skeptical of thevalue of new digital trends, sometimes to their detriment.

• Digirati truly understand how to drive value with digitaltransformation. They combine a transformative vision, carefulgovernance and engagement, with sufficient investment innew opportunities.

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CodelcoRevolutionizing Mining Through Digital Technologies

“Shifting from a physical‐intensive model to a knowledge and technology‐intensive one”intensive one

Codelco, the largest copperproducer in the world, has its

t b k i th 1800Today, four mines in 

• Developed a radical digital vision (“envision the future of mining”)

roots back in the 1800s.Owned by the Chilean State, itoperates internationally andemploys over 18,000 people.

Chile are operated automatically: trucks drive themselves, operations are 

controlled remotely

• Invested in cultural change (innovation challenges)

• Developed new skills• Constantly monitor, assess and controlled remotely, 

information is shared in real‐time, and so on

y ,coordinate initiatives

“Our company is very conservative, so changing the culture is a key h ll W t d i t l i ti d t tchallenge. We created internal innovation awards to promote new ideas and encourage our workers to innovate”

Marco Antonio Orellana Silva, CIO

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We quantified the digital maturity of 391 companies and analyzed their financial performance

We analyzed financial datafrom all the publicly‐tradedcompanies in our sample*companies in our sample*

Digitally‐mature companiesare achieving statisticallyare achieving statisticallysignificantly better financialperformance**

* Of the 391 companies in our sample, 184 were publicly traded

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** Industry adjusted FY2011 financial performance for 184 publicly traded firms, controlling for geography

Digital Intensity and Revenue Generation

Companies that are mature on the digital intensity dimension arebetter at driving revenue through their existing assetsbetter at driving revenue through their existing assets

+6% +9%

Basket of indicators:

• Revenue / Employee

‐4% ‐10%

/ p y

• Fixed Assets Turnover (Revenues / Property, Plant & Equipment)

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Transformation Management Intensity and Profitability

Companies that are mature in the transformation management intensity are more profitableintensity are more profitable

‐11% +26%

Basket of indicators:

• EBIT Margin

‐24% +9%

g

• Net Profit Margin

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Digital Intensity and Market Valuation

Companies that are mature in the transformation management intensity achieve higher market valuationsintensity achieve higher market valuations

‐12% +12%

Basket of indicators:

• Tobin’s Q Ratio

‐7% +7%

• Price / book ratio

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Digital transformation is moving more rapidly in some industries than in others…

Digital maturity, by industry, for our survey

Each dot represents the average maturity of industries forhi h h 20 d i

Hi hT h l

TelecommTravel and hospitality

which we have 20 or more data points.

BankingRetail

High Technology

Banking

Consumer Packaged Goods

Pharmaceuticals

Retail

Insurance

Utilities

Manufacturing

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…but every industry has firms that have already begun to gain the benefits of digital transformation

Percentage of firms in each industry by quadrant.

“Digital Beginners in any industry areany industry are several years from gaining the digital maturity that their Digirati competitors already possess"

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3. Digital GovernancegWhat Digital DNA looks like

Digital Leaders show common patterns: the Digital DNA

FocusInvestments on where they 

Invest 100% in transformation 

“Digirati status is more than simply a 

combination of sound t d di it l choose to Excel

Digitallymanagement

Digital

management and digital capability. There is 

something inherently different about Digirati 

Combine Digital Use Digital 

T h l i t

Leadersff gDNA that separates  them from the rest"

gCapabilities to 

Exploit Synergies

Technologies to Transform their Business Models

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Common Digital Governance Mechanisms

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NikeConnecting Digital Silos to Create Synergies

“From Separate Initiatives to Firm‐Level Transformation”

Nike is the world’s leadingmaker of athletic shoes,

l i t d

• Strong presence in social media – usages include open innovation and customer service

• Created a dedicated unit – Nike Digital Sports – to provide skilled resources, budget, and coordination across the enterpriseapparel, equipment, and

accessories.customer service

• Offers mass customization

• Brand dedicated to digitally enhanced

enterprise.• The unit leads most customer‐facing digital projects, and releases products under the Nike+ brand.

