Digital Incumbents Fight Back; New Findings From Boston Consulting Group

Digital incumbents are successfully executing digital transformations, outperforming peers and shaping up to compete with digital natives.
Traditional companies that have yet to deliver a successful digital transformation struggle to drive growth and improve productivity using predominantly traditional levers.
Digital incumbents in traditional industries are joining digital natives and digital hyperscalers in the congregation of companies that have the capabilities to disrupt existing business models and deliver innovation and revenue growth.

A new cadre of companies—traditional businesses that are successfully executing digital transformations—are outperforming their peers and shaping up to compete with digital natives. These digital incumbents make up about 30% of the S&P Global 1200 Index and outperformed the index by about 50% over the three years ending December 31, 2021. Meanwhile, legacy incumbents—traditional companies that have yet to deliver a successful digital transformation—struggled to drive growth and improve productivity using predominantly traditional levers. They make up about two-thirds of the S&P 1200, underperformed the index, and risk becoming uncompetitive.

These are among the findings of a new article published today by Boston Consulting Group (BCG), titled “The Rise of the Digital Incumbent.” The article describes a new hierarchy for business and highlights the different digital dynamics in four types of companies: legacy incumbents, digital incumbents, digital natives (companies founded in the digital era), and “hyperscalers,” the top dozen or so digital natives whose platforms, infrastructure, and data scale with enormous breadth and depth, thus conferring major structural advantages.

“The paradigm is no longer simply, ‘digital natives will destroy incumbents’,” says Romain de Laubier, a BCG managing director and partner and a coauthor of the article. “Digital incumbents in traditional industries are joining digital natives and digital hyperscalers in the congregation of companies that have the capabilities to disrupt existing business models and deliver innovation and revenue growth.”

The article asserts that the successful companies of the future will build the necessary digital capabilities—both human and technological—to become what BCG calls bionic. Along the way, they will deliver superior innovation and performance.

Leveraging global survey data from more than 950 senior leaders from all types of companies who were asked to describe where they are on their digital or bionic journeys, and to self-score their digital capabilities, the authors detail the five attributes that best define any company’s progress toward the bionic target state:

Leadership with a purposeful digital strategy
A culture that promotes innovation
An agile operating model
The ability to attract, retain, and develop world-class digital talent
Open-architecture technology and data platforms

“Digital incumbents should take heart from the findings of this research,” says Patrick Forth, a BCG managing director and senior partner and a co-author of the article. “They must continue to develop the five bionic attributes, which requires making the transition from successful digital reengineering to generating growth from innovation. For those that manage to build the necessary attributes at scale, the rewards of being both digitally capable and having the incumbent advantages of scale, scope, customer relationships, and data, will be substantial.”

The authors note that legacy incumbents are being left behind and need to act with urgency to reapply themselves, implementing the digital reengineering that will give them the digital capabilities they need to compete for growth.

For more information, please visit www.BCG.com.