Deloitte used AI to analyze 10 years of financial disclosures from more than 4,000 global organizations, looking for correlations between how companies explained their digital transformation plans and what valuations they saw. Since these investor communications are governed by SEC regulations, they serve as a proxy for digital transformation intentions and the actions taken by the enterprise.
The result: a much clearer picture of actions that can drive value and those that can destroy it. According to our analysis, if every Fortune 500 company optimally combined three core digital transformation actions, they could unlock as much as US$1.25 trillion in additional market capitalization. But the wrong combinations can erode market value, putting over US$1.5 trillion at risk.
Our research shows that companies demonstrating the below three actions together significantly outperformed those that didn’t. In practical terms, they are defined as:
We examined the impacts of each action individually and in various combinations to understand which combinations could yield the greatest value—and which could yield the least. Several distinct patterns emerged:
When a company articulated its digital strategy in its financial disclosures, we observed a significant positive impact on valuation. This is where many organizations start their digital transformation value journey, though only 44% have a high maturity related to this action. We hypothesize that the market understands the impact of “digital” on all companies regardless of industry and gives management credit for taking action to modernize the business in support of a broader strategy. Perhaps evidence of action here, no matter how general, demonstrates an organization’s prioritization of digital goals.
Technology aligned to strategy
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. We believe the higher valuation is due to the specificity of technologies mentioned. This likely gives stakeholders a more tangible sense of strategies employed, and a way to keep closer tabs on where the enterprise is placing its capital bets—which, for many, can be massive. Many of these technologies are also viewed as emerging or leading-edge and can reflect a forward-looking approach to improved performance.
Despite the positive news around the previous two actions, our research uncovered a cautionary tale for digital change. When analyzing disclosures that articulated change programs in general terms or without reference to specific digital actions, we found that market capitalization 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.
We believe this occurs for two reasons. First, change for change’s sake, without purpose or any ties to a broader strategy, is insufficient. It lacks the specificity to mobilize stakeholders and rally them around shared interests. Second, many stakeholders understand that change can yield a high degree of uncertainty. Without a specific plan, stakeholders discount management’s ability to move the organization forward. Confidence is lost, momentum is impaired, and leadership could be viewed as chasing the latest management fad.
According to our analysis, if you can only do one thing, focus your efforts on technologies aligned to strategy because it 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. 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.