The Korn Ferry Digital Sustainability Index 2017
The Korn Ferry DigitalSustainability Index 2017Continuous transformation in the digitaleconomy.
What’s Inside3Foreword4Executive Summary6The Five Dimensions of DigitalSustainability8The Financial Case for DigitalSustainability10Digital Sustainability Index:Industry Rankings20Digital Sustainability Index:Country Rankings28Conclusion32Contributors and References34Appendix I: Research Methodology36Appendix II: Sample DigitalSustainability Index Variables
DIGITAL SUSTAINABILITY INDEX 2017 ForewordDIGITAL SUSTAINABILITYAn organization’s ability to continuouslyadapt and thrive in the digital economy.Organizational transformation used to be adestination, and success was a formula thatcould be replicated. But the systems, processes,and ideas that brought prosperity to so many ofthe world’s largest corporations are now set tobe their downfall. With new products, services,and brands entering the market at lightningspeed, transformation is needed not just oncebut over and over again. The future of workbelongs to those who can continuously adapt.Can complex, matrixed, international businesseswith decades of legacy infrastructure everbecome such agile organizations? It is possible,and critical, but the revolution required torespond to today’s reality is not about simplyintroducing digital technologies — it requiresseismic change in how we organize, lead, attract,develop, and engage our people.For traditional organizations, it means bringingbetter products, services, and experiencesto market faster than ever before. It meanshelping employees embrace consistent changeand attracting sought-after talent of alldemographics from across the world. It meansengaging directly with customers on an ongoingbasis. It means keeping up with — or evenovertaking — pure-play digital leaders. It meansdeveloping the capacity to continually transformand thus achieving digital sustainability.1The Korn Ferry Digital Sustainability Index(DSI) sets out to support business leaders ontheir ongoing journey of digital sustainability.By defining the dimensions needed to fosterongoing success, the DSI reveals how companiesoperating in this disrupted world can thriveby building the ability to adapt not once butcontinually. Singular successes are not enough.Even leaders in hyperconnected countrieslike China and vanguard industries such asTechnology must take significant strides tocreate the digital-era cultures and structurestheir people and customers need.Leaders have, for some time, understood theneed for this constant transformation. Whatthis study now proves is that what got youhere — hierarchies, traditional rewards, staticteams — will not get you where you want togo. It simply will not sustain organizationalperformance in the future of work. Thecompelling commercial imperative for becominga highly flexible, digitally sustainable companyis clear: the Index proves that high performersin the dimensions of sustainable transformationsee a 5.6 percentage point increase inprofit margin (earnings before interest, tax,depreciation, and amortization — EBITDA1)versus the low performers. For a mid-capcompany with revenue of 7 billion, this couldpotentially represent a difference of 392million.Melissa Swift, Global Leader for DigitalSolutions, Korn FerryThis figure is calculated controlling for industry, inflation, and differences in GDP growth rate.3
Executive SummaryDigital disruption has emerged as thedefining business issue of our age.Yet, despite its ubiquity, organizationsacross the world struggle to managedigital change and create the conditionsrequired to assure long-term successin the future — the ability to transformcontinuously.There is no one-off fix, and digital maturity isnot enough. Today, true digital sustainabilitydemands constant reinvention. Repeatingyesterday’s successes is futile; what got youhere will not get you where you need to be.Companies must be built to change, foreveriterating.While many leaders have focused on the“hardware” of digital change — such asintroducing new technology and systems — ithas proven a great challenge to create the“software” needed to alter culture and improveemployee engagement and alignment. Butbusinesses must focus on this complex area tosustain success in the future of work. Even in adigital world, people power performance.To enable business leaders to respond tothis demand for continual innovation, weexamined the traits of a digitally sustainablebusiness. Based on in-depth meta-analysis,the product of this investigation is the KornFerry Digital Sustainability Index (DSI), whichranks 362 organizations across five industriesand 14 countries on the five dimensionsof digital sustainability. Each industry andcountry is ranked based on its DSI score out of4100 — reflecting its overall digital sustainabilityand performance in each dimension.Among the DSI’s core findings:§DSI scores (0-100) measure the extentto which businesses are set up to adaptcontinuously and achieve lasting success.Moreover, the Index provides the financialjustification for doing so — a 10-point rise inDSI score is associated with a 1.5 percentagepoint increase in profitability margins(EBITDA).§Empowerment & Alignment, which measureshow well employees understand theircontributions to the business’s journey,is the dimension most closely correlatedwith overall DSI score, demonstratingthat people are the lynchpin of digitalsustainability. Employees are at the heartof the transformation challenge, and ifthey do not know what the future holds,organizations will be unable to achievedigital sustainability.§Digital sustainability within the Industrials,Technology, and Life Sciences & Healthcareindustries is being held back by poorConnectivity. Businesses must focus oneffective ideas-sharing — internally, betweenindustry peers, and across borders.§Companies in all industries are struggling tocreate lasting sustainability, but Financial Servicesleads the pack, topping the industry Index bysome margin. Outperforming even Technologyfirms, the industry achieves a low score in Agilitybut excels in all other dimensions.
