Executive Summary: Achieving Digital World Class excellence
In the face of economic challenges, companies are recognizing the value of resilience and agility. Research shows that Digital World Class organizations – those with top-quartile performance in business value and operational excellence measures – navigate uncertainty more adeptly. They excel in data utilization, efficient execution and talent attraction. These leaders operate 18% more cost-effectively, with 47% higher perceived value as business partners.
Their advantage stems from six dimensions:
- Technology: Automation mastery streamlines transactions and processes
- Data: Skilled analysis leads to more accurate forecasts and informed decisions
- Cloud: Agile architecture enhances performance
- Operations: Insourced work and partnerships yield tangible gains
- Processes: Streamlined ownership drives efficiency
- Talent: Investments yield skilled, aligned professionals
Proactive digital leadership propels companies toward Digital World Class success, positioning them for growth and efficiency amid uncertainty.
Digital leadership drives resilience
Multiple macroeconomic factors – including inflation, geopolitical unrest, supply chain challenges and workforce labor dynamics – have created unprecedented levels of uncertainty for technology leaders. Additionally, growing concerns about an economic slowdown have increased the focus on profitable growth. While controlling cost is always critical, we cannot underestimate the importance of agility. Companies that champion resilience are better able to absorb shock, navigate trials and accelerate past their peers.
Our research shows that resilience is closely tied to digital leadership. Digital World Class organizations – those with top-quartile performance in business value and operational excellence measures (see The Hackett Value Grid™) – are better at navigating uncertainty, risk and complexity than peers because they are more disciplined at maintaining strategic focus and more adaptive to rapidly changing circumstances.
Their edge over the competition lies in their ability to harness data more efficiently, provide swifter and superior insights, and use it to inform smarter decisions. They also execute more effectively, focusing on the things that matter most in times of uncertainty. These strengths are attractive to top talent, further positioning them to consistently attract the best minds in the industry.
Digital World Class technology organizations are more efficient, running at an 18% lower cost than peers – a $37 million advantage for a typical $10 billion enterprise – with 27% fewer full-time equivalent (FTE) staff and are 47% more likely to be perceived as a valued business partner within their organizations.
Why Digital World Class matters
Our analysis shows a strong correlation between Digital World Class and superior enterprise technology performance. When we compared companies with at least one business services function operating at a Digital World Class level with their industry median, we found a five-year average performance premium across several key financial metrics. While this advantage is not solely due to the presence of Digital World Class business services, these companies do tend to display greater innovation, and operational and commercial capabilities, in part because of their higher-caliber talent, analytical capabilities, and technology architecture.
The Hackett Value Grid™
The Hackett Group defines Digital World Class organizations as those that achieve top-quartile performance in business value (a composite of stakeholder experience, digital enablement and traditional effectiveness metrics) and operational excellence (a composite of efficiency and business process automation metrics).
Built on insights from over 25,000 benchmarking engagements, involving nearly 8,800 major global companies spanning various industries – including 97% of the Dow Jones Industrials, 93% of the Fortune 100, 73% of the DAX 40 and 52% of the FTSE 100 – the Hackett Value Grid is a useful compass for charting the course toward top-quartile performance.
By evaluating their own benchmarking results in the context of industry peers and top-tier performers, companies can gain a unique understanding of their competitive positioning and identify opportunities for growth.
Digital World Class widens the cost gap
The Hackett Group annually measures the gap in cost between Digital World Class technology functions and their peers. Over the past decade, top-quartile technology functions have developed and maintained a significant cost gap over peers. Even though their costs have risen marginally due to recent higher inflation, Digital World Class organizations recorded a cost advantage of 18% in 2023.
Elements of Digital World Class technology
Managing the portfolios of applications and services in the information technology (IT) environment has traditionally enabled top-performing technology organizations to continue to modernize the technology landscape, which explains why their outsourcing cost is 45% less than that of peers.
