Executive
Perspectives

The CEO’s Dilemma
Leveraging Tech and Digital to Build Resilience
May 2023

Introduction

Companies need to respond to such disruptions with a well-thought-out
action plan. Tech and digital are important levers to mitigate thesechallenges and build resilience, both from within the tech function andas an enabler of business growth.
Some business leaders might be skeptical about investing in tech anddigital during a downturn. And indeed, we have seen 70% of digitaltransformations fall short of their objectives. But our research also
shows that well-selected investments in next-generation technologies
such as AI are paying off—with 20% higher value generated for techand digital leaders.

In this edition of BCG
Executive Perspectives, welook at how to leverage techand digital to build resilience
within the tech function andacross the business.

The levers described here go far beyond tech and digital cost reduction.
Still, cost takeout is an "evergreen" lever to pull, rewarding companies
with 15% to 40% savings on tech and digital costs (even after several
reduction rounds) and thus helping to fund the journey to resilience.
Source: BCG global DSR and DAI studies.

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Copyright © 2023 by Boston Consulting Group. All rights reserved.

The current crisis is unprecedented. Companies are exposed to a
combination of substantial challenges—climate change, disruption of
supply chains, inflation, the rise of generative AI—which together areleading to massive economic pressure and investment needs.

Executive Summary | Leveraging Tech and Digital to Build ResilienceHoworganizations
have turned
ambiguity into
opportunity

The current crisis is unprecedented and requires new approaches to turn ambiguity into opportunity.
The acceleration of digital adoption is putting tech and digital at the core of resilience enablement. It isimperative for organizations to rapidly deploy and adapt their tech and digital capabilities—not only byincreasing efficiency within the tech function but by enabling growth across the entire business.
Organizations need to select, prioritize, and sequence the right tech and digital levers to successfully
master resilience challenges and thrive in altered circumstances. They have to find the right balance between:•••

Generating funding supported by cost reduction in tech and digital by 15%-40% (e.g. byconsequently pulling tech cost levers and by refocusing the portfolio on value-creating initiatives)
Ensuring digital and geopolitical risk management (e.g. by increasing cyber maturity and applying a"local for local" approach where required)
Enabling business resilience and growth through tech and digital (e.g. by building new digital products
and focusing on a few value-generating digital/AI lighthouses)

Follow a three-step approach to leverage tech and digital to build resilience:

How to getstarted

1. Understand the starting point based on market and financial stability
2. Act by finding the right balance between the levers and determine the optimal implementation sequence
3. Plan the transformation based on a comprehensive tech and digital resilience roadmap

BCG has broad and deep capabilities to help define the most suitable resilience approach andjointly turn it into action. The time to act is now.
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Copyright © 2023 by Boston Consulting Group. All rights reserved.

Why tech anddigital matterfor resilience

BCG Executive
Perspectives

How organizations have turned
ambiguity into opportunity
How to get started

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Copyright © 2023 by Boston Consulting Group. All rights reserved.

AGENDAWhy tech and digital matter for
resilienceTech and digital are key to building resilience within the function —and to enabling business resilience

Turn ambiguity into
opportunity by rapidly
deploying and adapting
tech and digital towithstand, recover,and thrive in alteredcircumstances

Effectively manage digitaland operational risks, suchas cyber attacks, while
complying with relevant
standards and regulations

Increasetech and digitalefficiency and ROI
Release financial pressure by leveraging techcost/investment optimization to withstand uncertainty
and reorient toward opportunities arising from instability

Resilience of tech and digital
Source: BCG analysis.

Effectively withstand andrecover from shifts in global
and local digital/data laws,
trade blocks, andgeopolitical friction

Tech and digital enabling business growth and resilience
5

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Future-proof tech and digital capabilities and techstack as the foundation and leverage tech anddigital to enable growth and increase resilienceIncrease tech and digital efficiency and ROI | Realizing tech and digitalcost-reduction potential is key as SG&A costs rise and margins shrink
Tech and digital is a major
SG&A cost component

EBIT margin1 (%)

Industries(example)18

Key tech and digital levers to
reduce cost and increase margins

Tech spend as% of revenue

17.2%

17

Financial institutions3

16

15.2%
15

15.6%
14.1%
2021
Q3

Q4

2022
Q1
Q2

72% plan cost reduction/efficiency
efforts2 to navigate uncertainties in 2023

10%–20%

Pharmaceuticals

3%–6%Industrial goods

1.5%–3%Retail and consumer goods 1.5%–3.5%
Telecommunications

5%–12%

Sources: S&P Capital IQ; Federal Reserve Bank of Minneapolis; Social Security Administration; BCG analysis.
1 S&P 500 companies
2 Not limited to tech and digital; BCG analysis based on a global C-suite survey with n = 759 respondents.
3 For small- to midsized financial institutions: 7% to 15%. 4 EUC = end-user computing. 5 Incl. use of (generative) AI to automate process steps.

