6th annual Digital IQ survey: The five behaviors that accelerate value from digital investments

Today, all roads lead to digital. From business strategy to execution, digital technology has become the foundation for everything we do. Nearly every organization lays claim to being a digital enterprise, but as our study revealed, only a minority are truly there. How do we define “digital”? We think about it in terms of a company’s acumen at understanding, valuing, and weaving technology throughout the enterprise — what we call their Digital IQ. And this has been the focus of our research for more than five years.

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6th annual Digital IQ survey The five behaviors that accelerate value from digital investments

Contacts

Boston John Sviokla Head of Global Thought Leadership +1-617-530-5359 [email protected] Chicago Mike Cooke Partner +1-312-578-4639 [email protected] Dallas Chris Curran Principal and Chief Technologist +1-214-754-5055 [email protected] New York Christopher A. H. Vollmer Partner +1-212-551-6794 [email protected] Philadelphia Tom DeGarmo Principal and Technology Consulting Leader +1-267-330-2658 [email protected]

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Executive summary

See the full Digital IQ report and analysis from our survey of nearly 1,500 global business and IT executives at www.pwc. com/us/digitaliq

Today, all roads lead to digital. From business strategy to execution, digital technology has become the foundation for everything we do. Nearly every organization lays claim to being a digital enterprise, but as our study revealed, only a minority are truly there. How do we define “digital”? We think about it in terms of a company’s acumen at understanding, valuing, and weaving technology throughout the enterprise — what we call their Digital IQ. And this has been the focus of our research for more than five years. Our Digital IQ survey is unique. It is the only one we know of that analyzes perspectives of both business and IT executives — almost 1,500 in all — and ties them to the business value of digital technology investments and behaviors. We see the Digital IQ as a proxy for measuring how well you can generate value from your virtual value chain, the information description of your entire business. At the most basic level, the virtual value chain provides better visibility into your business activities, while more mature organizations will use their virtual value chain to mirror their physical one, such as digital delivery of products to their customer base. And then there is the Holy Grail for many companies: exploiting their virtual value chain to alter business models and capture new markets.

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Digital’s undeniable role in 2014 makes this year’s survey even more relevant than in the prior years we have fielded it. We have identified the five corporate behaviors that make for a high Digital IQ. These five behaviors are what give companies the edge, enabling them to maximize their use of digital technology across the business and position them for better performance. Those businesses in our study that have a strong Digital IQ, the byproduct of leveraging these five interlocking behaviors, were 2.2 times more likely to be top performers in revenue growth, profitability, and innovation.1

The 5 interdependent digital behaviors that make a difference

CEO actively champions digital
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+ + _

View digital as an enterprise capability

Digital IQ
Strong CIO-CMO relationship

Businesses that leverage the five interlocking Digital IQ behaviors are 2.2 times more likely to be top performers.

Significant New IT Platform investments

Outside-in approach to digital innovation

Source: PwC, 6th Annual Digital IQ Survey, 2014

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Raising your Digital IQ Just how important is your Digital IQ? Consider the sizable investment your organization is making in digital technology. Gartner forecasts that the worldwide dollar-valued IT spending forecast will grow 3.1% in 2014, reaching $3.8 trillion.2 That’s the equivalent of more than 5% of the forecasted gross world product of 75 trillion.3 Understanding what it takes to extract real value from that investment could very well position your business to outrun the competition. And given that just 20% of the companies in our study had a very strong Digital IQ, your prospects may be even better.
Digital IQ distribution by region and industry Digital IQ by region and industry Digital IQ distribution by region and industry Business and IT leaders in North America are more confident about their digital Business and their IT in America are about their digital acumen than counterparts in other regions. Business and IT leaders leaders in North North America aremore moreconfident confident about their digital acumen than their counterparts in other regions. acumen than their counterparts in other regions. Europe Europe North America North America 63% 63% 77% Asia 77% Asia

63% 63%
Africa Africa Latin America Latin America

20% of companies in our study had a very strong Digital IQ.

47% 47%

36% 36%
Surprisingly, customer-facing industries varied widely when it came to rating Surprisingly, customer-facing industries varied widely when came rating Surprisingly, customer-facing industries varied widely when it it came toto rating themselves as having a strong Digital IQ, placing in the middle and back of the pack. in the middle and back ofof the pack. themselves as as having having a a strong strongDigital DigitalIQ, IQ,placing placing in the middle and back the pack.
100% 100% %% of of respondents respondents 80% 80% 60% 60% 40% 40% 20% 20% 0% 0%
Retail & Consumer Retail & Consumer Industrial Products Industrial Products Power & Utilities Power & Utilities Energy & Mining& Energy Mining Automotive Healthcare Business & Hospitality & Leisure Automotive Healthcare Professional Business & Hospitality Services Professional & Leisure Services Financial Services Financial Services Entertain- Technology ment, EntertainTechnology Media, ment, & CommuniMedia, & cations Communications