But they also invest in technology architecture modernization and emerging technologies – such as smart automation, advanced analytics and collaboration tools – that enable greater automation, further reducing labor cost. This investment shows when looking at the change in balance among labor, outsourcing, technology and other costs from 2022 to 2023. For Digital World Class organizations, IT cost per end user for outsourcing remained level in 2023, while it grew slightly for technology and labor.
The Digital World Class technology advantage
Beyond operating with an 18% cost and 27% FTE advantage, Digital World Class technology organizations excel across all facets of business value and operational excellence. Here are some highlights:
Elevated stature as a valued business partner
Advantages in application viability, talent management, and customer-centricity contribute directly to greater enterprise agility and resilience, so it’s not surprising that Digital World Class technology organizations are 47% more likely to be viewed as a valued business partner. They also deliver almost three times as many projects and features that meet return on investment targets. And 88% of Digital World Class technology organizations say their IT executives are always or often engaged in business strategy discussions and decisions, compared to only 73% for peers. That said, both Digital World Class technology organizations and peers have significant room to continue improving their stature as a business partner. Technology executives ranked this as a top 10 priority in our 2023 Key Issues Study.
Perception as a good place to work
While there isn’t a significant difference in manager experience between Digital World Class technology organizations and peers, managers at Digital World Class technology organizations do stay 50% longer than their counterparts at peer organizations. Digital World Class technology organizations also retain other professionals 75% longer.
When it comes to attrition, peers also have substantially higher voluntary turnover than their Digital World Class technology counterparts – three times more for managers and 2.3 times greater for other professionals. Because recruiting and retraining talent is expensive, higher retention manifests in lower cost and less disruption to operations. Digital World Class technology organizations have a 28% lower labor cost per end-user equivalent.
Better customer and employee experience via proper management of applications
Organizations with Digital World Class technology functions have reduced the complexity of the application landscape, with 62% fewer applications per end user. They also have a 31% higher rate of definition and adherence to application development standards. Both characteristics directly impact customer and employee experience. Hybrid internal/external support models are emerging to manage the wide diversity of applications. This affects experience but also cost. Digital World Class technology organizations have a 45% lower IT vendor management process cost per end user.
Courage and ability to embrace innovation for competitive advantage
Organizations with Digital World Class technology functions allocate 68% more technology spend to emerging technologies such as artificial intelligence (AI), workflow automation, chatbots and immersive experiences that enable greater self-service. This has broad implications across the business – not the least being the ability to realize the competitive, financial and other benefits of being digital. For example, these organizations have 80% more user processes enabled for self-service.
Digital World Class technology organizations get it done by focusing on six key dimensions
1. Technology enablement
Organizations with Digital World Class technology functions automate 49% more business transactions, and those that automate extensively gain benefits beyond eliminating mundane tasks. These organizations distribute 66% more IT business intelligence reports automatically or via self-service – improving speed and effectiveness of communication, as well as decision-making capabilities.
Digital World Class technology organizations are gradually shifting from internal to shared services for voice and data sourcing, with 31% higher utilization than peers in 2023. This shift adds flexibility of services, eases scaling up or down and reduces staff.
Top performers are addressing technology enablement by exploring opportunities to digitize processes that drive additional value such as AI enablement. Workloads across business functions are expected to grow more than budgets and head count, incenting alternative approaches to data management and applications. Leaders rely on technology to help fill the productivity and cost gaps.
2. Data and analytics
The heightened demand for faster and more accurate forecasts, need for faster customer response, and an expectation to do “anything from anywhere” is forcing organizations to rethink their existing data analytics approach and required tools. In our 2023 Key Issues Study, inconsistent data management across operational and financial reporting was the No. 3 internal challenge hindering growth. Optimizing data value and reskilling the team, therefore, are vital to the technology function’s value proposition.
Digital World Class technology organizations have a significant head start. They are 2.3 times more likely than peers to have a well-defined data architecture. They also have 17% greater master data management standards definition and adherence. Importantly, 83% of Digital World Class technology organizations have business management reporting using a data warehouse as the primary source versus 60% of peers. Enterprise data management and analytics can be expensive, but Digital World Class technology organizations’ data center facilities and floor space costs per end user are 42% lower than peers. They do this by reducing the need for data storage by optimizing the application portfolio and moving workloads to the cloud as appropriate.
