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RESEARCH REPORT

Reinventing with a digital core

Chapter 1: How to accelerate growth through change

5-MINUTE READ

July 16, 2024

In brief

  • To thrive amidst change and capture the value of disruptive technologies like generative AI, companies need a digital core that is reinvention ready.

  • To do this, companies must 1) Build an industry-leading digital core 2) Boost investments in innovation 3) Balance technical debt.

  • According to our research, doing all 3 created a 60:40 effect: 60% higher revenue growth rate and 40% higher profitability.

The technology capability your business needs, now

How can companies grow through constant change? This question is on the minds of executives as they face unprecedented disruption in their business environment.

Technology is now ranked the #1 most disruptive force today (up from #6 from a few years ago)—largely due to the rapid rise of generative AI. The enormous power of gen AI to reinvent every facet of business is not lost on companies.

However, expectations for gen AI are exceeding their current digital core capabilities:

50%

of executives believe that they can scale gen AI enterprise-wide in 6 to 12 months.

13%

are “extremely confident” that they have the right data strategies and the core digital capabilities in place to effectively leverage gen AI.

This gen AI-fueled, strategic shift towards reinvention has created an enormous need for a digital core: one that amplifies machines, humans and the interaction between the two in new and significant ways. Our analysis of 1,500 companies across 10 countries and 19 industries reveals that a digital core that is “reinvention-ready” is non-negotiable today.

What is the digital core?

We define the digital core as the critical technology capability that can create and empower an organization’s unique reinvention ambitions.

Demystifying the digital core: A digital core fit for continuous reinvention includes three distinct groups of technologies that constantly interact with each other.

It enables organizations to accelerate ahead of the competition and achieve their ambitions—using the right mix of cloud infrastructure and practices for agility and innovation; data and AI for differentiation; applications and platforms to accelerate growth, next-gen experiences and optimized operations—with security by design at every level.

Not all digital cores, however, are built the same, and every company’s journey will be different.

Powering the potential of generative AI 

The digital core is what enables gen AI—or any future disruptive technology—to deliver its full potential.

In our analyses, companies with industry-leading digital cores (top 25 percentile of our Digital Core Index) are reinventing twice as many functions with gen AI and are expected to create twice as much value. Early gen AI adopters see more benefits in terms of scale and scope of their projects.

Companies that are early gen- AI adopters see more benefits, both in terms of scale and scope of their projects.
Companies that are early gen- AI adopters see more benefits, both in terms of scale and scope of their projects.

Whether gen AI or the next new thing, the digital core is the engine that enables your company to drive reinvention with transformative technology.

What does it take to become reinvention ready?

Our research has identified three tenets that companies must follow to achieve reinvention readiness with the digital core:

Build

Build an industry-leading digital core, tailored specifically to your industry and company.

Boost

Boost strategic investments in innovation by 6% or more each year, including to re-engineer systems for machine (AI) operations.

Balance

Balance technical debt liabilities with investments for the future, targeting 15% of budgets, using programmatic and autonomous methods.

Taken together, these steps will enable a company to rapidly adopt new technologies and benefit from first-mover and fast-follower advantages. In fact, companies that did all three experienced what we call the “60:40 effect”.

The 60:40 effect

60%

higher revenue growth rate (from 7.1% to 11.1% on average)

40%

higher profitability (from 14.2 to 19.4 percentage points on average)

And as of today, only 3% of companies have cracked this code. Now is the time to act on these three tenets, to pull ahead of the pack.

01

Build an industry-leading digital core for your industry and company

Our research shows that companies need to achieve an "industry-leading" level of digital core capability—defined as the top 25th percentile in our Digital Core Index—to empower continuous reinvention.

The Digital Core Index represents the aggregate strength of a company’s digital core as the average of each of its seven components' capabilities – their digital platforms, data, cloud-first infrastructure, composable integration, AI, security, and continuum control plane.

The Digital Core Index represents the strength of each of a company's seven digital core component capabilities - digital platforms, data, cloud-first infrastructure, composable integration, AI, security and continuum control plane. The bar chart shows average strength of each component across three sets of respondents: those in the bottom 25%, those in the mid 50%, and those in the top 25%.
The Digital Core Index represents the strength of each of a company's seven digital core component capabilities - digital platforms, data, cloud-first infrastructure, composable integration, AI, security and continuum control plane. The bar chart shows average strength of each component across three sets of respondents: those in the bottom 25%, those in the mid 50%, and those in the top 25%.

