Many companies do not realize the full value of investing in digital projects due to a lack of collaboration among their critical business functions, according to a new study by Accenture). The study found that 75% of executives said their departments compete rather than collaborate on digitization, which raises cost and eats up expected revenues gains.
The study titled “Together Makes Better” is based on publicly reported financial information as well as a survey of 1,550 senior executives across R&D, Engineering, Production and Supply Chain business functions from mostly manufacturing and industrial companies in February 2020.
While fielded before the extent of the COVID-19 pandemic was evident, the research points to trends and issues that the crisis and economic downturn will only exacerbate and provides insights on how to tackle them now, next and in the never normal.
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“As companies have grown, they have developed silos — centralized functions and divisions that often focus primarily on their internal needs and inhibit collaboration as a result,” said Nigel Stacey, managing director and global lead for Accenture Industry X.0. “Now that the crisis is speeding up digital transformation, this old ‘walled garden’ problem is rearing its head again. It isn’t just preventing companies from digitizing their businesses as a whole but putting them at risk of slower recovery and stunted growth.”
The cost of cross-function competition
For example, many companies have made redundant investments in certain technologies. This lack of collaboration and alignment across functions has already cost companies. For example:
Between 2017 and 2019, their investments in digital projects increased costs by almost 6%.
Companies had expected to add 11.3% to their annual revenues by digitizing functions yet achieved only an extra 6% on average.
Sixty-four percent aren’t seeing digital investments boosting their revenue growth at all.
“When business functions operate in silos while planning or executing digital projects, it stifles innovation and can cause a company to miss opportunities for growth and greater performance,” said Rachael Bartels, senior managing director and global lead for Function Networks and Programs at Accenture. “Leaders across industries are realizing that even without the added challenges of a global crisis, no company can afford a lack of collaboration within their enterprise or between their business functions.”
A small group of companies (22%) stands out by how it collaborates internally for higher value from digital. Between 2017 and 2019, these ‘Champions’ achieved significantly better financial results from digitizing their business functions:
They drove additional revenue with digital projects that was four times higher than what other companies achieved – 27.15 versus 6.6%.
They grew thirteen times more profitably by increasing their EBIT (earnings before interest and tax) by 27% versus 2.1% — even though they invested only 1.5 times more in digital projects.
An additional analysis after the start of the pandemic has shown that these Champions also weathered the current downturn better than their peers on average stock price performance. This strongly suggests that what these companies do differently increases their competitiveness amid the worsening economic climate. This includes:
Champions’ business strategies include execution plans for digital transformation across all functions. Every functional leader knows what’s at stake and is held accountable for it.
They are more likely to have a single C-suite executive responsible for overall digital transformation and digital success in each function (82% vs 66%).
They pick projects that bring people together and stimulate collaboration between functions, such as connected device management and digitization of engineering data.
Their digital solutions and platforms are interoperable. Champions are more likely to have their digital platforms work and communicate well together (71% vs 64%).
They have clear rules for how their information technology (which supports enterprise planning) and operating technology (which controls manufacturing and operations) should work together.
“Companies must sustain their digital transformation through the economic downturn,” said Raghav Narsalay, managing director and global research lead for Accenture Industry X.0. “This only works if they commit to cross-function collaboration. Like efficiency and productivity, it’s becoming a critical barometer for success and differentiation in difficult times.”