How and Why Digitally Advanced Businesses Perform Better

Join me in this new episode of the Real Digital Transformation podcast, as I interview Pierre Cléroux, Vice President, Research and Chief Economist of the BDC. Pierre shares highlights of a new study from the BDC entitled "Why Digitally Mature Companies Perform Better," which indicates that a concerning digital divide is emerging among advanced adopters and latecomers.

Pierre provides insights he gained from this new research of the state of digital technology adoption in Canada and further offers advice and guidance for companies still considering the move toward digital technology adoption.

Listen to the podcast here (transcript is below):

Also listen to the podcast at?Spotify,?Google Podcasts?and?Apple Podcasts.

The study reveals some surprising statistics about digital technology adoption:

• only 34% of businesses analyze their customer data
• only one in 20 businesses uses digital technologies effectively
• whereas 99% of digitally advanced businesses have a digital plan, only 9% of digital latecomers have one

Here are some key quotes:

"Many companies are slow to digitize despite the proven benefits. Their performance is worse, and they have more difficulty growing. As a result, they find it harder to finance their growth projects, especially those that would allow them to get started on their digital shift."

"Businesses that lag behind perform worse and have more difficulty financing their growth projects. The longer they take to fix this situation, the more difficult it will be to catch up digitally."

The study further establishes a means of measuring digital maturity by assessing the digital intensity and digital culture of a business. These two factors are divided into six axes, and their sum then defines the digital maturity of the business.

About the Contributors

Pierre Cléroux is the Vice President, Research and Chief Economist of the BDC.

Follow Pierre:?www.dhirubhai.net/in/pcleroux

The BDC report can be downloaded here: www.bdc.ca/en/about/analysis-research/digitize-now

Thomas Erl is a best-selling author and oversees the Pearson Digital Enterprise Series from Thomas Erl. He is the Founder and Senior Advisor for Transformative Digital Solutions Inc. and the CEO and Director of Learning and Development for Arcitura Education Inc.

Follow Thomas:?www.dhirubhai.net/in/thomaserl

Subscribe to Thomas on YouTube: www.youtube.com/@terl

Books by Thomas:?www.informit.com/authors/bio/f8d115ad-20cc-4d42-ad99-7e349d34f90d

Podcast Transcript

Thomas: Welcome to the Real Digital Transformation podcast series. Today, I'm very excited to have with me vice president of research and chief economist of the BDC, Mr. Pierre Cléroux. Mr. Cléroux has overseen a detailed study that delves into the adoption of digital technologies and practices within the current marketplace. This study is entitled, Why Digitally Mature Companies Perform Better. The study itself has very specific details as to how the adoption of digital technology, digital practices, and a digital culture are changing the way businesses are modeling themselves, positioning themselves in digital markets, and restructuring their approach to business. So I'd like to welcome Mr. Cléroux and please, Mr. Cléroux, can you tell us a bit about yourself and how the study came about?

Pierre: My name is Pierre Cléroux, like you said, and I'm the chief economist and vice president research for BDC. And at BDC, we serve entrepreneurs. We have 70,000 clients across the country, all business owners, and we do a lot of research about different topic that are important for businesses. So we did a study in 2018 about the adoption of digital technology, and we wanted to redo the study to see the progress over the last few years, especially because of the pandemic. There was a lot of moving parts during the pandemic. So we wanted to see if the situation has evolved over the last few years.

Thomas: This study delves deeply into all aspects of the adoption characteristics, everything from growth to resiliency, to investment, to adoption of technology and organizational aspects, such as culture. After having gone through the study that you had your team put together, what to you were the highlights? What raised your eyebrows as you went through it, and what realizations really stood out to you?

Pierre: I think there's two things. The first one is like you mentioned a little bit in the introduction, businesses who are investing more in technology, they performed better. So the study, what we did is we look at what businesses are doing and also with their performance. So we were able to establish that businesses who are investing more in terms of digital technology, they grow faster than others. They are more resilient. And that was very important over the last few years. They have an easier time to get financing. This is kind of a surprise. And they also export more. And finally they actually manage their business a little bit differently than the other businesses. So the first insight for us was really to be able to put numbers or put our data on what we thought would be the case. But it's the first time that we actually demonstrate that people who are investing in technology, they perform better.

