Deloitte highlights impact of meshing digital strategy
Enterprises should turn their digital initiatives into clear strategic actions to achieve digital transformation, as faulty moves could lead to a market value loss of US$1.5 trillion across Fortune 500 companies, according to analysts from Deloitte.
A recent Deloitte report scoured more than 3 million pages of financial disclosures for 4,651 US and global firms listed on the New York Stock Exchange. It found the link between strategy and action is the key to a company’s ability to earn value from digital transformation.
“Connecting digital strategy and action is a proven way for leaders to generate a tremendous return for their stakeholders,” said Tim Smith, Deloitte’s head of technology strategy and business transformation at the Londonbased services firm.
According to the analysis, the right combination of digital transformation actions can unlock as much as $1.25 trillion in additional market capitalisation across Fortune 500 companies.
Three factors that determine transformation success comprise digital strategy, tech aligned to strategy, and digital change, which is a company’s ability to adapt to new processes, resources and ways of working. Organisations that demonstrate all of these traits reported a 5% increase in market capitalisation.
Digital strategy involves the impacts that arise from digital transformation, whereas tech aligned to strategy refers to the technology domains that come with digital transformation.
“The most positive combination is when there is articulated digital strategy, where specific technology investments are aligned and set, and the organisation is mobilised and ready to manage the change,” noted the report.
On the contrary, the combination of digital strategy and technology-aligned investments without change capability results in a significant erosion of enterprise value. The losses could be 10 times greater, posing a 9% value erosion risk that could cost Fortune 500 firms $1.5 trillion in value, according to the report.
“Change for change’s sake, without purpose or any ties to a broader strategy, is insufficient as it lacks the specificity to mobilise stakeholders and rally them around shared interests,” said Mohit Mehrotra, monitor leader at Deloitte Asia-Pacific. “In addition, when management fails to demonstrate sufficient courage discussing their considerations and choices, stakeholders discount their ability to move the organisation forward.”
It‘s not enough for executives to approve and fund technology, the study suggested, as they also need to have a fundamental understanding of that technology.