Leading Digital (2014) by Westerman, Bonnet and McAfee

I read Leading Digital with a mixed sense of anticipation and suspicion. Heightened anticipation was there for a reason: I think that it is not common to read some rigorous, organic, extended, articulated analysis focused on how traditional corporations face the changes brought about by digital technologies. That slight suspicion came instead from the frequent déjà-vu that often happens to me when I get hold on something on the subject. This is an old debate now. Two decades have gone by since the New Economy highs and lows; some of the very same questions have been raised there, and left unanswered I’m afraid. Then, a few years into the new Millenium, with the advent of Social Media and the much awaited mobile explosion, and the new wave of enthusiam and investments that ensued, we got into the same discussion once again, especially in the professional service realm (where I have been working for a long time, as an agency guy – perhaps I should specify “digital agency” – or as a freelance). Sometimes this debate has turned into a rhetoric, or worst a trade event kind of cliché; paradoxically, it is often addressed to people already convinced of the importance of the issue – very much preaching to the converted, as they say. So, beside the debate and all of the digital “evangelism” (how dated it sounds!), now I would really like to read some systematic overview, have research results, and examine well founded reasoning. This is the promise of Leading Digital, and I think that to a large extent it delivers on that promise.  The book is the outcome of a collaboration between the MIT and Capgemini. It has been written by three authours: two of them have an academic profile, George Westerman and Andrew McAfee (the latter is also co-author of The Second Machine Age, with Erik Brynjolfsson), while the third, Didier Bonnet, is one of the global leader of the French-based consultancy.

The book is based on a three-years research work, from about 2010 to 2013 I would say (it is not specified but the book has been published in 2014). First, Westerman, McAfee and Bonnet, with the help of a team, have interviewed about 150 executives and managers at 50 large corporations that don’t have technology as a core business. This is an important distinction, as it specifies the generic term of “traditional corporation” I have used above. Secondly, they have run a survey involving almost 400 large corporations in 30 countries (“large” it means with revenues in excess of 500 million dollars). The authors are very clear about their global perspective, not centred on the United States. In fact, even if most of the major technology leaders are indeed from the US, as a matter of fact a vast number of large and very large corporations are based outside of the US in Asia or in Europe (where I’m based, en passant).

The focus on “traditional corporations”, defined as the ones that don’t have technology as core business, is a cornerstone of the all work: these firms make “the 90% of the economy”, so it is of outmost importance to understand how they react to the tecnologies brought on the market by the global platform leaders or by the all range of startups  – many of them coming the Silicon Valley or the US. The strenght and momentum of this wave of digital technologies, platforms and services are such that nobody can escape it. Westerman Bonnet and McAfee have no doubts: the firms that choose not to react are going to face obsolescence and decline.  Here it comes an analogy that has been made many times in these debate: digital technologies are the Second Industrial Revolution. Nothing can resist their momentum. It’s a warning for the executives out there: we have come to a point in which it is possible to discern between the corporations that have undergo a successful transformation, taking advantage of these technologies, and those that haven’t. The analysis of these outcomes has allowed the authours to devise an approach or a transformation roadmap that others can follow too.

En passant, Leading Digital is also the book of choice to get a synthesis of the many scholarly articles and white papers coming out from the cooperation between the MIT and Capgemini on the “digital transformation” idea. The expression has been quickly adopted by the industry jargon but it could be that many are not aware of the original formulation, or, better yet, of the formulation that has got the widest adoption. A 2011 MIT and Capgemini document reported the following definition:

Digital transformation (DT) – the use of technology to radically improve performance or reach of enterprises – is becoming a hot topic for companies across the globe.

I think it’s important to start again from here – it’s not about defining something once and for all but bringing some clarity about the context in which has been shaped. The first Altimeter report on the topic (published in 2014) says that in their instance digital transformation is analysed from the customer experience lens. A second Altimeter report on the same subject credits an earlier formulation by scholars Erik Stolterman and Anna Croon Fors. For what I can read through Google Books scans, they were pretty distant from an interest in corporations performances. In that discussion, “Digital transformation” is an emergent phenomena that calls for a critical scrutiny, it is a novel focus for information technology research – they might even quoting Marcuse if I’m not wrong.

… the most crucial challenge for IS [information Systems] research today is the study of the overall effects of the ongoing digital transformation of society. The digital transformation can be understood as the changes that the digital technology causes or influences in all aspects of human life. This research challenge has to be accepted on behalf of humans, not int their role as users, customers, leaders, or any other role, but as humans having a life.

