Digital transformation is already a central part of corporate strategy in almost every organization, as enterprises seek to enhance customer experience, improve digital outreach, leverage data-driven opportunities, optimize processes and ultimately innovate their way to improved delivery and new market penetration.

Yet despite this recognized need, research by Boston Consulting Group (BCG) shows just 35 percent of companies globally are successful at delivering on their digital transformation goals. Companies that do succeed unlock a path to improved performance and superior innovation that help drive business success.

New research by BCG reveals a fascinating evolution in this landscape of successful digital companies. A growing number of legacy companies are leveraging successful digital transformation to emerge as what we call Digital Incumbents — traditional businesses that have successfully executed a digital transformation and are making progress in systematically building digital capabilities, with superior performance.

 

Understanding an evolving digital landscape

Digital incumbents are now operating in industries across the business ecosystem, and include companies such as Adidas, Diageo, ING, John Deere, KLM, L’Oréal, Ping An Insurance and Telstra.

They join Digital Native companies founded in the digital era — SalesForce, PayPal, Zoom, Spotify — in leveraging the value of digital capabilities, as well as major pioneering Digital Natives known as Hyperscalers — Meta, Alphabet, Amazon, Microsoft in the United States, and BAT companies in China — that leverage digital platforms for significant success. Trailing in the wake of these digital leaders comes the Legacy Incumbents, reflecting those traditional companies that are yet to achieve digital success.

The benefits for Digital Incumbents are clear. Based on US companies in the S&P 1200 index over the last three years, Digital Incumbents generate 1.2 times the average shareholder return, compared with 0.4 times for Legacy Incumbents, 1.3 times for Digital Natives and 1.6 times for Hyperscalers. Analysis shows that, crucially, revenue growth has been the major driver of relative shareholder performance, revealing the advantage that digital transformation has unlocked for Digital Incumbents over their lagging Legacy Incumbent peers.

In Southeast Asia, Digital Incumbents are delivering rapid strategic growth that threatens to overtake even those early Digital Native companies, building digital capabilities at scale while leveraging existing advantages such as extensive existing footprints and market penetration, customer relationships and data, and regulatory relationships.

In a survey of over 45 Southeast Asian companies with average revenue over US$1 billion, BCG discovered that almost half (47 percent) of companies successfully delivered on their digital transformation goals, 12 percentage points higher than the global average.

BCG has extensive experience analyzing, informing, and building successful digital transformation strategies for companies. We have assessed over 60 success factors that are integral to digital transformation, and in doing so identified six critical success factors which significantly enhance the odds of success:

•     Integrated strategy with clear transformation goals
•     Leadership commitment from CEO through to middle management
•     Deploying high-caliber talent
•     An agile governance mindset that drives broader adoption
•     Effective monitoring of progress toward defined outcomes
•     Business-led modular technology and data platforms

In order to maximize the chance of success, companies must seek to pass a minimum threshold of success in these six factors. BCG’s analysis reveals that 80 percent of companies that succeed in this deliver successful digital transformation that achieves their overall strategic goals.

 

Southeast Asia’s successful landscape

Southeast Asian companies demonstrate encouraging performance, outperforming global averages across four of the six success factors noted — lagging slightly in agile governance mindset and deploying high-caliber talent.

Research respondents noted that access to digital talent has become a particularly critical element of transformation success, with incumbent companies often lacking the requisite mix of skills and technical talent to deliver on a digital transformation journey. This challenge is compounded by the comparative draw of “trendy” Digital Native operators, with attractive work propositions and alluring reputations.

Environmental, social and governance (ESG) concerns also add an additional dynamic to this transformation journey. Analysis reveals that 80 percent of companies in Southeast Asia have existing digital efforts targeted at ESG, with social (78 percent) and governance (78 percent) seen as leading priorities, slightly ahead of that of environmental (61 percent), demonstrating a scope for change beyond traditional governance concerns.

The COVID-19 pandemic offered a further catalyst to aid this evolution, leading to renewed focus on digital transformation in many companies. Our analysis shows the pandemic triggered fresh transformation in more than a quarter (27 percent) of companies.

Digital transformation is of course not an end in itself. It is the benefits to customers and business operations that drive these changes. Customer experience, growth and business model innovations are the priority for a significant majority (80 percent) of Southeast Asian companies, while sales and market acceleration also remain a key focus for more than-three quarters (76 percent) of businesses. Digital transformers in the region are now looking beyond re-engineering core value chain activities, to leverage the value of digital capabilities in digitalized support functions, as well as unlocking value growth through digital innovation.

“In the near-term, improving customer experience is the number one priority. If we can improve customer experience, then customers will be more loyal. As the company matures, the importance of innovation in the business model will increase, as we look to find a new growth path or story,” said Muhamad Fajrin Rasyid, digital business director at Telkom Indonesia when discussing digital transformation as part of this research.

Upgrading IT infrastructure and data transformation remain key priorities for Southeast Asian companies, in line with global priorities. Intriguingly, given the changing global attitude, agile ways of working were only a priority for three-quarters of companies, highlighting a fascinating disconnect from global priorities. 

 

Driving future digital success

Digital transformation offers a path to enhance revenue, reduce costs, unlock new growth and deliver improved customer experience for enterprises regardless of industry. While legacy companies face some early barriers to adoption over their Digital Native peers, those Digital Incumbents who have achieved this aim demonstrate the huge value ready to be unlocked.

The six success factors identified by BCG offer an informed path forward for legacy companies, which in turn can build on the foundations of existing success to successfully compete in our increasingly digital world. Digital Incumbents are shaking up the digital landscape, and in doing so unlocking a valuable path to growth.

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Davids Tjhin is managing director and partner, and Tauseef Charanya is project leader at Boston Consulting Group