The second insight is a gap building. People who are not investing in technology, they don't perform as well. For example, in 2021 so last year, 33% of businesses who are not investing in technology, they didn't make profit. So this is very, very significant because when you are in business, if you don't make profit, it's not sustainable. You cannot be in business for five years and losing money for five years. So this is very important. So there's a gap building. There's a gap building between businesses who are investing in technology and businesses who are not. So the insight in this study is if you don't invest in technology, you won't be around in the next three or five years.

Thomas: And when you speak of technology, based on what I see in the report, you're speaking specifically about digital technology.

Pierre: Yes, but there's a different aspect of that. For example, we look at people having a website transaction online, but data analytics, for example. So it's not only having a website. It's much more than that is to use a different tools that digital technology allow you to do. And we build this maturity intensity model where you have two large component, the digital intensity, so basically the technology, and the digital culture. So digital culture is more about the strategy and how you train your people for using this technology. So one result of the study is very important to have the right strategy, not just investing...

When people are coming to us to say, "I haven't done anything. Where should I start?" We never say you should invest in this technology or in the website, or... We always say that you need a plan. You need to understand what investment in technology would bring value to your client or value to your business. So it's not a question of investing. The question is how can you improve your client experience? How can you improve the efficiency of your business by investing in technology? And the answer to this question is different from one business to another, depending on the sectors, the business model. There's no one solution for everybody.

Thomas: I'm looking at the graphic of the digital intensity and digital culture, characteristics that are shown in the report. I find that quite interesting. So I believe that there would be a strong relationship between the two in that the digital culture would need to be established in order to realize the goals associated with digital intensity. Would you agree with that?

Pierre: Yes. The one who are the performing the best, they have both. They have a strong digital culture, so they have integrated technology in their strategy and in their employee training. And by, after that, they have invested in what is their goal to achieve. And the one we have a percentage of businesses who are really the advanced one, the champion and the champion has both.

Thomas: Okay. The measuring of these characteristics, was that part of the scope of your study? For example, with the research that your team conducted, did they just look at whether organizations were utilizing data analytics, whether they were utilizing digital technologies, or did they actually look at the extent to which those were part of the digital initiatives that they were undergoing?

Pierre: Well, it was more of the latter. So the model that we used was a model developed by MIT a few years ago. And we used this model in 2018 to measure the digital maturity. We changed it a little bit this time because things have changed. The use of technology is a bit different now. So we have adapted the model, but basically it's still based on the research done by the school MIT on digital maturity. And after that, when you have the structure of the model, we ask question to see if people fit this maturity model.

Thomas: And you spoke earlier about the gap that exists between those that are not adopting digital practices, technologies, and cultures, and those that are actively doing so, and another aspect or another dimension to that, that your study focuses on is also the gap between those that have already proceeded to advance stages of adoption and those that you classify as the late comers who are trying to catch up. I find that quite interesting. The consequence of being a late comer in this digital market domain, is that something that you also got some insight into? For example, those that are at the advanced stage, which you show here at 5% being advanced, 20% being emerging, 47% being in the beginner stage and 19% being classified as late comers. So those that are ahead of the pack, how beneficial has that been to them and their business? Have they been able to increase market share? Have they been able to outperform competitors? Did you get any insights along those lines?

Pierre: Yes, we did. And they have a higher growth. They are more profitable. They're also more resilient. And that was especially important in the last two years, where, as you know, we had the pandemic. Some part of the economy was closed, was very difficult for a while, but companies who have invested or the advanced one, they perform much better over the last two years. Something surprised us. For example, it's easier for them to get financing than the late comers. So obviously financial institutions are also looking at your level of technology before they give you a loan. So that's something that kind of surprised us. They also manage differently their business. And that's something that we were kind of surprised. That is such a great difference between the advance and the late comers.

Thomas: It leads to some of the issues that come up with the adoption of digital technologies and digital transformation initiatives themselves, which often introduce enhanced automation that results in tasks that were completed manually being superseded by new automation, which can lead to human workers having to be reallocated to performing different or more meaningful tasks. Have you seen cultural shifts along those lines at all in your study?

Pierre: Well, we saw that as there's really a shortage of labor in Canada, so businesses are looking much more at automation than they were in the past. Automation doesn't really replace people, but it can replace task, which free up some of your people. Just like you said, some people, if you use automation, some of your routine is going to be done by a robot. So these people can do something else more meaningful. So that's just something that we saw as well in the report. It's increasing productivity. It's increasing business growth.

