What you need to know:

• Analysis by Deloitte Digital suggests getting digital transformation right could unlock $1.25tn in market value.
• But getting it wrong could erode $1.5tn in market value.
• SEC filings were treated as a proxy for digital transformation intentions and performance was tracked across three dimensions; digital strategy, technology aligned to change, and digital change capability.
• Unsurprisingly doing all three well – but linked – delivered the biggest uptick. The value impact of all three was 1.2 times that of a standalone digital strategy, and nearly 3.5 times that of change capability on its own.
• But only 34 per cent of fortune 500 companies demonstrated such strategic intent in their filings.
• If you had to choose only one, Deloitte says focussing on technologies aligned to digital strategy drives superior market value and was twice as effective as an isolated focus on digital strategy.
• On the flip side, only focussing on digital change management was nearly three times less impactful than digital strategy. And it puts company market valuations at risk.
• Indeed, Deloitte describes change capability as the wild card saying: "Its presence can make or break value for the enterprise. On its own, it’s a value eroder. As part of the trifecta, it’s a value catalyst. But when it’s entirely absent, we observed the worst outcome of all."
• And no you can't game the system by simply sexing up the corporate spin, or subscribing to a "moving target survivor" theory that any rhetoric and activity is better than none. "Change for change sake, without purpose or any ties to a broader strategy, is insufficient," per Deloitte.

Lessons from Cher?

When it comes to determining the real market value of a company perhaps we should heed Cher's famous advice from the movie Mermaids: “Is it in his eyes, oh no you'll be deceived? Is it in his eyes, oh no he'll make believe? If you want to know, if he loves you so, it's in his kiss.”

Substitute that kiss for a decade’s worth of SEC filings ingested into a large language model by Deloitte Digital, and then correlated against market capitalisation, and you have the makings of a sophisticated corporate transformation analysis tool (although a much diminished rom-com).

It turns out that we can discern a lot about how likely digital transformations are to deliver real business value by analysing how companies communicate those plans via their official investor relations storytelling. TLDR: a police incident report is a better model for articulating digital transformation than a fairy tale — the more precise the detail, and intentional the strategy, per Deloitte's AI tea leaves, the better the outcome for shareholders.

“The combination of digital strategy, brought to life by specific technology investments, and underpinned by change capabilities drives the greatest improvements in enterprise value,” according to the firm.

Deloitte Digital published a report earlier this year revealing their findings. In it, the consulting firm describes digital transformation as the “fabric for enterprise survival in the face of continuous disruption.”

The stakes are potentially vast. Across the Fortune 500, for instance, nailing the right digital transformation actions could unlock US$1.25tn worth of market capitalisation. But the downside cost of getting it wrong is even greater – US$1.5tn. (And for context, almost 70 per cent of digital transformation projects fail according to Deloitte’s rivals over at McKinsey & Co).

Deloitte Digital sought to identify the correlations between how companies explained their digital transformation plans to investors and other stakeholders, and what valuations were assigned to the companies. Its hypothesis was that as these were investor communications governed by SEC rules, that made them effectively proxies for both the intentions and activities of businesses.

These were then classified into three dimensions and the impact quantified. According to Deloitte Digital, these are;

• Digital strategy: These are the strategic possibilities created by digital transformation. Examples of digital strategy terms include new digital capabilities, new markets and new products—essentially, terms that describe efforts to enable a larger strategy, sometimes spanning multiple business units. When a company articulated its digital strategy in its financial disclosures, Deloitte observed a significant positive impact on valuation. The valuation impact was two times higher than that of digital strategy. "We believe the higher valuation is due to the specificity of technologies mentioned."
• Tech aligned to strategy: The technologies that come with digital transformation and which are harnessed towards achieving discrete goals that bring the strategy to life. "When we found evidence of technology aligned to strategy in companies’ financial disclosures, the valuation impact was two times higher than that of digital strategy."
• Digital change: This reflects the organisation’s ability to adapt to and adopt new processes, resources, and ways of working and refers to the more qualitative, human characteristics necessary for a transformation, encapsulating a multitude of talent domains, according to the study.  "When analysing disclosures that articulated change programs in general terms or without reference to specific digital actions, we found that market capitalisation eroded. When observed on its own, digital change was nearly three times less impactful than digital strategy and put existing market cap at risk of erosion."   The analysis indicated that while only doing digital change has a negative relationship to market cap on its own, "when combined with one or two of the other actions, it’s an essential value catalyst. It turns the most negative scenario into the most positive one."

The report says suggests that if  a company could only focus on one of the three it would be best to laser in on technologies aligned to strategy as this drives superior market value. "And the more specific you can be with stakeholders, the more you’re rewarded in the market. There’s power in being vocal about your actions with investors and other stakeholders."

Here's an example of two different company investor relations strategies noted by Mi3 that demonstrate the difference between detailed communications to shareholders versus relying on generalities. Woolworths' comms is from an earnings transcript, Bailador's is from an annual report (which also needs to be considered): 

Walking and talking

Unsurprisingly, however doing – and communicating and executing – all three well, delivered the best result. But while Deloitte Digital itself describes this finding as a motherhood statement, it also noted that only a third of Fortune 500 companies delivered on the trifecta.

What matters most was linking words to deeds and the intentionality revealed in how this was communicated, Deloitte Digital says.

“We found that the link between strategy and action is the determining factor in a company’s ability to derive the most value from its digital transformation," the report says. "Research shows these actions can increase enterprise value if executed with intent, yet not all actions are created equal.”

Speaking to Mi3 earlier this year about the research, Deloitte Digital's lead Sam Roddick said: “The total swing for the world economy by approaching digital transformation in the right way versus the wrong way is a staggeringly big figure. You saw about 5 per cent uplift in market capitalisation when three factors were present across those ten years worth of filings with a degree of consistency.

"Where there is clear strategic intent, so the organisation knew where they were trying to go, backed up by use of specific technologies to enable that, and then combined with change in cultural management around that transformation... there was correlation between increased market capitalisation – and that ties in with further research we've done where the big transformations need to be led by the CEO, need to be sponsored by the CEO, because the challenges of getting them done."

Transformative technology

As to which three digital technologies are faster to yield value than others? Three stood out – cloud computing, artificial intelligence and cybersecurity.

Per the report: “Cloud was first out of the gate to spark digital transformation. It’s also a natural fit for our analysis, as it serves a forcing function from the strategy to the operating model changes that come in adoption. AI and cyber increase value, though over longer horizons. As adoption accelerates, we expect the same value impacts.”

Ultimately, they noted, “Cloud is the leading indicator that foundational tech will drive returns if wielded intentionally”.

Finally, Deloitte Digital also has some advice for the corporate carnival barkers: "Think about investor relations as a possibly overlooked tool in your arsenal—a way to signal your confidence in the plans you have made and the actions you intend to take, and to demonstrate how strongly digital transformation figures into the enterprise’s plans."