Strategic Alignment: A Key to Digital Success
The Apigee Institute’s inaugural research report showed that three measures of strategic alignment—a business' ability to connect digital investments to enterprise key performance indicators (KPIs), choose ROI criteria that drive better decisions about digital investments, and drive alignment across functions—were strong predictors of success in building digital capabilities.
Now, after more than 1,000 interviews with business and IT leaders, we can confidently show that strategic alignment is profoundly important as a predictor of digital business success.
This pattern, however, raises the question of the return on strategic alignment as we define it here. Is taking on the challenge of strategic alignment for digital transformation worthwhile? Why not just improve digital capacity as problems and opportunities come up in an incremental or piecemeal way?
Our most recent round of research shows clearly that strategic alignment—the ability to align KPIs, choose ROI criteria, and coordinate across functions—is very much worthwhile for those trying to complete effective digital transformation. Effective digital transformation entails the building of digital capabilities to better compete in the digital economy in a manner that changes the experience of a company’s employees, customers, and portfolio of products and services.
To answer these questions empirically, we isolated those companies that have achieved a “big” impact from digital transformation in at least two of of three areas: employees’ experience of working at the company, the customer or partner experience, or the company’s portfolio of products or services. We compared them—25% of companies overall—with the balance of a sample of 321.
Committing to overall strategic alignment is clearly a powerful way to increase the odds of a successful, effective digital transformation. Companies in the top quartile of reported strategic alignment increase their odds of achieving effective digital transformation by more than 6x. Those who reach an above-average level of strategic alignment enjoy a 4x improvement.
Specific recommendations from the Apigee Institute report “Keys to Digital Transformation” also show value as tactical levers. Making a formal commitment to comprehensive transformation, appointing a digital leader, and aligning governance to transformation efforts (by promoting innovation and experimentation) improve an enterprise’s odds of achieving a highly successful digital transformation between 1x to 3x.
In contrast, incremental transformation efforts do almost nothing to improve the odds of a successful digital transformation. Those who say they have begun transformation efforts “incrementally” are not seeing a material increase in the likelihood of a significant impact from digital transformation efforts.
Quantifying the stakes
Leaders in every enterprise face this question: will strategic alignment contribute enough to digital transformation to justify the effort?
This empirical pattern is also clear. Companies achieving a successful and effective digital transformation also deliver much better business results. Companies that had achieved a highly successful digital transformation are 9x as likely to report strongly outperforming their sector across five enterprise KPIs. These companies are also 3x as likely to report strongly outperforming on both gross revenue and market share.
The manner in which companies who have undergone a successful digital transformation are pulling away is striking in light of the fact that their lagging peers are nearly identical in terms of general confidence and market conditions. Forty seven percent of respondents at companies reporting successful digital transformation have a positive view of their market conditions or overall company performance, compared to 49% of respondents at other companies.
Research by McKinsey & Co. has uncovered potential drivers: digital innovations in terms of apps, marketing, and business processes can yield average cost savings of 9%. McKinsey also reports that on average, digital transformation can boost the bottom line by more than 50% over the upcoming five years for companies that pull all transformation levers. Additionally, digital leaders are on average growing their digital sales at 2.5x that of their sector peers.
MIT’s Center for Digital Business in partnership with Capgemini found that the companies that are best at managing digital technology have seen the best revenue growth with important leads on the rest of the market in terms of revenue creation and market valuation and nearly triple the growth of the next-best segment in profitability.
Successful digital transformation unlocks these gains. Companies building strong strategic alignment in support of it have a profound advantage over those taking an incremental, piecemeal approach. Start today.
This analysis is based on a survey of 321 business and IT executives at companies with more than $500 million in annual revenue conducted between Sept. 26, 2013, and Oct. 7, 2013, by the Apigee Institute.