Lionel Aré is the global leader in charge of development and deployment of The Boston Consulting Group’s Digital BCG offer. BCG recently opened its first digital immersion center in Paris to help clients deliver their digital transformation. Aré, who joined BCG in 1992, previously led the firm’s global financial institutions practice and launched the financial services digital center. His areas of expertise includes distribution of financial services, digital and analytics and large-scale transformation. Prior to joining BCG he worked as a research engineer for France Telecom’s Research Center. He recently spoke to the Innovator about how he thinks companies should approach digital transformation.
Q: How does BCG work with companies undergoing digital transformation?
LA: BCG works across all sectors with the world’s largest companies. For example, in France 60% of the CAC 40 are our clients and with the Fortune 500 it is about the same. When it comes to the maturity of digital transformation we have built a digital acceleration index that we use for measuring this. This tool helps us to access the digital maturity of the company on an absolute scale from 0 to 100. There is variation from one sector to another. It is no surprise that tech companies and some of the financial service companies are more advanced and companies in other sectors are less mature.
Q: Are European companies’ efforts on digital transformation behind those of American and Asian companies?
LA: There is a lot of variation from sector to sector and even more from one company to another within a sector. Compared to Europe, North American companies are slightly more advanced but the difference is not striking, it is very close.
Q: Although many traditional companies have made digital part of their offer it appears that many have not yet have changed their core. Where are most companies on their trajectory?
LA: It is true that most companies have not transformed their core. There are three broad phases in digital transformation. Roughly 20% of companies are what we call leaders — companies that have made substantial progress but have not yet 100% managed to really transform. About 25% are beginners, still in the experimentation mode. More than a half are still in the middle of the journey. They have moved beyond pilots and testing but they are struggling with lots of initiatives in many different directions. The big questions for them are ‘What am I spending? What is the benefit? And how will this contribute to my P&L?’
Q: What, in your view, are the key things that companies should do to successfully achieve their digital transformation?
LA: We identify four types of enablers. One is around people : new ways of working, agile mode, organizations, new talents. The second one is tech infrastructure. The third one is data management, making sure you make data a priority throughout the company and the fourth one is leveraging the ecosystem or what is called open innovation, i.e. externalizing the R &D development risk. In addition to your own teams you try to figure out the interesting things happening outside of the company. Many advanced large groups are already working with the ecosystem through internal accelerators, or corporate venture approaches, but most are still struggling to leverage that investment.
Q: Isn’t it true that few corporates have perfected how to bring in innovation from the outside?
LA: Startups have no idea how large corporates work and vice-versa so figuring out the best way to make that relationship work is actually really difficult. When you have a smart idea somewhere, the easiest part is to find that technology. The tough part is then implementing it and making it function within the whole way of working of a large group. Very few have succeeded in doing this.
Q: What do you see as some of the other key challenges?
LA: One large client in Asia recently asked us ‘we know how thing are changing, we know where we are but we would like to know what the end-game will look like.’ In the automotive sector, for instance, where so many things are happening at the same time, it is hard to say what an ideal, well-performing business will look like or what the business model will be 15 or 20 years from now. It is not only the depth of change — that can vary from industry to industry — but also the breadth of its application to all parts of your activity : your relationship with your customers,the way your employees work…. All processes can be digitalized and AI leveraged and so there are new ways of doing HR, financials and procurement. And then there is the underlying technology, which raises complex questions like cloud migration. Digital transformation is affecting everything so when the whole company is doing a lot of things and you need to deliver the next quarter, the difficulty is deciding in which area to invest? Where are the priorities? And what is the big thing that I really want to deliver at the end?
Q: What is your best advice?
LA: First a company has to tackle the question of strategy. The business model comes first. How will my strategy be impacted by digital? The second thing is take a look at all potential initiatives and make sure to focus on a few core things. Too many digital initiatives are not going to deliver impact. Pick a few areas, the few initiatives where you can see the massive impact on the company and in parallel, work on the enablers such as new agile ways of working and putting the right technology and data management in place. Don’t wait to have a complete view of the plan and payback but make sure you focus on flagship initiatives.
Companies are under a lot of pressure to undergo digital transformation. A lot of companies have entered in the transformation process with scattered resources. They create a data lab with a lot of smart people and try to figure out how they can help;and in the end it does not happen. Others pick a startup or startups from the outside, but in many situations they are confronted with exactly the same issues: people come up with a solution and then go looking for a problem and nobody takes care of the implementation. The CEO has so many teams coming and presenting digital solutions to specific problems but none of these things ever get implemented. So, we are back to the notion of how you manage the transformation. If the CEO is in control and is proactively driving some key changes, you can measure that. Set the priorities that are important and need investment at group level and then ask for reporting on what is going on with those specific projects, not on everything the company is doing in digital.
The other issue at stake is that customer relationships are more important than ever for all types of businesses. Any worldwide company that is not in direct contact with their end customers needs to re-establish that link, so that they know who their customers are and what they do. It is increasingly important to be good at managing your pool of end customers through the use of the data sets it is now possible to collect.
Many of the platform plays are going in that direction. The customer data helps them find out more about their current business and know where there are adjacencies that will help them with the transformation of their businesses. Businesses need to reinvent themselves because it may be that their core business model is no longer valid. We think all companies should be looking at it. This does not mean that all businesses should become pure platforms. We’ll see very different constructs sector by sector, but all connected through data and consumers. It is not about strategic thinking, it is about building. We will certainly see more and more true platforms but all companies should at least be working on a hybrid model that will give them a competitive advantage in their core, but at the same time be building relevant adjacent businesses. All companies should be pushing hard to go relatively far from their core. All companies need to build these ecosystems or platforms and they need to start now. These businesses will be small at the beginning but might be the future of the company at some point. We really think all companies should do this.
