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Traditional Industries Need to Seize Digital Transformation Opportunities

Innovation should be an ‘always on’ thing

Published: Tuesday, March 28, 2017 - 11:01

Digital disruption is reaching beyond technology to engulf a variety of industries, including manufacturing, transportation, energy, healthcare, and construction, that constitute a significant portion of the global economy. Manufacturing alone accounts for 12 percent of the U.S. GDP, according to The World Bank.

The disruption represents opportunity as well as threat. But to seize this opportunity, companies in these industries will need to act as the technology, retail, and media industries already have: by embracing fast-moving change, creating multiple low-cost tech initiatives, killing lagging projects quickly, and committing to “always on” transformation—that is, profoundly changing their strategy, business model, and operating model on an ongoing basis in order to stay ahead.

These are among the insights in Transformation: Delivering and Sustaining Breakthrough Performance, a new book from The Boston Consulting Group (BCG), which draws on the firm’s work in more than 400 transformations that generated a median annual impact of approximately $340 million through the application of capital efficiency levers, cost cuts, revenue increases, and improvements in organizational performance.

Obstacles include legacy systems and a rigid, process-oriented culture

Digital technologies and approaches aren’t just for tech, media, and retailers anymore; they are infusing all aspects of the business world. With artificial intelligence, advanced data analytics, and 3D printing, to name just a few emerging digital innovations, companies in many industries can do great things for customers and create new levels of value.

But many companies in industries such as energy, transportation, and healthcare are accustomed to a methodical approach to technology—one that risks putting them at a disadvantage.

It’s understandable. These industries are rigid and process-oriented. For many, the frame of reference is an enterprise resource planning migration that takes five years from start to finish. However, any company that takes that long on its digital transformation risks wasting immense amounts of time and money.

The most successful companies take four critical steps to ‘get digital’

Industry leaders are advised instead to act now to launch digital products and services, and to digitize internal processes, even if they don’t feel ready. Savvy companies get comfortable making decisions amid uncertainty. They launch projects even when they don’t know what the outcome is going to be. They embrace the concept of “fail fast and fail cheap,” focusing on quick pilot tests and prototypes that they can roll out and evaluate quickly, and then scale up or shut down.

Companies that succeed with this trial-and-error approach to digital transformation take four steps. They:
1. Educate themselves and establish a baseline on their current use of digital technologies.
2. Create quick-and-dirty plans for technology projects. This isn’t and shouldn’t be a long, drawn-out effort. Successful companies move quickly to create project “portfolios” focused on just a few key areas where technology can make a difference: customer experience; reimagined products, services, and business models; and reengineered business processes.
3. Get agile to accelerate the transformation. Successful digital transformers launch multiple pilot projects at once. The goal isn’t perfection but a “good enough” product, with just enough features to make it functional. Apps are often basic at launch. New features are added over time, depending on what customers want.
4. Transform the organization. They add capabilities, sometimes with the help of an ecosystem of partners, or they create external incubators through joint ventures or acquisitions.

Organizational transformation is often central to digital success. The book reports on a global bank that reorganized into mini-startups to launch an array of highly targeted digital customer services, and an auto manufacturer that split its IT in two: a traditional unit to support legacy computing, and a faster-moving platform that used digital tools to support new initiatives for customers.

Digital transformation should be ‘always on’

All transformation, not just digital, should be “always on.” And all industries, including those like technology, retail, and media that seem to have a digital advantage, should continue to press ahead with digital transformation. The days are over when transformation could be approached as a one-time, cost-cutting project. Today, the pace of change and the severity of disruption mean that to stay competitive, companies need to make transformation a part of their culture. They also need to put as much emphasis on people as technology, ensuring that their people are always learning and developing the skills and behaviors they need to be effective in a digital environment. Successful companies have several transformations underway at once, each building on the others. Digital transformation is one of many important aspects of the transformations that leaders are engaged in all the time.


About The Authors

Lars Fæste’s picture

Lars Fæste

Lars Fæste is a senior partner and managing director at The Boston Consulting Group (BCG). Fæste leads BCG’s Global Client Team and serves on the firm’s executive committee. He is also the global leader of BCG’s Transformation practice and of BCG TURN, which helps clients deliver rapid, visible performance improvements in the short term while strengthening their organizations and positioning them to win in the future. Since joining BCG in 1998, Fæste has developed extensive experience in large-scale transformation and strategy work, often in connection with mergers and acquisitions.

Jim Hemerling’s picture

Jim Hemerling

Jim Hemerling is a senior partner and managing director at The Boston Consulting Group (BCG). He has widespread experience leading large scale transformation programs and cultivating high-performing cultures. Hemerling’s approach to transformation—putting people first—focuses on energizing and empowering employees while enabling leaders to be both directive and inclusive. Hemerling co-authored numerous publications on transformation, organization effectiveness, and culture including Transformation: Delivering and Sustaining Breakthrough Performance (BCG, 2016) and Globality: Competing with Everyone from Everywhere for Everything (Business Plus, 2008).