3. Modern cloud architecture
In the Digital World Class technology transformation, legacy systems integrate or retire, new tech is adopted, apps move to the cloud and data is integrated. Effective management of modern architecture is crucial to simplify complexity. Key to this is utilizing cloud services. According to The Hackett Group’s 2023 Key Issues Study, nearly one-quarter (23%) of respondents expect their organization to be 100% in the cloud by 2025. That’s a significant increase from the 7% of companies that run completely in the cloud today.
Modernizing architecture design and managing it effectively are critical for simplifying the complexity and is reflected in Digital World Class technology organizations spending 12% more of their total technology costs than peers for software versus hardware, telecom and depreciation. Digital World Class technology organizations also invest 45% more than peers in SaaS as a percentage of total software cost
4. Operating model evolution
As digital operations mature, business services must reimagine, redesign and evolve their operating model. The future success of the operating model hinges on decisions regarding the scope, method and placement of work. This involves tapping into the strengths of centers of excellence, customer-facing business units, the role of global business services (GBS) and strategic partnerships.
The pandemic and recent economic challenges have led to a major rethink of where work can be done. In The Hackett Group’s 2023 Key Issues Study, 13% of technology executives outsource most of the support for their business applications, so there is opportunity for growth. Trends are also driving renewed interest in GBS and shared services strategies, which can deliver tangible cost, productivity, quality and customer service benefits.
5. End-to-end process design and ownership
The rapid pace of transformation and deployment of new capabilities underscores the importance of end-to-end process design and ownership within technology. The Hackett Group’s 2023 Key Issues Study identified a lack of process coordination across departments as the No. 6 impediment to growth. Dedicated global process owners oversee and govern the process, data, and technology capabilities from start to finish and, therefore, can spot bottlenecks and make changes more easily. Digital World Class technology organizations are ahead of peers in this regard, with 95% of Digital World Class technology organizations adopting and adhering to common definitions in the product and system life cycle, compared to 79% of peers.
Another critical aspect of process ownership is developing and assuming accountability for service-level agreements. Digital World Class technology organizations do much better than peers – they are 4.8 times more likely to have formal internal service-level agreements for IT vendors and suppliers.
6. Talent management
Retaining talent and skills is among technology executives’ top 10 priorities for 2023, yet their confidence to deliver is low, with 54% unable to fill some critical roles, and only 12% have an enterprise program planned to help find the right talent.
The technology talent profile is rapidly shifting to brokered infrastructure management, iterative development, relationship-based partnering and IT strategy. Skills and roles must be refreshed accordingly. Attracting, retaining and upskilling talent to drive digital transformation initiatives are key to unlocking the expected value.
If technology organizations want to ensure the talent necessary to achieve Digital World Class performance, they must invest – urgently – in making sure professionals have the right skills, experience and motivations for their evolving roles.
An action plan for achieving Digital World Class
With so much uncertainty all around us, this is the time to be proactive and accelerate digital leadership. Companies that forge ahead with confidence will be best positioned to accelerate growth, gain market share and – yes – run more efficiently. Here’s how:
Are you ready to close the gap to Digital World Class technology performance?
Backed by our unparalleled benchmarking data and best practices repository, as well as experience across the full transformation life cycle, The Hackett Group is ready to support:
- Performance benchmarking and best practices
- Digital transformation strategy, smart automation and analytics
- Technology organization and global business services delivery model design, implementation, and optimization
- Talent management, skills and competencies, role definition, and career pathing
- Enterprise performance management and analytics
- Technology road map, cloud migration and modern architecture
- Master data management and architecture
- Transformation management office, change management and communications implementation
- Sales, general and administrative cost optimization
Contact The Hackett Group to start your journey toward Digital World Class success.