Can Digital Transformation pay itself off?

Show me the numbers, how fast can it pay itself off? That’s a common question from business leaders who demand tangible results from digital and AI transformations. Despite 89% of large companies globally undertaking these transformations, they have only achieved 31% of expected revenue gains and 25% of cost savings.

This track record raises critical questions: Is the digital effort worth it? Is it smarter to lead or follow in industry innovations? Can lasting competitive advantages be created, or are these just the costs of modern business?

Hard Evidence, Real Value

Evidence linking digital and AI transformations to improved financial performance is sparse. To address this, McKinsey analyzed data from 80 global banks from 2018 to 2022 tracking on metrics like digital/mobile adoption and digital sales. They identified 20 digital leaders and 20 laggards based on mobile adoption and digital sales metrics.

The findings are clear: Digital leaders create more shareholder value. From 2018 to 2022, leaders achieved an average annual total shareholder return of 8.1%, compared to 4.9% for laggards. Leaders also saw better returns on pre-tax tangible equity and managed expenses more effectively.

Creating Value That’s Hard to Copy

Digital leaders and laggards grow mobile app adoption at similar rates, but the gap in digital sales is widening. Leaders grew digital sales from 40% to 70%, while laggards grew from 8% to 17%. This is because leaders go beyond mobile apps to transform end-to-end processes, from origination to servicing, which is hard to replicate.

Leading digital banks use personalization analytics, omnichannel experiences, and automated decisioning to support customers and drive revenue growth. They reduce contact center staffing by improving self-servicing capabilities, unlike laggards who saw a 20% increase in staffing.

The Capabilities Needed to Outcompete

Successful digital transformations require comprehensive changes across customer journeys and core business processes, supported by six core capabilities:

1. Ambitious, focused transformation roadmaps.
2. A strong digital talent bench.
3. An operating model with small, cross-functional teams.
4. A distributed technology environment with modern software practices.
5. Data products and architecture enabling data-driven applications.
6. Change management ensuring digital solutions are adopted and scalable.

Research shows that digital leaders excel in all these areas, particularly in talent and operating models, leading to improved customer experiences and lower costs.

Conclusion

Digital and AI transformations can’t be special projects; they require organizational commitment to constant innovation. The effort is significant, but the rewards are substantial.