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RESEARCH REPORT

Reinventing with a digital core

Chapter 1: How to accelerate growth through change

5-MINUTE READ

July 16, 2024

In brief

  • To thrive amidst change and capture the value of disruptive technologies like generative AI, companies need a digital core that is reinvention ready.

  • To do this, companies must 1) Build an industry-leading digital core 2) Boost investments in innovation 3) Balance technical debt.

  • According to our research, doing all 3 created a 60:40 effect: 60% higher revenue growth rate and 40% higher profitability.

The technology capability your business needs, now

How can companies grow through constant change? This question is on the minds of executives as they face unprecedented disruption in their business environment.

Technology is now ranked the #1 most disruptive force today (up from #6 from a few years ago)—largely due to the rapid rise of generative AI. The enormous power of gen AI to reinvent every facet of business is not lost on companies.

However, expectations for gen AI are exceeding their current digital core capabilities:

50%

of executives believe that they can scale gen AI enterprise-wide in 6 to 12 months.

13%

are “extremely confident” that they have the right data strategies and the core digital capabilities in place to effectively leverage gen AI.

This gen AI-fueled, strategic shift towards reinvention has created an enormous need for a digital core: one that amplifies machines, humans and the interaction between the two in new and significant ways. Our analysis of 1,500 companies across 10 countries and 19 industries reveals that a digital core that is “reinvention-ready” is non-negotiable today.

What is the digital core?

We define the digital core as the critical technology capability that can create and empower an organization’s unique reinvention ambitions.

Demystifying the digital core: A digital core fit for continuous reinvention includes three distinct groups of technologies that constantly interact with each other.

It enables organizations to accelerate ahead of the competition and achieve their ambitions—using the right mix of cloud infrastructure and practices for agility and innovation; data and AI for differentiation; applications and platforms to accelerate growth, next-gen experiences and optimized operations—with security by design at every level.

Not all digital cores, however, are built the same, and every company’s journey will be different.

Powering the potential of generative AI

The digital core is what enables gen AI—or any future disruptive technology—to deliver its full potential.

In our analyses, companies with industry-leading digital cores (top 25 percentile of our Digital Core Index) are reinventing twice as many functions with gen AI and are expected to create twice as much value. Early gen AI adopters see more benefits in terms of scale and scope of their projects.

Companies that are early gen- AI adopters see more benefits, both in terms of scale and scope of their projects.
Companies that are early gen- AI adopters see more benefits, both in terms of scale and scope of their projects.

Whether gen AI or the next new thing, the digital core is the engine that enables your company to drive reinvention with transformative technology.

What does it take to become reinvention ready?

Our research has identified three tenets that companies must follow to achieve reinvention readiness with the digital core:

Build

Build an industry-leading digital core, tailored specifically to your industry and company.

Boost

Boost strategic investments in innovation by 6% or more each year, including to re-engineer systems for machine (AI) operations.

Balance

Balance technical debt liabilities with investments for the future, targeting 15% of budgets, using programmatic and autonomous methods.

Taken together, these steps will enable a company to rapidly adopt new technologies and benefit from first-mover and fast-follower advantages. In fact, companies that did all three experienced what we call the “60:40 effect”.

The 60:40 effect

60%

higher revenue growth rate (from 7.1% to 11.1% on average)

40%

higher profitability (from 14.2 to 19.4 percentage points on average)

And as of today, only 3% of companies have cracked this code. Now is the time to act on these three tenets, to pull ahead of the pack.

01

Build an industry-leading digital core for your industry and company

Our research shows that companies need to achieve an "industry-leading" level of digital core capability—defined as the top 25th percentile in our Digital Core Index—to empower continuous reinvention.

The Digital Core Index represents the aggregate strength of a company’s digital core as the average of each of its seven components' capabilities – their digital platforms, data, cloud-first infrastructure, composable integration, AI, security, and continuum control plane.