Sourcing optimization
Contract renegotiation, effective supplier
2%–5%management, external FTE optimization

Apps. and infrastructure simplification
Optimization of cloud, applications,licenses, EUC4, network, help desk

3%–15%

Operating model optimization
Tech org. and process optimization5,
DevOps and agile ways of working

8%–12%

Value-based portfolio reprioritization
Shift from less value-creating
initiatives to more value-creating ones

2%–8%

Cost reduction

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Copyright © 2023 by Boston Consulting Group. All rights reserved.

Recently, much higher marginpressure observed in the market

Enable business growth and resilience |Tech and digital is the key driver to future-proofing the business
Value gap will triple by 2025
for those who do not leverage tech and digital innovation

Key areas where tech and digital canincrease business value
54% of C-levels expect digital and AI to be the investment
priorities in medium to long term to seize opportunities2

Total value generated (indexed)1
200

160

more value
since 2019

projected

Improve forecasting and planning precisionby building data and analytics advantage

Value gap =EBIT x revenue

Optimize prices and contribution margin
by leveraging artificial intelligence

140
+66pp

120
100
2019

2020

2021

2022

Digital champions

Optimize conversion rates with generative
AI through on-model image generation

more value
projected

2023

2024

2025

Increase supply-chain transparency
by establishing an AI-based cockpit

Digital laggards

Sources: BCG Digital Acceleration Index (DAI) - Global Study 2022 (n = 2,700); BCG research; IoT Analytics Research 2022; BCG analysis and experience.
1 Total incremental margin, calculated by factoring indexed annual revenue with EBIT per year.
2 BCG analysis based on a global C-suite survey with n = 759 respondents.

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Copyright © 2023 by Boston Consulting Group. All rights reserved.

180

+22pp

Reduce digital risk | Cybersecurity threats are increasing globally;enhancing cyber resilience is nonnegotiable

$2T

82%

3.5M

… is the predicted global cost of
cyber crime for 2023

Cyber resilience
requires organizations develop the capabilities to…
Anticipate cyber events
Deeply understand how tech supports the businessvalue chain and evolve cyber resilience programs• Cyber crisis operating modeland planning• Cyber simulations and exercises• Business process and tech mapping• Cyber threat intelligence

Absorb and withstand initial shock of a cyber event
Defend against majority of day-to-day cyber attacks, andcontain successful attacks with minimal business impact

•
•
•
•

Security and resilience by design
Zero-trust architecture
Cyber incident response teamContainment technology

Adapt and recover business services swiftly
Take value-chain-centric approach to recovery prioritization; quickly reestablish critical business processes

•
•
•
•

Operational workarounds
Burst capacity
Value-chain-led recovery
Recovery plans and procedures

Shape and transform business based on learnings
Adopt culture of continuous improvement (free fromblame) and transform tech and cyber architectures• Posting of incident reviews,
corrective actions, andfeedback loops• Rearchitecting of tech and cyber…of breaches are caused byorganizational and people failure…unfilled cybersecurity roles, anumber not expected to decrease
within five years

Sources: "An Action Plan for Cyber Resilience," MIT Sloan Management Review, January 4, 2023; Verizon; Forbes; BCG analysis.

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Cyber threats
with dramatic impact

Disentangle technology | Geopolitical dynamics keep shifting; ensure
regulatory compliance and mitigate risks via tech decoupling
Tech decoupling is already a priority
for executives across the globe
Tech stack

Decoupling driver

Social media

Regional-dominant social media platforms

Applications

Different applications across different markets

Data platform

Local data residency, demarcation, encryption

Infrastructure

Separated infrastructure stack across markets

Business and user expectations

Network

Network segmentation, zero-trust approach

Higher user expectations of digital experiences will drive
further integration with local tech and digital ecosystems

Vendors

Local vendors vs. global vendors

Regulatory compliance
Compliance to data-security laws1 will be a top priority;
limitations to cross-border data transfer will require local tech

Risk mitigation
Increasing geopolitical trade frictions and sensitivity inusing foreign tech will cause a shift to local providers

Evaluatedecoupling
scenarios interms ofregulatorycompliance,
costs, andriskmitigation
impactSource: BCG analysis.
1 For example, the EU's General Data Protection Regulation (2016); China's Cybersecurity Law (2017), Data Security Law (2021), and Personal Information Protection Law (2021); American Data
Privacy and Protection Act (not yet law, in US legislative process).