DIGITAL SUSTAINABILITY INDEX 2017 §With poor scores across four of the fivedimensions, Consumer places last among theindustries measured, despite recent, welldocumented moves to adapt to disruptionby embracing e-commerce and digital supplychains.§US companies are the most digitallysustainable, with consistently strongperformance across the five DSI dimensions.The UK (second) and the Netherlands (third)complete the top three nations, while Mexico(12th), Brazil (13th), and Turkey (14th) placeat the bottom.§The top-performing company in the DSIcomes from the Technology industry, leadingall other companies by a wide margin of 12points. Showing high performance is possiblein any industry, the top three companies areall from different industries — Consumer,Industrials, and Technology.This report reveals more on these highlightsand areas for concern for key industries andcountries. It also offers solutions for leaders whoare intent on securing the future success of theirorganizations.5
The Five Dimensions of DigitalSustainabilityDeliberate transparency aboutethics, responsibilities, andpractices. Employees arevalued and creativity isencouraged.Rapid decision-making,execution, and responseto environmentalchanges.Openness &TransparencyEmpowerment& AlignmentAgilityThe FiveDimensionsof DigitalSustainabilityConnectivityDiscipline &FocusA definitive missionstatement with analigned workforce that isequipped to makedecisions.Consistent collaborationwith internal and externalstakeholder ecosystems.Unequivocal clarity on what ‘digital’means to an organization and how toachieve desired outcomes. Korn Ferry Institute 2017. All rights reserved.Built on nearly five decades’ experience anddata developed to help the world’s leadingcompanies change, Korn Ferry has identified thefive key dimensions that enable organizationsto transform time and again to respond tochange: Agility, Connectivity, Discipline & Focus,Empowerment & Alignment, and Openness &Transparency. These transformative dimensions,along with in-depth economic analysis, informthe dimensions of the Digital SustainabilityIndex.6Agility. Agile businesses are designed to movequickly in decision-making and execution, andthey rapidly adapt to market and environmentalchanges. Structurally, this means reporting linesare streamlined to optimize fluid collaborationand speed input on planning and delivery.People in agile organizations take risks, arecustomer-centric, and continually acquire newskills to perform in an ever-changing climate.
DIGITAL SUSTAINABILITY INDEX 2017 Connectivity. Connected businesses createecosystems made up of networks of peoplefrom inside and outside the organization.Without defined roles or traditionalorganizational constructs, people in connectedorganizations actively collaborate with, andcontribute to, the outside world, and even codevelop solutions with clients, partners, andcompetitors to accelerate delivery.Discipline & Focus. Organizations thatsuccessfully transform for a digital worldare clear about what digital means to them.Disciplined organizations define their desiredoutcomes and focus relentlessly on achievingthem. They are disciplined about execution. Theydecide quickly on what to invest in, then drawupon their strengths to implement decisionsefficiently, effectively, repeatedly, and at scale.As a result, employees are inspired by theirleaders and their forward-thinking approach.Empowerment & Alignment. From the boardto the front line, empowered organizationsare clear on four things: what the businessstands for; what it’s trying to achieve; how toexecute its strategy; and how the strategy isbeing implemented. Employees know whattheir future holds within the business, how theycan contribute, the skills they need to achievetheir goals, and what support is available. Theyare enabled to make the right decisions inthe moment without the need for continuousguidance. At the company level, this is thedimension most correlated with overall DSIscore.Openness & Transparency. Open organizationsunderstand that the digital economy meansbrands are public property, so they aredeliberately transparent about their ethics,responsibilities, decisions, and practices.Everybody in an open organization has avoice and is encouraged to collaborate, solveproblems, and think creatively to meet customerexpectations.7
