by Thomas H. Davenport and George Westerman
In 2011, GE embarked upon an ambitious attempt to digitally transform its product and service offerings. The company created impressive digital capabilities, labelling itself a “digital industrial” company, embedding sensors into many products, building a huge new software platform for the Internet of Things, and transforming business models for its industrial offerings. GE also went to work on transforming internal processes like sales and supplier relationships. Some performance indicators, including service margins, began to improve. The company received much acclaim for its transformation in the press (including some from us).
However, investors didn’t seem to acknowledge its transformation. The company’s stock price has languished for years, and CEO Jeff Immelt — a powerful advocate of the company’s digital ambitions — recently departed the company under pressure from activist investors. Other senior executives have left as well. The new CEO, John Flannery, is focused primarily on cutting costs.
GE is hardly the only company to run into performance issues and sooner-than-expected executive departures in the midst of a huge digital transformation effort. Lego recently defunded its Digital Designer virtual building program. Nike halved the size of its digital unit in 2014 by discontinuing its Nike+ Fuelband activity tracker and some other investments. Procter & Gamble wanted to become “the most digital company on the planet” in 2012, but ran into growth challenges in a difficult economy. Burberry set out to be the world’s best digital luxury brand, but performance began to suffer after initially improving. Ford invested heavily in digital initiatives only to see its stock price lag due to cost and quality issues elsewhere in the company. These companies spent millions to develop digital products, infrastructures, and brand accompaniments, and got tremendous media and investor attention, only to encounter significant performance challenges, and often shareholder dissent. At P&G, then-CEO Bob McDonald was asked to leave by his board, as was Ford CEO Mark Fields. At Lego and Burberry, the CEOs leading the digital charge stepped into lesser roles.
What can we learn from these examples of digital dreams deferred? How did these smart, experienced leaders make decisions that don’t look so smart in hindsight? They made the investments, they got a lot of exciting feedback from their digital leaders and from the press, they increased the investments, and the cycle repeated. However, while their companies had plenty of resources, the big digital bets did not pay off quickly enough, or richly enough, to counter the drain they represented on the rest of the business.