This was about 2003. Fast forward to 2014 and typing “digital transformation” in the Google bar will get you a couple of ads from big and huge consulting businesses (Accenture, to mention one), followed by a deluge of organic results. Anyhow, my point is that for all of these mentions there is little research, so it’s worthwhile to have a close look at the book from the people that triggered the most informed debate.

I think the book offers three main original results and contributions. The first is a set of models and categories that frame and define the all question; they are the tools that allow to investigate its dynamics and produce practical recommendations. The second set of results includes the case  and example reviews, the corporations that have been analyzed, with all of the excerpts from the research interviews. The third is a proper “discovery”, so to say, regarding the fact that the best corporations from the digital transformation angle show also better business results.

Let’s have a look at the first and at the second point. One key categorization or model makes a distinction between three dimensions relevant to the digital transformation concept: customer experience, operations and business models. These are different but interdependent aspects, so that changes in one would influence the others, to some degree. All of the corporations cases mentioned in the book can be mapped to these domains. So Burberry and Starbucks e.g. are explored mostly in the customer experience perspective. Very distant businesses like Asian Paints (India), Codelco (Chile, mines) or Zara are in the spotlight when it comes to the operations dimension. Hailo, Uber, Airbnb, Fujifilm, Zipcar, Car2go and many others illustrates the business model discussion. So this is about how corporations react to digital technologies in one or another of these key three dimensions, or all of them at once. Then the authors introduce also a typology based on another distinction. There are digital capabilities or competencies and leadership capabilities. Here you get a typical two axis matrix with four cases, in which the upper right quadrant is for “Digital Masters” . I think that these are the most analytical parts of the book. Combining these models with real cases offers a very rich material, interesting per se and useful as the basis to build advice for other corporations. In fact the book offers plenty of checklists, summaries and an entire final “playbook” addressed to executives that want to face the digital transformation challenge. Those are not at ease with the business book flavor might be slightly annoyed at this point, but the authours have been impeccable in pointing to the many scholarly or public sources in the endnotes (to testify again the research rigour).

By the way. The book has 9 mentions of the term “advertising” and 8 of the term “campaign” (just 7 in the proper advertising context) and just one of the expression “digital advertising”. I am aware that this is nothing scientific but this rough count made me think that the research has not been conducive to the discovery of some distinctive way of doing advertising by the digital leaders. It is as if a smart, sensible usage of digital advertising is taken for granted, just as a necessary element of a broader framework. In other words, where the digital transformation is in place digital advertising will be   a part of it, but simple budget shifts from one channel to another don’t make a big difference.

Let’s move to the third result. Here we have a very sharp and interesting conclusion, based on the research empirical work combined with the typology created by the authors. “Digital masters” make more revenues and profits than their competitors.

[…] Digital Master outperform their peers. Our work indicates that the masters are 26 percent more profitable than their average competitors. They generate 9 percent more revenue with their existing physical capacity and drive more efficiency in their existing products and processes.

Even though Westerman, Bonnet and McAfee are keen to stress that this conclusion indicates a correlation and not a causal factor, it is evident that these are big figures (think about the 10% of a 1 billion in revenues). So here the authours are really zooming in on an opportunity, a huge one. Grab it is open for everyone – every company that is willing to. There is no need to be based in Silicon Valley, no need to have hundreds of software engineers, no need to have onboard some one of a kind maverick pioneer. For sure it will be an endeavor, more or less challenging depending on the starting point, and the honesty of your initial self-assessment, but it is something attanaible by every company with adequate willingness and practical means to go forward.

Once again, it is not just about a big opportunity. Beside the call for action to grab it, there is another take running through the book. Westerman Bonnet and McAfee warn readers that they need to get moving anyhow, since the transformation has just begun, and its effects are barely starting to emerge.

We ain’t seen nothin’ yet.

This is not secondary, as said above. Moreover, it highlights a sort of paradox, a relative lack of solid knowledge about the possible negative outcomes of the transformation as depicted by this research. If we accept that at this stage the impact of digital technologies and platforms is only beginning to take shape, and much stronger changes are to come, then the reason to react is not only the opportunity to have more revenues and more profits (as Digital Masters have), but first and foremost companies is about the companies survival and essential prosperity. So what are the “traditional corporations” that prove the point? Yes, the authors mention Kodak, or cabs (“Uberized” as it has been said), and then? Talking about the standard verticals, or categories that have lost their descriptive power (say “telecommunications”, “advertising” or “newspapers”) is of little help I think. Here again what is badly needed is solid research, well organized reviews, structured cases, empirical evidence and models. After so many years of debates about the effects of digital tecnologies, how one can’t see the paradox of not having a great pars destruens in the library? If you know it, please tell me where it is, and I’ll get it straight away (likely via Amazon Prime).

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