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New regulatory, geopolitical, and businessdriven dynamics shaping the next decadeBCG Executive
Perspectives

How organizations have turned
ambiguity into opportunity
How to get started

10

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AGENDAWhy tech and digital matter for
resilienceFour examples of how organizations have leveraged tech and digital to turnambiguity into opportunity and become more resilientHigh

Fortress

A global transportation and logistics
company addressed cost efficiency
and modernization gaps to enablebusiness growth

A global health care company
developed a 2-year AI @ scale journey
to achieve digital and AI leadershipMarketstability

At risk

Prepared
A global consumer goods company
increased tech and digital efficiency
to fund strategic investments

A major energy company redefined its
cyber strategy while enabling faster
digital value delivery and growth

Low
Source: BCG analysis.

Financial stability

High

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UnpreparedAt risk | Release financial pressure by leveraging tech and digital levers toachieve cost efficiencies and fund strategic investments and growth
Global consumer goods company

Increase tech and digital efficiency and ROI
Identified and detailed saving measures toachieve a sustainable IT budget, for example:

Created IT cost transparency and costgovernance:• Sourcing. Consolidated, negotiated with, or terminated vendors and diligently reviewed license
spend to decommission, profile, or renegotiate.

• Created first full overview of tech FTE-related
spending, allowing for effective monitoring of
initiatives and strategic review of FTE-related cost.

• Operating model. Optimized current operating
model to ensure competitiveness in terms oflocation and external-to-internal ratio.

• Ensured full visibility on actual cost drivers.

• Cloud. Optimized cloud setup based on benchmarking, analysis, and definition of cloud-costbaseline, hosting patterns, and cloud footprint.
• Tech infrastructure. Reduced backup frequency
and storage tier; downgraded virtual machinedisk tiers for noncritical apps.

Source: BCG analysis.

• Prioritized the investment portfolio allowing
for data-driven decisions to support thecompany's growth.

Significant impact
Identified 25% cost savings
across the full baseline for techspending
Created transparent and sustainable
tech budget to release financialpressure while enabling future growth
via customer loyalty andpersonalization and store expansion• Introduced suitable governance processes tovalidate and approve tech and digital demand.

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Due to revenue decline caused by COVID-19 and amid uncertainty going into 2023, the company addressedtech and digital efficiency to realize substantial cost takeout and enable strategic investments and growthUnprepared | Improve financial stability while maintaining a competitive
position with a multilever approach
Global transport and logistics company

Tech and digital efficiency and ROI

Enable business growth and resilience

Identified and detailed saving
measures across different techcomponents:

Redesigned operating modeland talent strategy to improve
cost competitive positioning

Devised cloudmodernization measures toaccelerate innovation• Sourcing. Rightsourced(managed demand, bundled,
outsourced) and renegotiatedcontracts.

• New locations. Establishedbase in emerging tech hubs toleverage the growing techtalent pool, proximity tobusiness, and labor cost.

• Flexibility. rightsized IaaS1(e.g., virtual machines) and
optimized infrastructure(e.g., SD-WAN) to increase
performance.

• Operating model. Reduced
local footprint, hired in central
hubs, moved externals tonearshore, and insourced
critical roles across value chain.

• Scalability. modernized to
PaaS2 for limitless scalability,
speed and security.

• Operating model. Reduced
layers/span of control, shiftedfrom "managing" to "doing," andintroduced a new op. model
between IT/tech and business.
• Tech stack. Optimized reserved
instances, accelerated decommissioning of applications, andautomated incident resolution
through virtual assistants.
Source: BCG analysis.
1 IaaS = Infrastructure as a service.
2 PaaS = Platform as a service.

Significant impact
Achieved 15% cost savings on annual
tech/digital budget

Improved access to business-criticaland rare tech talent by building a tech
hub in South America
Increased scalability of tech-based
solutions through cloud modernization
to support business growth13

Copyright © 2023 by Boston Consulting Group. All rights reserved.