Digital Core Index

According to our research, achieving this “industry-leading” level, on its own, has many benefits:

Benefits of an industry-leading digital core

20%

higher revenue growth rate

30%

increase in profitability

54%

strongly agreed their enterprise systems help them diversify into other geographies and industries

2X

greater integration and end-to-end engineering and operations visibility (i.e., CCP)

Also promising—we found strong correlations between different components of the digital core. Which means when one is improved, it can create a ripple effect across others. For example, higher digital core capabilities enable greater AI adoption, while greater AI adoption can in turn further the development of the digital core. It’s a virtuous cycle.

02

Boost investments in innovation, including re-engineering systems for machine (AI) operations

Getting to a reinvention-ready digital core requires continuously boosting the proportion of IT budgets dedicated to strategic innovation (like gen AI). We found that shifting at least 6% yearly from maintenance to innovation was a recipe for success.

How are companies doing it? We see many reducing inefficiencies by rationalizing vendors, optimizing cloud costs and operationalizing wholesale automation. They can use those freed-up funds to redesign business processes, launch new products and services and enter new markets.

80%

of companies are likely to grow their innovation budgets beyond 2023 at twice the intensity than they have before.

Bar chart depicts the move to an innovation-oriented IT budget. Decelerate = 2%, No Change = 19%, Accelerate = 80%

Designing with machines in mind will help generate those efficiency payoffs. Consider a future supply chain process where things like data collection, trend analysis, pre-ordering, system optimization are all designed to be accomplished end-to-end by machines. Humans can still intervene at any step, but the resulting system increases efficiencies and saves costs that can be reinvested.

03

Balance technical debt liabilities with future investments using programmatic methods

Many companies that relied on a “move-as-fast-as-you-can” strategy during the pandemic found themselves with mounting technical debt. Today, a more balanced approach to innovation is needed.

Our analysis reveals that leading companies allocate, on average, 15% of the IT budget toward tech debt remediation. It’s the sweet spot that enables “paying down debt” without sacrificing strategic investments.

Today’s companies are using gen AI and other technologies to maintain evergreen IT. But our research revealed that AI has risen to become a leading contributor to tech debt, tied with applications.

AI is the highest contributor to tech debt, tied with applications.
AI is the highest contributor to tech debt, tied with applications.

Clearly AI can be a double-edged sword. This means that companies looking to rapidly scale gen AI capabilities must invest in tech debt remediation to counter the potential pitfalls.

We see more programmatic approaches being used to contain technical debt at code, infrastructure and other parts of the system.

Benefits of reinvention readiness

Creating a reinvention-ready digital core simplifies the adoption of new technologies like gen AI. It also enables companies to break other performance barriers.

Companies adhering to all three tenets are:

1.3X

more likely to say that their digital core enabled them to identify and mitigate risks (cyber, regulatory, Responsible AI) across multiple technologies, applications and ecosystem partners.

1.4X

more likely to say that their digital core enabled their non-IT employees to create their own customized solutions using low code/no code tools.

New ways of working

To be reinvention-ready, a company must also continuously adopt new ways of working, including new operating models, methods and processes for their workforce. This starts at the team level, and many companies are making great strides:

68%

report building strong capabilities around dynamic teams, where team members can rotate on and off based on project needs

67%

are developing strong multi-disciplinary teams that are cross-functional and integrate technology and other skills

60%

of companies in the top quartile of our Digital Core Index design talent capabilities and technology solutions to enable continuous change (vs. 49% of others)

So where do you start?

In this chapter, we established that a digital core is critical for a company to carry out continuous reinvention.

Our next chapter will share how to build your digital core strength. We’ll illustrate the new engineering principles you should apply on your journey, and provide a roadmap to reinventing with a digital core.

WRITTEN BY

Karthik Narain

Group Chief Executive – Technology and Chief Technology Officer

Paul Daugherty

Chief Technology & Innovation Officer

Koenraad Schelfaut

Lead – Technology Strategy & Advisory

David Wood

Global Technology Consulting Lead

Prashant P. Shukla, PhD

Principal Director – Accenture Research

Jim Wilson

Global Managing Director – Thought Leadership & Technology Research