• IT and business people work togetherdigitally‐enhanced products

• Strongly developed digital design

• IT and business people work together in the unit, developing new products

“Connecting used to be, ‘Here’s some product, and here’s some d ti i W h lik it ’ C ti t d i di l ”advertising. We hope you like it.’ Connecting today is a dialogue”

Mark Parker, CEO

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The rise of the Chief Digital Officer

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How Starbucks did it…

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A CDO may be relevant to any sector…

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5. The RoadmappGet Digital Transformation started

The starting point: Formulate a vision of your digital company and outline clear business objectives

Vision Business objectives (examples)

Get smarter ‐make better use of digitally available informationdigitally‐available information

Get closer to clients ‐ gain better insights from customers and build a strong relationship

Get leaner ‐ establish efficient globally integrated operations through utilising state‐of‐the‐art technology

Get more innovative ‐ facilitate knowledge exchange and communication

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Identify and select digital innovations which help you achieve your digital vision and business objectives

Digital transformation radar and innovations

Live data analysis

Automated online 

Online bidding

Digital warehouseSupplier 

collaboration platforms 

Online product blog

Rapid manufacturing

analysis  sales mgt

Mobile service field Mobile service field workforce solution

Social mediaKnowledge library

E ecommerce

NewCustomerE i

CostManagement

ProductivityImprovement

NewProducts / S i

blogMass 

customisation

Crowd sourcing 

E‐ ecommerce (multiple channels)

Personal recommendation 

solutions

CustomerInsights

Experience Services

NewPlatformsCustomer

Operational

Product Co‐innovation l f

Online design Online design and testing forums

After sales mobile and online services

Order status  Insights PlatformsCustomer Product platformstracking

In traditional business transformation technical innovations help realising an organisation’s defined target picture. In the 

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course of Digital Transformation technical innovations should be selected to actively shape the target picture.

How Burberry did it…

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Burberry’s Digital Transformation approach has resulted in top‐line and bottom‐line benefits

Total revenue, 2006‐2010, GBP million1 Vision: Focus on all aspects of the business

Better revenue

GBP million

850 995 1.202 1.1851.501

2006 2007 2008 2009 2010

1

Top‐Down approach: Driven by top executives

Better

Adjusted operating profit, 2006‐2010, GBP million

2

185 206 181 220301

Investment in digital innovations Better profit3 185 206 181

2006 2007 2008 2009 2010

Communication of the vision

Better share price

Share price, 2006‐2011, GBP4

591 556160

569

1.033 1.234

KPIs and ROI: Measuring success of digital initiativesp

52006 2007 2008 2009 2010 2011

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Sources: Capgemini Consulting Analysis;; Company Websites; Company Annual Reports; Yahoo Finance; Note: Share prices as on 10 / 17 / 2011, 11 / 15 / 2010, 11 / 16 / 2009, 11 / 17 / 2008, 11 / 19 / 2007, 11 / 20 / 2006

5. Some Relevant Technology TrendsgyA few minutes on Capgemini’s TechnoVision 2014

Digital Transformation is driven by emerging technologies ..

• TechnoVision categorizes technology trends in 6 distinct clusters aiming to better understand anddistinct clusters, aiming to better understand and position an abundance of new technologies

• In the 2013 edition, each cluster consists of 5 technology trendstechnology trends

• Each trend is described through actions to take, tools to consider and insights to gather

• There are also 7 design principles (Design for g p p ( gDigital) that should be considered and applied throughout

• Depending on the challenge an enterprise wants to address, relevant building blocks are selected and woven together in Digital Transformation story lines

DESIGN FOR DIGITAL

• These story lines can be used to discuss, test, validate and strategize

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DESIGN FOR DIGITAL

Overview: 7 Design Principles and 30 Trends

Design For Digital Invisible Infostructure Thriving On Data We CollaborateDesign For Digital1. Born In The Cloud2. Build Social3. SMAC It Up

Invisible Infostructure1. Virtual Lego

2. What Would Amazon Do?

3. Bon Risk Appetite

Thriving On Data1. My Data Is Bigger Than Yours

2. Intelligence Inside

3. Real Real Time

We Collaborate1. Social Is The New Oil

2. Profile As A Currency

3. Social Workers

4. Business, Mon Amour5. No Requirements6. From Train to Scooter7 Think Design

4. Let’s Get Physical

5. Orchestrate for Simple

S t A A S i

4. Data Art

5. Data Apart Together

P O Th Fl

4. No Work

5. Friend Your Vending Machine

Y E i7. Think Design Sector As A Service1. Vanilla Tastes Good

2. Enterprise Candy Store

3. Elastic Business

Process On The Fly1. Shades Of Process

2. Process Is The New App

3. No Process

You Experience1. Object Of Desire

2. Zen Of The Task

3. Sweat The Assets

4. Close To The Edge

5. No Apps Apps

4. String of Silos

5. Co‐Process

4. Bring Your Office Device

5. End User, End Producer

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The Cloud has set a new benchmark for how quick flexible cost‐effective and