While conducting digital growth initiatives and having built basic cybersecurity capabilities, this T&L
company closed cost efficiency and modernization gaps that significantly contributed to business growthPrepared | Capitalize on the opportunity to stay ahead by exploring highgrowth tech and digital levers
Major energy company

Reduce digital risk

Enable business growth and resilience

Redefined cyber strategy
across five dimensions for riskbased approach

Developed unified location/
talent strategy and op. model
to differentiate key capabilities

Refocused modernization
efforts to enable new digital
capabilities• Identified strategic tradeoff
decisions across cybergovernance, risk andcompliance, security by design,
security tech, cyber operations
and recovery• Rightsourcing with criticalcapabilities insourced andcommodity tasks outsourced• Designed tech architecturethat allows platforms to build
scalable products• Detailed four key levers: org.
and service optimization,
strategic vendors and contracts,
vendor/tech rationalization, andmodernization• Redefined talent processes
e.g., job architecture, branding,assessment• Activated bionic platform
and identified 1,500+ apps
for modernization/retirement• Recentered location strategy
with hubs focused on targetedcapability development, service
centers on scale, and vendor
resources on utilization• Established central data andinsights portfolio and specificdata product lines tostrengthen digital delivery
and data accessibility

Source: BCG analysis.

Significant impact
Shifted from a reactive, compliancedriven approach to a proactive, zerotrust risk-based approach to capitalize
on scale and drive efficiency
Redesigned more than 6,000 IT roles
and increased outsourcing with ~25%
efficiencies and better capabilities
Faster digital delivery with platforms
accountable for end-to-end delivery

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To overcome an inefficient digital risk management approach, which had posed security as an operationalburden, this energy company redefined its cybersecurity strategy while enabling faster digital value deliveryFortress | Invest in future-proofing technology while maximizing current
success
Global healthcare company

Enable business growth and resilience

Significant impact
Achieved higher scalability and fastertime to prototype thanks to a flexible
and modern data platform architecture

Built full data and digital platform (DDP)
program to accelerate future builds

Leveraged tech and digital to enable businessgrowth via use cases and digital venture• Built an end-to-end data and infrastructure
foundation and reference architecture to scale
impact analytics, marketing, andinside-sales use cases• Defined new full portfolio of adv. analytics and AIenabled use cases and supported the creationof a new digital venture outside of the core

Demonstrated value at scale andachieved cash-positivity in under a year

• Adopted a minimum-viable-product approach
to keep complexity as low as possible and quickly
test present and future value delivery• Built new business-value engine within thecore focused on data and AI-driven B2B sales(e.g., warm marketing leads, potential defectors,
cross/upselling)

Achieved in ~12 months:• Implemented new organizational and op. modeland conducted tailored learning journeys• Launched series of "value-strikes outcomes" torapidly prove out impact in less than 24 weeks• 40% increase in sales-representative
productivity• x2 increase in sales conversion rate
• x4 decrease in time to market forpilot campaigns

Source: BCG analysis.

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Having already built strong historical growth and overall financial stability, this global health care company
developed a holistic, two-year AI@scale journey to achieve digital and AI leadership and future-proof its businessBCG Executive
Perspectives

How organizations have turned
ambiguity into opportunity
How to get started

16

Copyright © 2023 by Boston Consulting Group. All rights reserved.

AGENDAWhy tech and digital matter for
resilienceIncreasetech and digitalefficiency and ROI

What is the most suitableprioritization and timing for pulling
different resilience levers tomaximize value creation andresilience, i.e. to invest in growth
while strengthening financial stability?

There is no "one size fits all" answer
regarding the most suitable mix of levers
Source: BCG analysis.

17

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A key question for understanding how to leverage tech and digital to build
resilience and maximize value impact

Nine key tech and digital resilience levers to turn ambiguity into opportunity

Increase tech and digitalefficiency and ROI

Key techand digitalleversProtect the core

Disentangle
technology

Be future-proof

Reducedigital risk

Enable businessgrowth and resilience

Cost optimization

Geopolitical tech decoupling

Cyber risk

Tech-enabled business growth

Reduce tech and digital costs by
optimizing sourcing, operating
model, and tech stack

Adapt tech setup to cater forchanging regulations andgeopolitical dynamics

Adopt a zero-trust security approachfor risk mitigation across cyber anddata protection

Identify and scale a few high-valueuse cases by leveraging tech (e.g.,generative AI, DDP1, green tech)