Thomas: I think what you just said captures that very well, that automation doesn't replace people, it replace tasks. And I think that some of the anxiety the workforce may have around increased automation, which can be introduced by these technologies, I think that ties back to the organizational culture that needs to be prepared to deal with that through communication and strong leadership. Would you agree with that?

Pierre: Definitely. And it's very important for the management to work with our employees in this transition, because we hear two kind of messages. Businesses who have young employees, they actually welcome the change. They don't understand that you still have to move paper inside the company because they are so tech savvy. However, when your workforce is older, there's a lot of fear that this technology is going to replace them. So there's a lot more work to do to involve employees and to make them understand that actually this is going to help them because some of the more boring job is going to be done by technology. So it's especially important for the management to make sure that people fully understand the goal of this automation.

And the study, another study we did, the fear of losing people because you use automation is actually the opposite. Businesses who are using a lot of automation, they grow faster. So they actually increase the number of employees. I'll give you an example of a visitor. It was a low tech company. It was a lobster transformation business. So basically they take a lobster, they cook it, they cut it, they freeze it, and they sell it mostly to restaurants. And the owner was 70 years old. Didn't invest in technology at all. And one day he died suddenly. His wife sold a business in three weeks. The management who bought it, actually there was people from inside the company, they invested massively in technology. They make automation as much as they could. So they have 400 employees. At the end of the process, they have 500 employees, but they triple the revenue. They were able to produce three times with just a little bit more employees. So you see automation doesn't kill jobs. It's actually protect jobs for the future.

Thomas: And that's a message I think that leadership can help the existing workforce better understand to get their support and buy in with these types of changes that come about when an organization undergoes this type of transformation. I'm curious if, as part of your study, we focused on all the positive characteristics. Have you come across any projects that did not do it right? That made decisions that they regretted that perhaps did not have appropriate leadership, that perhaps went too far with automation and then had to roll some of it back. Did any of those types of case studies come up?

Pierre: Oh, definitely. Investing in technology is complex and it could be expensive as well. So two, I would say cases, the one that doesn't have a plan, they will be disappointed about the return on the investment when they invest because sometimes they don't invest the right way. Although they invested money, a significant amount of money, sometimes they don't have the return on their investment just because they didn't invest in the right technology. Or that was not what they needed to increase client experience. Other cases, they had done all the right thing, but for some reason, technology sometimes takes more time. Sometimes it's more expensive than we thought. So that's the case. I would give you this very specific example that I thought was very interesting, which make reference to culture. This company was a retailer. They had about 30 locations in three provinces and five years ago, they decided to go online.

Pierre: So they decided to move. They were selling, they had stores mostly in shopping malls. So five years ago they decided, okay, I would go online. That's where the demand is, et cetera. And this worked very well. 25% of their sales were now online. However, they didn't reduce their footprint in shopping mall. They didn't reduce the cost of their sales in the shopping mall. So now that they lost... Well, they lost. They have 25% online. They supported the same cost for 75% of the sales instead of a hundred percent. So they have a huge difficulties. So this is why it's so important. Part of the culture, part of the governance, the strategy, it's important to see, has to be integrated. You cannot just say, "I'm going to sell online." Don't change anything else because it doesn't work. This has to be fully integrated to make sure that if you sell more online, well, obviously we'll sell less in the store.

So you have to change your strategy because of that. So this is a good example where the intention was great. Well, all the strategy online was great, but because it was not all integrated in the strategy, they almost went under. So this is important that when you adopt technology, when you make those decision, you have to have an overall strategy, has to be part of your strategy. Technology now is not one thing that you do beside everything else. Technology is part of your business, just like HR, just like your financial statement, just like... It's an operation of the business, has to be, because if it's not, you will make mistakes and you will not benefit from the efficiency of using technology.

Thomas: And the other weakness that you have specific statistics about or potential vulnerability I should say is in the area of cybersecurity, whereby moving to more of a digital operational model, investing in digital technology and putting more of our data out there, we open the door to potential data security risks that may not have existed prior to making those transitions. What highlights came out of your report in that regard?

