Digital Incumbents Leverage Technology to Outperform Peers

A new cadre of companies—traditional businesses that are successfully executing digital transformations—are outperforming their peers and shaping up to compete with digital natives. These digital incumbents make up about 30 percent of the S&P Global 1200 Index and outperformed the index by about 50 percent over the three years ending December 31, 2021.

Meanwhile, legacy incumbents—traditional companies that have yet to deliver a successful digital transformation—struggled to drive growth and improve productivity using predominantly traditional levers. They constitute about two-thirds of the S&P 1200, underperformed the index, and risk becoming uncompetitive.

These are among the findings of a new article published by Boston Consulting Group (BCG), titled “The Rise of the Digital Incumbent.” The article describes a new hierarchy for business.

It highlights the different digital dynamics in four types of companies: legacy incumbents, digital incumbents, digital natives (companies founded in the digital era), and “hyperscalers,” the top dozen or so digital natives whose platforms, infrastructure, and data scale with enormous breadth and depth, thus conferring significant structural advantages.

“The paradigm is no longer simply, ‘digital natives will destroy incumbents’,” says Romain de Laubier, a BCG managing director and partner and a co-author of the article.

Digital incumbents in traditional industries are joining digital natives and digital hyperscalers in the congregation of companies that have the capabilities to disrupt existing business models and deliver innovation and revenue growth.

The article asserts that the successful companies of the future will build the necessary digital capabilities—both human and technological—to become what BCG calls bionic. Along the way, they will deliver superior innovation and performance.

ALSO READ: Mobile Loan Lenders Barred from Threatening Defaulters Under New Regulation

In the survey, over 950 senior leaders from all the different types of companies were asked to describe where they are on their digital or bionic journeys and to self-score their digital capabilities. They identified the following five attributes that best define any company’s progress toward the bionic target state:

• Leadership with a purposeful digital strategy
• A culture that promotes innovation
• An agile operating model
• The ability to attract, retain, and develop world-class digital talent
• Open-architecture technology and data platforms

According to Katie Hill, Expert Partner Boston Consulting Group, digital incumbents enjoy multiple advantages. They outperform their less digital competitors, delivering more value to shareholders, customers, employees, and partners.

“Digital capabilities build resilience—the ability to adapt to adversity and changing market conditions. Achieving true bionic capacity—the point where human and technological capabilities combine to perform at a level that neither can achieve independently—requires a strong foundation of digital proficiency,” said Ms. Hill.

She added that there’s also a flip side: incumbents who can’t transform will find themselves under expanding attack, and growth will be increasingly elusive.”

The report’s authors note that legacy incumbents are being left behind and need to act urgently to reapply themselves, implementing the digital reengineering that will give them the digital capabilities they need to compete for growth.

A copy of the report can be downloaded here.