Becoming a Digicorp Requires Leaps of Faith

Not every organization has had the good fortune to be born in the cloud.

So many others have a different heritage. Established and well-loved brands they may be, but the relentless change in the business environment in recent years — so much of it digitally driven — has consigned many of these organizations to the dustbin of history.

Others continue to exist, and some thrive. But almost all of them have had to come to terms with the new paradigms of digital business. 

For these organizations, there is another layer of difficulty. 

Not only have they had to come to terms with re-architecting so much of what they do, but they’ve had to do that while keeping the lights on by operating legacy systems. At the same time, digital and cloud-native businesses are springing up to challenge them without being saddled with so much historical baggage.

A Gartner study examined this intriguing issue of digital transformation by traditional businesses. In the paper ‘What Proportion of Traditional Companies Have Truly Become Digital Businesses?’, the research house calculates that approximately 7% of originally traditional businesses have crossed the “digicorp definition threshold.” 

It takes big ambitions

Gartner defines a “digicorp” as a traditional industry company outside the tech sector that derives at least a third of its revenue from digital products and services through digital channels.

Analyzing responses from 276 organizations, none of them tech companies, the research found that 52% remained in the first stage, mostly analog but with some digital. Another 30% were in a transition phase towards becoming a digicorp. 11% of the companies in the sample are digitally-native businesses

One example of a traditional business in transition is the Walt Disney Company, which once made its money from celluloid movies distributed to theaters. Today, it delivers an increasing percentage of its content to consumers over the internet through its Disney+ subscription streaming service. 

“True transformers will keep shifting away from traditional revenue toward digital revenue until an unstoppable transition point is reached”

With subscriber numbers closing in on 200 million worldwide, Gartner estimates that the company’s digitally-sourced revenue stream could soon reach that 30% threshold, classifying it as a digicorp.

Another example is General Motors, perhaps one of the oldest and most traditional companies still in existence but one with big digital ambitions.

GM appointed its first digital officer last year and told investors it wants to double annual revenue by the end of the decade. It aims to achieve this by focusing on electric and autonomous vehicles, software, and services.  

The company anticipates software and services will deliver USD20-25 billion in annual revenue by the end of the decade, driven by a projected 30 million connected vehicles on the road. 

Key to that expansion will be a software platform called Ultifi, which is expected to appear in some vehicles in 2023. It will deliver over-the-air updates and enable various apps and services, from safety features and weather apps to potentially using facial recognition to start the car.

At European rival Volkswagen, the development of a Group-wide platform and digital services for the "Volkswagen We" ecosystem is being accelerated. Volkswagen plans to invest EUR3.5 billion in digitization by 2025, making the car the central hub of the Internet of Things.

Time to go all in

Gartner observes that “true transformers will keep shifting away from traditional revenue toward digital revenue until an unstoppable transition point is reached.”

The two car companies are examples of Gartner’s recommended action plan: “that executive leaders pursuing true digital business transformation of their enterprises should ensure there is an ambitious target and clear galvanizing metric.”

“The transformation goal must be set as a large and material percentage shift from traditional business to that new mode,” the Gartner study added.

One problem is that although many companies are making progress, there is discord at executive and board levels because results and beliefs “do not match up.”

Even in companies where digital revenue is growing, boards and investors are yet to acknowledge “digital core competency.”

“This matters because it can stall further progress and keep digital business in a minority position,” Gartner says.

“For example, imagine a retail bank where older board members only recognize branch banking as ‘real’ banking.”

It is a case of walking the walk and talking the talk. 

“High digital product revenue and understanding that it is a core competency are both necessary if a company’s business is truly digitally transformed,’ Gartner says.

“CIOs and executive leaders should diagnose with their CEO why digital business progress results and board or investor belief are mismatched.”

Much of this mismatch is generational. The boards of many large and traditional companies are dominated by older men who, while they might give lip service to the idea of digital business, are likely to rely on their millennial children at home to set up their computers and their phones.

Within a decade, many of these people will be enjoying retirement. 

Perhaps then, when the digital natives take over the boardrooms, we will see the complete digitization of the traditional businesses that survived the transformation of the digital age. 

Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and the NextGenConnectivity editor. He remains fascinated with how businesses reinvent themselves through digital technology to solve existing issues and change their entire business models. You can reach him at [email protected].

Image credit: iStockphoto/eelnosiva