Born In The CloudThe Cloud has set a new benchmark for how quick, flexible, cost effective and scalable solutions should be available. This has a transformative impact on the demand and supply sides, as expectations shift. Many organizations are not ready to get all their solutions from the Cloud, but the new normal is already there and g , yparticularly the expectations at the business side have considerably changed. For new solutions, the Cloud should be the default scenario, only then to be ‘softened’ by pragmatic considerations around integration, security, legislation and y p g g y gmanageability.

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Social is not something to be added at the end on top it is a ubiquitous design

Build SocialSocial is not something to be added at the end on top, it is a ubiquitous design principle that should be applied from the very beginning of creating solutions. If you start designing your processes and applications as social by default you’ll see that solutions are likely to become more flexible, connected and user/team‐centered. You y , /unleash the power of outside by thinking outside‐in. But privacy and trust are key andmobilizing the social network around you is all a matter of creating tangible value for it.

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Although the drivers of Social Mobile Analytics (or ‘Big Data’) and Cloud all have

SMAC It UpAlthough the drivers of Social, Mobile, Analytics (or  Big Data ) and Cloud all have powerful transformation impact as themselves, the real breakthroughs are created by bringing them all together. In this powerful melting pot, the drivers amplify each other, creating something much more compelling than the sum of the parts. So whenever you g g p g p yconsider a solution in one of these areas, systematically look in the other areas as a default for synergetic inspiration.

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Business, Mon AmourThe consumerization of IT and the availability of Cloud solutions has brought technologyThe consumerization of IT and the availability of Cloud solutions has brought technology closer to the business than ever before. True Digital Transformation creates a fusion between digital capabilities and business change, rather than just aligning it. The IT function in an organization is successful if the business side happily  takes the stage to g pp y gtestify about its benefits, also takes the lead in business/IT projects and holds a significant part of the budget for innovation. A continuous dialogue is crucial for this, together with an architected platform to enable digital change and a shared, end‐to‐end g p g gtransformation approach.

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Too much focus on requirements creates an artificial boundary between the Business

No RequirementsToo much focus on requirements creates an artificial boundary between the Business and IT sides of an organization. It’s a bridge, but one that cannot be crossed. Instead, IT should be providing a flexible, scalable catalogue of secure and compliant enterprise services and solutions. It inspires the business to assemble their own, unique solutions p , qfrom it. Such a catalogue is the foundation and inspiration for business solution ‘hypotheses’ that can quickly be validated, turned into executable plans and deployed. Think Catalogue First!g

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The next generation of Business Technology solutions have a short time to market are

From Train to ScooterThe next generation of Business Technology solutions have a short time to market, are created and delivered in an agile way and are developed and owned in the nearest proximity of the business. They are much like Scooters and Cars, where the current applications landscape is populated with Trains and Buses. Think about when to apply pp p p p pp ythe right rhythm and start to explore new, flexible ways to build solutions, applying agile approaches such as SCRUM and rapid development tools.

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‘Digital’ now is a synonym for the use of IT to create new ways to engage with

Think DesignDigital  now is a synonym for the use of IT to create new ways to engage with customers, optimize operations and completely transform business models. It brings fresh options to connect to  better informed customers, using a variety of volatile channels and much closer to the dynamics of business. To fully reap the benefits, the y y p ,Business Technology landscape needs to be designed from the integrated, end‐to‐end, outside‐in perspective of the customer. Creating this experience requires ‘Design Thinking’, which is all about finding the right mix between empathy, g g g g p ycreativity and good analytical skills.

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Digital Transformation ‐ AGENDA

1. The Basics

2 Digital Transformation framework2. Digital Transformation framework

3. Digital Maturity

4 Digital Governance4. Digital Governance

5. The Roadmap

6 Some relevant Technology Trends6. Some relevant Technology Trends

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Digital Transformationian overview

Ron TolidoRon TolidoCTO Capgemini Application Services – Continental Europe16 September 2013

Transform to the power of digital

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