Pierre: Well, this is a very important question. 18% of SMEs had an attack last year in 2021. So we were shocked by these results. And it's costly. In average, you had to spend about $50,000 to cover the attack. So this is coming with the investment in technology. I don't think we should not invest in technology because of that. It's like when you drive a car, you're taking a risk and you take insurance against that. And you drive carefully to make sure that you don't have an accident. Same thing in investing in technology. What you have to do is to make sure that you're well-protected. And the study is also showing that we can do a much better job.

Pierre: For example, I was surprised that only 50% of businesses, they have employee training on cyber security. When you know that one of the weak link in any business is basically people because the attacker can come inside your emails and everything. So training is key. There's no doubt about that. So businesses can do a much better job to protect themselves. So this is a very important issue. As we use more and more technologies, cyber security has become much more important and it's possible to protect ourselves, but you have again to make it a priority.

Thomas: It's definitely part of the planning effort required because if it isn't, it can undermine the entire operation.

Pierre: Definitely.

Thomas: Yeah. I fully agree. I want to ask you just before we conclude about the disruptive nature of these digital adoption efforts of digital transformation. They're often seen not just as a means for a business to grow, but as a means for businesses to explore markets that may not have been accessible to them before and leveraging the automation, the new practices, their new culture to enter those markets, which may have been already taken care of, established by other organizations and disrupting those markets by establishing a presence of their own within them. And I'm curious if the study also factored that into how it evaluated business growth, not just linear growth of the scope of the business as it may have existed, but also multi linear growth into different markets and different types of business domains.

Pierre: Definitely. And one of the benefits for businesses who have invested in technology, they export much more than others. Before this technology era, you needed to be a very large business to export because it was very complex. You needed to explore the other markets. You needed a sales force in the other country and everything. It's no longer the case. You can be a small firm and selling to the world, especially selling to North America, to the US. And this study is showing that very clearly. People who have been investing in technology, they export much more than others. And exporting is important because as you know, we have a large country, but a small population. So our market is quite small.

Pierre: So very rapidly as business, especially if you sell something specialized, you need to go outside the country to be able to grow your market. And we have an amazing market, right? South of the border is almost 360 million people. So technology allows you to capture this market in a very much cheaper way, in a much easier way than before. So in that sense technology, actually, it's a great tool for smaller businesses. You no longer need to be very big to be able to export.

Thomas: Thank you very much. I think a study like this is very much needed in the industry right now because it gives hard facts, hard numbers that businesses can relate to because I think many still need that revelation that this is something they have to start doing because unbeknownst to them, the rest of their industry may be taking strides that they may never be able to catch up with if they don't take action soon. I'd like to ask you as we conclude this, if you have any advice for organizations that are pondering this, but not just advice in terms of what they should do, I think we've covered what they should be doing. That's very clear in the study and with our conversation today, but advice for entering a digital market that may already have organizations that have undergone digital transformation that you would've classified as being advanced already.

How in a digital market with active, digitally enabled organizations, how can we further distinguish ourselves when we're on par already with digitally enabled organizations? Are there some best practices or are there some highlights that came out of the study that demonstrated to you in particular areas of innovation where organizations were able to really distinguish themselves?

Pierre: I think the first step is really to think about, to have a plan. So to think about your business and to look at where you can add value to your consumer by investing in technology. And the best advice I can give this is the timing is really good right now. The federal government has a new program where they subsidized 90% of a plan that you can do with an expert. So this is a very good opportunity to evaluate what should be your investment in technology. You don't have to invest. You just have to look with an expert and to see how investing in technology can bring value to your consumer and to your business. That's really the first step. Like you said, there's a lot of competition out there, but if businesses are alive, it's because they offer something. And that's a good timing to look at how technology can help you to continue to offer the product or the service that you offer.

Thomas: Super, thank you so much, Mr. Cléroux. It was very, very enlightening speaking with you and going through the details of this study to get more insights that you shared with us as to how this came about and how it also impacted your views of where the business market globally is heading right now, and specifically within our regions around here. Thank you for your time. And we will be sure to point listeners to a link that you'll be providing so they can also locate and download the study.

Pierre: Yeah. Thank you.

Thomas: Thanks so much.

Please note that although this transcript was professionally prepared, it has not yet been reviewed by the contributors for accuracy. Please report any errors to the newsletter editor.