The Financial Case forDigital SustainabilityDigitally sustainable firms are in a strongerposition to transform continuouslyover the coming years, as demandedby the rapidly changing digital world.While future success depends on digitalsustainability, companies that alreadyembrace it are experiencing the benefitsin their financial performance today.The Korn Ferry Digital SustainabilityIndex, which analyzed almost 400 leadingorganizations from across the world, revealsa clear link between digital sustainability andprofitability.The Index proves that high performers in thedimensions of sustainable transformation see a5.6 percentage point increase in profit margin(EBITDA) versus the low performers on theIndex. For a mid-cap company with revenueof 7 billion, this could potentially represent adifference of 392 million.Regression analysis of the results reveals thata 10-point rise in the DSI score is associatedwith an average 1.5 percentage point increase inoperating performance (EBITDA).2For a mid-cap company with revenue of 7 billion, this could represent an increase inEBITDA of 105 million — hugely significant at atime when margins are under pressure.8Further financial analysis of the DSI impact onindustries found that every 10-point increase inthe DSI is associated with significant increasesin EBITDA in the Consumer industry (3.2percentage point increase) and in Life Sciences& Healthcare (3.9 percentage point increase).For a company with revenue of 7 billion,this could potentially represent an increasein EBITDA of 224 million in the Consumerindustry and a potential increase in EBITDA of 273 million for a company in the Life Sciences& Healthcare industry.
DIGITAL SUSTAINABILITY INDEX 2017 9
Digital Sustainability Index:Industry RankingsDSI Rank Key(Rank 1 best, 5 worst)DSI DIMENSION RANKINGSINDUSTRYOVERALL DSIRANKINGAgilityConnectivityDiscipline& FocusEmpowerment& AlignmentOpenness &TransparencyFinancials141113Technology225251Life Sciences& Healthcare312325Industrials433442Consumer554534 Korn Ferry, Korn Ferry Institute and Oxford Analytica 2017. All rights reserved.Employees’ hands tiedKorn Ferry’s study The trillion-dollar difference(Crandell et al. 2016) revealed that, far frombecoming obsolete in the future of work, peoplewill remain critical to success. The true value ofhuman capital is 1,215 trillion — 2.33 times higherthan physical capital, including technology. TheDigital Sustainability Index also finds people arethe heart of digital sustainability: Empowerment& Alignment of people is the dimension mostcorrelated (at a company level) with overall DSIscores.When employees feel empowered and areworking toward a shared goal, change happens.However, a lack of Empowerment & Alignment isone of the biggest issues holding the Technology,Industrials, and Consumer industries back frombeing digitally sustainable. Technology performsparticularly poorly in this dimension, achieving ascore of 9 and ranking last.10Demonstrating that any business is capableof addressing this issue, the companies thatperform best for Empowerment & Alignmentare from across industries, with the top threeincluding Financial Services, Technology, andConsumer firms.THE COMPANY VIEWThe top-performing company inEmpowerment & Alignment (scoring 96for this dimension) is a Financial Servicesorganization that places a strong emphasison its vision and employee training.The second- and third-place organizationsin Empowerment & Alignment also take twoof the top three places in the overall Index,underlining the importance of this dimensionto digital sustainability.