Value-based port. prioritization

New tech partner ecosystems

System and infrastructure risk

Tech talent &businesslocation resiliencestrategy
Tech-enabled

Prioritize tech and digital initiative
portfolio based on value plus current
and expected future demand

Identify new tech-partnership opportunities to hedge geopolitical risk andsafeguard business continuity

Minimize tech obsolescence anddisruption risk to ensure stability ofbusiness-critical systems

Scale tech solutions that enable
more resilient, transparent, andsecure value chains (e.g., SRE2)
Tech-enabledbusiness growth
Tech modernization
Become an agile org, insource talentat the right locations, modernize techstack aligned with business target

Impact15%-40% cost reduction(5%-15% in first 18 months)

Source: BCG analysis.
1 DDP = data and digital platform.
2 SRE = site reliability engineering.

Compliance with local
regulations, asset protection

Risk-exposure reduction(including time to react/fix)

Resilience of tech and digital

Substantial revenue
and value uplift

Tech and digital enabling business growth and resilience18

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Fund the journey

BCG has broad and deep capabilities to help define the most suitable
resilience approach and jointly turn it into action
BCG Offering (selection)

In the last three years

Cut tech/digital cost and transform IT into a future-oriented tech function
World-class tech function
Digital portfolio consolidation Create transparency on tech and digital initiatives and prioritize for value
Shift from vertical-siloed to transversal-oriented agile/platform organization
Platform operating model

Disentangle
technology

Tech decoupling
Tech ecosystem build
Geopolicitical risk impact

Reducedigital risk

Quantify cyber-risk probability and impact
Cyber-risk quantification
Build zero-trust, cloud security, and secure tech stack
Secure design and cloud
Cyber architect. acceleration Build security and resilience into initiatives from the start

Enable businessgrowth andresilience

Flywheel/build and scale
AI @ scale
DDP-led transformation

Powered by

Effectively decouple tech stack based on geopolitical scenario assessment

Develop global joint ventures, alliances, and digital ecosystems
Assess geopolitical scenario-related risks and impacts on tech stack

Ideate and build new digital products and innovative experiences in the core

Inject AI into core of customer engagement, business ops, innovation
Establish a data-driven business architecture

7K business, digital, and tech experts across+3K
tech and digital costoptimization projects+600
decoupling/geopolitical risk projects+600
cybersecurity
projects+10K
tech and digitalprojects

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Increase tech anddigital efficiency
and ROIA three-step approach to leverage tech and digital tobuild resilience and get the transformation started

1

Understand your resilience starting point based on four majorarchetypes while assessing and benchmarking your current
level of tech and digital maturity and budget allocation

2

Act by selecting and prioritizing the right tech and digitallevers based on your starting point, tech and digital maturity,
and resilience ambition across all four key dimensions

3

Plan the transformation by developing a comprehensive techand-digital resilience roadmap and leverage no-regret and fasterROI-generating levers to fund the resilience journey

20

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The time to act is now

Connect with our tech and digital resilience leadership team with any questions

Central Resilience Team

Michael GrebeManaging Director & Senior Partner
grebe.michael@bcg.com
MunichVladimir Lukic
Managing Director & Senior Partner
lukic.vladimir@bcg.com
BostonRyoji KimuraManaging Director & Senior Partner
kimura.ryoji@bcg.com
Tokyo

Rohit Nalgirkar
Managing Director & Partner
nalgirkar.rohit@bcg.com
San Francisco

Amanda Luther
Managing Director & Partner
luther.amanda@bcg.com
AustinAlexander RoosManaging Director & Senior Partner
roos.alexander@bcg.com
BerlinLuc GrimondManaging Director & Partner
grimond.luc@bcg.com
Singapore

Paul O'Rourke
Managing Director & Partner
orourke.paul@bcg.com
Melbourne

Jessica Apotheker
Managing Director & Partner
apotheker.jessica@bcg.com
Paris

Sylvain Duranton
Managing Director & Senior Partner
duranton.sylvain@bcg.com
Paris

Kim KirchbachPartner
kirchbach.kim@bcg.com
Hamburg

Daniel Feldkamp
Managing Director & Partner
feldkamp.daniel@bcg.com
MunichEmail TechDigitalResilience@bcg.com for any inquiry on BCG tech and digital resilience capabilities.
Click here for our latest publications in the CEO's Dilemma Executive Perspective series and additional resilience insights.

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Tech and Digital Team