Key Learnings for Companies in China from the 2021 State of Digital Transformation
New ideas matter. Our research shows Chinese firms invest in digital primarily to drive innovation.
Altimeter, a Prophet company, recently launched the latest edition of its flagship report, the 2021 State of Digital Transformation. The report was compiled from the results of a survey of 587 executives from the U.S., Europe and China, across a range of industries, to uncover current digital capabilities, key investments and decisions made to advance transformation in each business.
What can companies in China take away from the findings? In this article, we included key learnings about the state of digital transformation among Chinese companies and compared them with global “high performers” as a way to inform a path forward for the next wave of digital transformation.
An Aggressive Focus on Innovation as the Top Reason for Digital Transformation
Globally, innovation was among the top reasons for investing in digital transformation, alongside core business growth and operating cost reduction. High-performing companies were more likely to cite “core business growth” as their top goal (57%), compared to average performers, who were far more focused on reducing operating costs and updating technology.
Figure 1: What were the top reasons for your company’s investment in digital transformation?
Chinese companies have a more offensive mindset toward digital transformation, as we see an even higher focus on innovation for new products, services or business models (66%) compared to the rest of the world (48%). Moreover, China’s highly competitive and dynamic market landscape has driven companies to put a greater emphasis on competing with newer businesses and products in the market (46% of Chinese companies compared to 33% of companies in other countries).
In contrast, fewer Chinese companies are investing in digital transformation to replace outdated or obsolete technology (18% of Chinese businesses compared to 41% of other businesses around the world), as they are less likely to have legacy issues when it comes to internal technology.
An Incubated Transformation Approach Versus a Holistic Approach
The great majority of studied companies (68% of businesses in other countries) already orchestrated digital transformation programs as a single coordinated effort that simultaneously spanned many departments or functions.
Figure 2: Which approach best describes how your company implemented (or is currently implementing) its digital transformation program?
Chinese companies approach digital transformation differently. More companies use an “incubated” approach (50% of Chinese companies compared to 15% of companies in other countries) – meaning their digital transformation starts at one department or function at a time and has yet to become an enterprise-wide agenda.
This is not entirely surprising, because when Chinese companies start their digital transformation, they often focus predominantly on consumer-facing touchpoints such as e-commerce and digital marketing. And many of their efforts are working with the ecosystems of tech giants, e.g., Alibaba, Tencent and Baidu. Being able to leverage these established ecosystems is both a benefit and a risk. While it enables companies to jumpstart their digital transformation journey, it also often creates inertia of a broader enterprise-wide transformation.
“Chinese companies have a more offensive mindset toward digital transformation, as we see an even higher focus on innovation for new products, services or business models.”
Learning from global high performers, leaders at Chinese companies need to seize the opportunity of adopting a “holistic” approach to innovate and grow better. It takes bold moves, but the payoff will also be enormous. For instance, Anta Group has undertaken digital transformation across consumer insights, product R&D, logistics and online/offline channel operations, enabling it to outperform Nike for the first time in the recent 11/11 sales season.
Transformations Led by the CEO Are More Successful
In China, more companies consider digital transformation as a top strategic priority by executive leadership (44% of Chinese companies compared to 27% of companies in other countries). Executives also connect digital transformation to higher business strategy objectives to create a strong mandate for the efforts.
However, given the orientation to an “incubated” approach, about half of the Chinese companies (46%) indicate their digital transformation activities are led by CIO/CTOs, and 14% chose CMOs compared to only 3% in companies of other countries. This demonstrates that technology prowess and marketing competencies are viewed as key pillars for digital transformation in China. However, these companies still lack a top-down vision and purpose that drive their digital transformation agenda, which can only be led by the CEO.
Figure 3: Which executive officially owns or sponsors the digital transformation initiative?
Our global data has shown that companies with successful digital transformations were much more likely to have their transformation led by the CEO (34%). The CEO (supported by a forward-thinking board of directors) can devote resources and oversee a holistic transformation, rather than letting functional roles such as a CIO, CTO or a CMO drive it. These executives, while individually empowered, will always be limited to the transformation of their own departments, and not as well equipped to deal with the converged transformations between departments and functions that are increasingly the norm.
Leaning from what global high performers have achieved, Chinese companies need to drive more convergence between sales, marketing and service goals. Although Chinese companies have a much higher focus on digitalizing their businesses through e-commerce, many haven’t integrated sales, marketing and service for their overall online and offline businesses. If CMOs continue to be tasked to drive digital transformation initiatives, we believe that the role of CMO should be broadened.
Emphasis Needed on Both CX (Consumer Experience) and EX (Employee Experience)
When asked about their priorities in digital transformation, companies in China prioritize business model and market value proposition update (42%), customer experience (36%), processes and efficiency (34%), modernizing IT infrastructure (32%) as well as external and ecosystem partnerships (30%). However, they are investing less on improving the employee experience in comparison (20% of Chinese companies compared to 32% of companies of other countries).
Figure 4: Which of the following initiatives did you prioritize first for your digital transformation program?
This gap is widening as COVID-19 created a stronger urgency for companies around the world to accelerate EX improvement., except for Chinese businesses, which have largely returned to normal since May 2020.
We’ve also found that across the world, high performers were more likely to have invested in improving both CX and EX as priority initiatives, a consistent hallmark of successful companies in our study. It highlights how top performers are using transformation to serve their most important people, rather than simply modernizing for the sake of keeping up. Chinese companies need to catch up.
However, there could be a silver lining, as a reckoning is happening on work culture, as the younger generation in China pays increasing attention to work-life balance, purpose and sense of belonging at work. Leading Chinese companies should start to focus more on EX when investing in digital transformation.
Based on our findings, we recommend that companies should invest in the following areas, regardless of their levels of maturity in order to thrive in the next phase of digital transformation:
- Transform with clarity: Transformation for the sake of transformation doesn’t work. What we found instead, was that transformation with clarity is much more likely to succeed. Given the competitive market landscape, Chinese companies have focused much on speed. It is time to begin with the destination in mind, and focus instead on driving profitable growth with a forward-thinking transformation roadmap in place.
- Prioritize both EX and CX: Chinese companies focus much more on market-facing digital initiatives and consumer centricity. However, learning from global high performers, there is a consistent theme of investing in both CX and EX to power better growth. This trend has only been accelerated by COVID-19.
- Drive convergence and reframe CMO role: Digital transformation is far beyond technology, digital marketing and e-commerce. Chinese companies should drive stronger convergence across customer-facing functions such as sales, marketing and services, as well as supporting mechanisms such as product R&D and logistics. When the CMO is charged to lead the digital transformation agenda, their role should be reframed and needs to have a strong transformation mandate from the CEO.
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