DIGITAL SUSTAINABILITY INDEX 2017 In organizations with low Empowerment &Alignment scores, employees are not freeto make decisions that enable businesses toembrace the digital world. The decades-longbuildup of complex sign-off processes andcorporate structures prevents anyone butthose at the very top from taking any level ofempowering responsibility.Add to that a lack of a clear vision to follow andlittle idea of what the future holds individually,and it is unsurprising employees are left with nomomentum and little impetus to push throughnew ideas. This all combines to make even subtleadvances seem an impossibility. When constantchange is needed, such inertia incapacitatesorganizations. Until employees are given a senseof what the future holds, and their place withinit, it’s impossible to be digitally sustainable.Innovation blockerConnectivity is one of the dimensions that manyindustries are grappling with and thereforean area in which leading companies can setthemselves apart. Effective networks are a vitalcomponent of a digitally sustainable business,ensuring close collaboration and ideas-sharingboth internally and with the wider world. Onlywith these constructs in place can businesseskeep up with the pace of change needed today.With their international outlook and newlydeveloped ability to innovate rapidly, even inthe most traditional firms, Financial Servicescompanies may offer us many lessons inConnectivity. This industry scores by far thehighest in this dimension — 64 points abovethe second-place industry, Life Sciences &Healthcare.BEST PRACTICES IN EMPOWERMENT & ALIGNMENT1.Say goodbye to the “heroic leader.” In a fast-moving and disrupted environment, leaderswho seem to know it all — and solve every problem themselves — can be appealing. But“heroic leaders” are steadily bleeding empowerment out of the workplace. Taking the extrastep to invite others on a problem-solving journey and having the humility to sometimes kickoff that journey with an “I don’t know” can breed empowerment at scale and digital-speed.2. Understand what real risk is — and what just feels risky. Organizations have rightly soughtto remove risk from any number of business areas over the last decades, often by dictatingprocesses and structures that detract from individual decision-making. In the digital age, thesame organizations must take a step back and disaggregate real risk management needsfrom activities that simply detract from the feeling of risk. For instance, quality control inproduct components carries real risk, whereas involving technologists in product materialsdecisions may just feel risky. Where real risk doesn’t exist, decision rights should migrateto individuals at the front line — accelerating the process to deal with issues as quickly aspossible.3. Rethink rituals. Looking at unofficial but highly culturally embedded rituals can meaningfullymove the needle on empowerment. For instance, if leaders’ days are constantly packed withmeetings, they may feel disempowered by their lack of ability to engage other leaders on thefly as issues arise. Creating a full accounting of the informal rituals that pervade the workdayis a useful next step toward driving empowerment.11
How does digital sustainability differ by industry?Digital Sustainability Index Scores by Industry73FinancialsOverall DSI Score44TechnologyLife Sciences& HealthcareDSI Dimension Scores:AgilityConnectivityDiscipline & FocusEmpowerment & AlignmentOpenness & Transparency4232Industrials22Consumer050DSI score100 Korn Ferry, Korn Ferry Institute and Oxford Analytica 2017. All rights reserved.Financial Services: Thesurprise frontrunnerThe virtuoso performance of Financial Servicesfirms reflects that the industry — under pressurefrom expensive regulation, cheap competition,and rising customer expectations — hasembraced digital ways of working to kick-starta revolution. With an overall DSI score of 73,Financial Services tops the Index (see page 10),ranks first in three out of five dimensions, isthe only industry to achieve a DSI score above50 out of 100, and beats its closest rival by astaggering 30 points.Financial Services companies have, for sometime, had the compelling commercial drive toshift culture, processes, and practices — seekingto protect market share and meet newcustomer and talent demands. Increasingglobal investment in fintech, the significantrise of transformative technology — such asblockchain — and intense competition fromfintech hybrids have also triggered definitiveaction.12Such focus needs to continue. Though they areleading the pack now, they need to continue tofind ways to create adaptability in their peopleand organizational practices. With both theFinancial Services and Technology industriesexpected to experience the highest levels of newdigital disruption in the near future (Grossman,2016), organizations in these industries mustremain focused on digital sustainability, despitetheir relatively good performances.Agility poses by far the biggest problem forFinancial Services firms, with the industryplacing second to last in this dimension, anda DSI score of just 19. With this in mind, swiftdecision-making and an emphasis on continualimprovement and innovation are key areas toaddress.
DIGITAL SUSTAINABILITY INDEX 2017 THE COMPANY VIEW:FINANCIAL SERVICESThe top-placed Financial Services firm inthe Index is one of the world’s largest banks,with assets of more than 2 trillion. Its clientsinclude many of the largest corporations andgovernments in more than 100 countries.Sitting in ninth place with an overall scoreof 67, the company exhibits consistentperformance across the DSI dimensions.“Companies within the financialservices ecosystem have been amongthe first and fastest to respond todigital disruption. Traditional firmshave built highly effective ecosystemsand partnerships to bring new ideas,product innovations, and custome
Ferry Digital Sustainability Index (DSI), which ranks 362 organizations across fi ve industries and 14 countries on the fi ve dimensions of digital sustainability. Each industry and country is ranked based on its DSI score out of 100 — refl ecting its overall digital sustainability and performance in each dimension.
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