It has always been challenging to achieve success with digital transformations. It takes great expertise, effort, and strategy to do so. The challenge has only gotten worse over the last two years as businesses' embrace of digital technologies increased noticeably. Organizations are currently under even more pressure to make important business choices faster and in areas of the business where they may have little or no prior experience with digital technology or transformations.

The most recent McKinsey survey on digital strategy and investments asked business leaders about the evolution of these challenges, the role of digital technology in their businesses, and companies' strategic responses. While some of the barriers to successful digital transformation are well known, Nine out of 10 C-level and senior leaders claim that their companies have pursued at least one significant digital transformation within the past two years. The "top economic performers" employees are significantly more likely than their counterparts to report value from these efforts. However, many other respondents claim their organizations have yet to see the impact on revenue or expenses they had anticipated.

What distinguishes the top-performing businesses from the rest, one would wonder? While many of the traditional challenges to digital transformation still exist, new factors have emerged as being essential for doing so now and in the future:

Bolder digital strategies have a higher chance of success than more incremental ones, and the use of digital technology to build strategic distinction on customer engagement and innovation rather than cost reductions.

Creating proprietary assets, such as software, data, and artificial intelligence, rather than relying on commercially available tools.

Focusing on attracting and developing tech-savvy leaders and improving the overall integration of tech personnel into the business rather than simply bringing in new tech people.

Capturing and retaining the benefits of digital transformation

Although organizations have undergone a significant technological transformation in the past two years, the survey's results indicate that they have reaped substantially less of the benefits that respondents had anticipated. Top economic performers, however, outperform others greatly. Compared to a median of 31% reported by all respondents, top performers report capturing a median of 50% of the entire revenue gains that their recent changes could have achieved—and 40% of the maximum cost benefit, compared to 25% reported by all respondents.

There is a similar discrepancy in maintaining the advantages of a digital transformation. The top economic performers score far better than the others, although fewer respondents claim that their businesses have maintained financial and operational gains over time. This holds true for the three digital transformations covered in the survey: creating new digital businesses, strategically integrating digital technology into the core business, and modernizing the core firm's technology to maintain competitiveness. The hardest of the three is starting a new business: In line with past research on business development, 70% of respondents whose organizations developed a new business report that they could only partially maintain their financial and operational goals.

However, the survey results imply that many enterprises are creating new digital businesses with motives other than purely financial ones, which would account for why a new business has a lower likelihood of success than a core business. For instance, only one-third of respondents indicated that their companies were developing new digital businesses to offer fresh revenue streams. One in five respondents report that their organizations are doing this to incubate new digital capabilities for the organization. At the same time, a roughly equal percentage say they are doing this to establish a presence in strategically important markets or industries.

The findings also imply that businesses with higher expectations for digital technology typically experience better results than other businesses. When redesigning their core company using digital technology, they are nearly twice as likely to say so than their counterparts, making them more likely to believe they have effectively sustained the benefits of their digital investments. This demonstrates that less ambitious or incrementally changing digital transformations don't produce the same economic success as more daring ones.

What is the secret of top performers' digital transformation success?

The survey results demonstrate that the top-performing companies outperform others financially and in terms of establishing and maintaining success from digital transformations. But what specifically are they doing differently to overcome the odds?

Ambitious customer engagement and innovation strategies

The top economic performers are concentrating on customer engagement and innovation methods to set their business plans apart from rivals. They also tend to concentrate less on operational efficiency than their counterparts.

Organizations that are turning to technology to gain a competitive advantage over rivals share a similar focus on customer engagement and innovation, and related results imply that this is an objective that is growing more widespread. According to earlier studies, fewer companies did this (outside the high-tech industry). Currently, more than one-third of all respondents state that technology will play a significant differentiating role in their companies' strategies.

Respondents at top-performing organizations also state bolder strategic goals and larger bets on technology than others. For instance, compared to peers, they intend to invest twice as much of their overall digital and IT budgets in developing new digital businesses.

Proprietary assets

A company has to have several basic technological skills to differentiate itself through improved customer interaction and innovation. The survey's findings indicate that top-performing businesses are more likely to have made such investments. For instance, top performers adopt automated testing and deployment methods more quickly than their peers do, as well as agile and DevOps practices that promote quicker innovation and execution while minimizing expenses. The adoption of the public cloud by top performers is likewise well ahead of that of their counterparts, making them more agile, efficient, and capable of maximizing the return on other digital expenditures.

The extent to which top performers are disproportionately creating—and, in some cases, monetizing—proprietary assets, like software, artificial intelligence, and data, maybe more startling than their greater capabilities. While over two-thirds of respondents claim their businesses have invested in current commercial software or software as a service, the top performers go above and beyond. The likelihood of respondents from those companies developing their high-performing software is higher than that of other respondents. They are more likely to include in their common software components shared across an internal platform. Furthermore, compared to just 50% of their peers, approximately 70% of the top economic performers intend to differentiate themselves through proprietary software.

Tech-savvy leaders

Finding the right frontline tech talent is a constant challenge for companies looking to improve their digital performance. In today's tech-driven company environment, tech-savvy leaders are just as crucial as frontline employees, if not more so, according to the study results.

The major problems with internal tech talent are that it is more difficult to find and reskill tech-savvy executives than frontline technical talent. It is also more difficult to integrate each group into the company. But the top economic performers are superior to their counterparts in managing executive talent, which is in line with past research showing that high economic performers are more likely to have a tech-savvy C-suite.

Additionally, top performers are more adept than others at integrating (and keeping) new hires in tech roles, which is a crucial benefit given the fact that tech talent has only gotten more difficult to find over the past two years. And while there is much discussion about whether companies should collaborate with others to access great talent or keep all of their tech people in-house, the best-performing businesses appear to be doing both. Top performers are more likely than other businesses to integrate new workers in digital jobs directly into the business rather than the IT function, which is another strategy that tends to make a significant difference.

In addition to executives, high-quality product managers are another category that even the most successful businesses find difficult to recruit and keep. As we mentioned earlier, this position is critical to enhancing a company's ability to build software; thus, it will be crucial for all businesses to emphasize identifying and maintaining experienced product managers.

Digital technology is becoming a more important differentiator as companies navigate an era of great unpredictability and upheaval. The best-performing businesses of today demonstrate this in their behavior. Three lessons stand out for all other companies: use digital tech to achieve strategic differentiation on customer engagement and innovation; build proprietary assets, like software, data, and AI, and combine them with a scalable, cloud-based architecture to create a strategic advantage; and concentrate on the search for digital talent for the C-suite and other executives, given the challenges that many businesses still face with talent integration.