87% 87% 59% 59% 62% 62% 65% 65% 66% 66% 68% 68% 69% 69% 71% 71%

46% 46%

53% 53%

55% 55%

Q. Please rate organization’s Digitalas IQ, defined as how well companies Q. Please rate youryour organization’s Digital IQ, defined how well companies understand the value of Q. Please rate your organization’s Digital defined as how well companies understand the value of technology and weave it into the fabric ofIQ, their organization understand the value of technology and weave it into the fabric of their organization.
technology and weave it into the fabric of their organization Respondents who stated “strong” or “very strong” Respondents Base: 1,494 who stated “strong” or “very strong” Respondents stated “strong” or “very strong” Base: 1,494 Source: PwC, 6th who Annual Digital IQ Survey, 2014 Source: 1,494 PwC, 6th Annual Digital IQ Survey, 2014 Base:

Source: PwC, 6th Annual Digital IQ Survey, 2014

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Below we’ve highlighted the five Digital IQ behaviors, top findings, and what companies can do to begin developing the behaviors. In our full Digital IQ report, we analyze what makes up each of the behaviors, share insights from the nearly 1,500 executives (split equally among business and IT executives) we surveyed, and outline what it takes to become a high-performing digital enterprise. Behavior 1: CEO actively champions digital CEOs tell us that technology will have the biggest impact on their businesses in the next three to five years. That requires a leader who doesn’t delegate digital or view it as a separate strategy. A digital CEO sets and steers the company’s digital vision and tackles the inevitable challenges that come with new ways of doing business. This means developing a digital strategy that considers everything the business does — its growth and cost goals, products and services, partnerships, marketing and customer engagement, talent acquisition and retention, operations, and more. For every strategic question, the CEO must challenge: What are the digital opportunities here? Does digital introduce new challenges? Behavior 2: Strong CIO-CMO relationship The CIO-CMO relationship is so important because a great many digital technology initiatives are driven by marketing needs. Organizations must develop a digital operating model to remove any room for interpretation when it comes to responsibilities for market-facing digital technology like consumer apps, websites, or customer analytics. Get explicit agreement between the CIO and CMO on who owns the initiatives, the role each leader will take on, and when and how they are expected to work together. Behavior 3: Outside-in approach to digital innovation Global CEOs ranked product and service innovation as their top strategy for growth, over increasing market share, entering new geographic markets, M&A, or joint ventures and strategic alliances.4 Yet most businesses don’t cast a wide enough net in their pursuit. Organizations must develop an outside-in learning pipeline. Determine whose job it is to manage outside-in digital exploration — for example, product development, the strategy group, or your IT organization. Those in this role will be responsible for seeking out and sharing new ideas and applications for emerging technology from sources outside the company, such as universities, labs, complementary businesses, and vendors.
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81% of top performers say their CEO is an active champion in the use of IT to achieve business strategy, compared with 68% of other companies.

Behavior 4: Significant New IT Platform investments A company’s IT capabilities and infrastructure face crushing pressure from every direction to meet the daunting demands of the digital age. To address these demands, we believe an integration approach is required — what we call the New IT Platform. This entails designing an IT strategy and enterprise architecture that considers the increased demands of new and emerging digital channels, your mobile workforce and partners, third-party data, new analytics requirements, and cloudbased business and technology services. Define the IT organization’s role in planning, designing, sourcing, executing, and operating the New IT Platform. Determine and fill organizational skill gaps to realize and capitalize on the new platform. Behavior 5: View digital as an enterprise capability Companies must begin broadening how they think about their digitally savvy resources, realizing that it is becoming essential to have a digital capability that is woven throughout the business rather than only centralized in a single function and hidden in the shadows throughout the business. Doing this effectively requires developing a single view of the digital skills required to meet business goals. This is in contrast to how many organizations approach the situation today, considering only the digital skills needed in a specific function, like sales or product development. It also calls for creating a common talent framework to manage and develop those in digital roles, regardless of where they reside in the organization. The framework also enables the organization to identify gaps or overlaps in its skills inventory.

Data mining and analysis, private cloud, mobile customer technology, externally focused social media, and cybersecurity were ranked as the top five most important strategic technologies.

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About the Digital IQ survey PwC’s 6th Annual Digital IQ Survey was conducted in the fall of 2013. The global survey included 1,494 respondents from 36 countries. Answers were aggregated into five regions and 11 industries. Respondents were evenly divided between IT and business leaders. Two-thirds of respondents work in organizations with revenues of $1 billion or greater and 37% have revenues greater than $5 billion.

Global survey respondent breakdown
Percent of respondents region Percent of respondents by by region

Global survey respondent breakdown
Europe North America 33% Africa 3% Latin America 13%
Source: PwC, 6th Annual Digital IQ Survey, 2014

31% Asia 20%

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Endnotes

Top-performing companies are those in the top quartile for revenue growth, profitability, and innovation.
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Forecast Alert: IT Spending, Worldwide, 4Q13 Update, December 7, 2013. International Monetary Fund/Haver Analytics. PwC, 17th Annual Global CEO Survey, 2014.

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