According to our fourth annual Digital Acceleration Index (DAI), bionic companies accrue significant competitive benefits. The study—based on a survey of approximately 2,300 companies in Asia, Europe, and the US—found that bionic companies can scale their digital investments across the value chain better than nonbionic peers.
Consequently, they have achieved better performance. Over a three-year period (measured from EOY 2015 to EOY 2018), bionic companies gained 1.8 times higher earnings and 2.4 times higher growth in total enterprise value compared with digital laggards. This advantage is even more relevant during the COVID-19 pandemic, at a time when building business resilience is critical. Not only will nonbionic companies have less success navigating through the crisis, but their relative lack of digital sophistication will also make it harder to reboot once it has subsided. For this reason, it’s vital—even during these extraordinarily challenging days—for nonbionic organizations to pursue digital transformations.
The standard practice at traditional companies is to assign people to carry out processes, but bionic companies assign people to innovate and design processes that new digital technologies can handle more efficiently and productively. Getting to this point requires substantial investments in reskilling the internal workforce, attracting and retaining the right digital talent, and developing new leadership skills. It also means bold investments in technology to complement people, particularly data analytics and AI.
All bionic companies strive for superior, differentiated customer engagement at scale. Their target state is a seamless customer journey that becomes ever more automated to enable self-service and more interactive to unlock the power of personalization. These companies also strive for a new level of innovation and empower teams that build customer-facing products to rapidly experiment. Such insights can provide valuable guidance for companies looking to become bionic themselves.
Bionic companies exist in most industries. Technology, telecommunications, and finance lead across regions: more than 30% of the companies we studied within these industries are bionic. (See “Our Methodology”).
Meanwhile, health care and consumer companies are in the middle of the pack. They have made progress toward becoming bionic since our 2019 study, but they still have a long way to go to catch up with the trailblazers. Lagging are the public and energy sectors, which have the fewest bionic companies: approximately 18% qualify as such. (See Exhibit 1.)
As was the case in 2019, Asia’s technology companies, which have improved their average DAI score by 3 points, lead the way across all regions and industries. The strength of China’s tech sector is like a locomotive for other industries, enabling digital transformation within the region at a faster pace than elsewhere. For example, China’s health care industry is far ahead of the health care industry in the EU and the US.
While Asia and Europe have both improved digital maturity overall, the US has stagnated at its 2019 level. That said, the US situation is more nuanced when looking at large companies versus small and medium-sized enterprises (SMEs) with less than $50 million in annual revenue. For example, in the tech space, large (US-based) multinational companies average 20 more DAI points than SMEs.
For laggards, one very promising finding is the progress these companies have made in establishing digital strategies and in laying out detailed roadmaps for achieving them. In former years, laggards often did not have a strategy in place, but they have now narrowed the gap with leaders. Even companies in the public sector—which ranks last in total digital maturity overall—now score, on average, 51 DAI points in strategy. In comparison, leading sectors like technology or telecommunications boast average scores of 63 and 61, respectively.
Where the rubber really meets the road is converting a digital strategy into tangible outcomes, such as digitized processes, new digital solutions, and digital ROI. We found huge gaps in outcome achievement among industries. Technology, telecommunications, and financial institutions are particularly successful thanks to their deep and integrated investments in technology and human talent. Bionic companies had an average DAI score of 79 for strategy and 76 for outcomes (a 4% difference), while laggards scored 40 and 29, respectively (a 38% difference).
Thus, it is not surprising that bionic companies lead competitors in key performance indicators. Bionic companies have grown their earnings 1.8 times faster than laggards over the past three years, and they have spent 1.5 times more on R&D. As a result, bionics increased their enterprise value at more than twice the rate of laggards from 2015 to 2018. (See Exhibit 2.)
In terms of cost efficiency, approximately 59% of bionic companies say they are ahead of the competition, while only 31% of laggards say the same. The disparity is similar for product quality (71% versus 39%), customer satisfaction (68% versus 38%), and time to market (58% versus 27%). Similarly, while bionic companies cut operational expenditures by 5 percentage points over a three-year period, laggards only managed to cut operational expenditures by approximately 1 percentage point. Together, these results point to a significant competitive advantage, and they raise an important question. How are bionic companies translating their digital investments and strategies into superior outcomes?
In short, bionic companies use four digital boosters more often than laggards. Companies that use all four boosters have DAI scores that are, on average, 22 points higher than companies that don’t use any of these boosters.
In 2020, 55% of bionic companies dedicated more than 15% of operating expenses to digital, compared with only 29% of laggards. (See Exhibit 3.) Bionic companies tend to channel a large share of that investment into technology (28%) and data (22%), improving their ability to scale and achieve outcomes, while laggards are still spending more on core processes. For example, 40% of bionic companies have started connecting 25% or more of the tech landscape through application programming interfaces (APIs), compared with only 22% of laggards. And while a third of bionic companies have digitally transformed at least 25% of their core processes, only 14% of laggards have made that same degree of progress. Bionic companies’ technology investments also improve cybersecurity, which is increasingly crucial during the pandemic as many employees continue to work remotely.
A good rule of thumb is that a bionic transformation is 10% about algorithms, 20% about technology and IT, and 70% about the business and people. Our study confirms this notion. We found that 44% of bionic companies have more than 15% of full-time equivalents (FTEs) in digital roles, while only 23% of laggards have reached that mark. Furthermore, the majority of bionic companies have trained more than 15% of staff in digital skills and in new, agile ways of working, while only 28% of laggards have met this threshold. Specifically, 35% of bionic companies, compared with 18% of laggards, have committed more than a quarter of their business and IT resources to agile projects.
With this investment in technology and people as a foundation, 33% of bionic companies report that they are accelerating their scaling efforts from pilots to full end-to-end solutions. Meanwhile, only 7% of laggards report this kind of acceleration. Bionic companies are also aggressively expanding beyond existing business to generate revenue from adjacent offerings: 61% derive a tenth or more of their revenues from adjacent offerings, while only 33% of laggards do the same. This diversity of revenue is especially valuable if the core business is disrupted, which is happening at many companies as the pandemic wears on.
The most advanced bionic companies take AI to the next level by placing it at the heart of their digital transformations. To bring AI technology to life, these companies put a strategic emphasis on accessing unique data from internal operations and external customer experiences. These “bionic AI” companies, which represent 17% of the broader bionic total, invest significantly in data and occupy the top quartile in all data dimensions, including data strategy, data governance, digital and data platforms, and, of course, AI. They excel in agile practices and process digitization.
Asia leads here as well. Approximately 7% of the Asia-based companies have reached the bionic AI status, compared with only 2% of European and US companies.
Bionic AI companies have assembled a cadre of AI-dedicated full-time equivalents (FTEs) to focus on business processes that integrate AI algorithms and human capabilities. These investments yield a clear impact on operating profit (as measured by earnings before interest and taxes, or EBIT). Companies with more than 15% of their digitally focused workforce dedicated to AI are significantly more likely to report earnings above 10%. (See Exhibit 4.)
In our work with bionic AI companies, we have observed a few common actions that yield positive results.
Being bionic is about putting the right technologies in place and maximizing human creativity to its fullest extent. This means shifting away from monotonous tasks and working in agile teams to design processes and customer journeys that are truly differentiating. Technology is essential to unleashing human creativity and exploiting opportunities.
Even before the current crisis, we expected the rise of bionic companies to occur across industries and to lead companies in new directions. But the imperative to become bionic is greater than ever. Companies focused on becoming bionic have a clear foundation on which they can transform, innovate, and win in the medium term.
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