A winning operating model for digital strategy

March 29, 2020

Business People meeting Planning Strategy Analysis on new business project Concept

Here is an excerpt from an article that appeared in the McKinsey Quarterly, published by McKinsey & Company. It shares the results of an important survey on digital transformation.

To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

* * *

For many companies, the process of building and executing strategy in the digital age seems to generate more questions than answers. Despite digital’s dramatic effects on global business—the disruptions that have upended industries and the radically increasing speed at which business is done—the latest McKinsey Global Survey on the topic suggests that companies are making little progress in their efforts to digitalize the business model.  Respondents who participated in this year’s and last year’s surveys report a roughly equal degree of digitalization as they did one year ago,  suggesting that companies are getting stuck in their efforts to digitally transform their business.The need for an agile digital strategy is clear, yet it eludes many—and there are plenty of pitfalls that we know result in failure. We have looked at how some companies are reinventing themselves in response to digital, not only to avoid failure but also to thrive. In this survey, we explored which specific practices organizations must have in place to shape a winning strategy for digital—in essence, what the operating model looks like for a successful digital strategy of reinvention. Based on the responses, there are four areas of marked difference in how companies with the best economic performance approach digital strategy,   compared with all others:

  • The best performers have increased the agility of their digital-strategy practices, which enables first-mover opportunities.
  • They have taken advantage of digital platforms to access broader ecosystems and to innovate new digital products and business models.
  • They have used M&A to build new digital capabilities and digital businesses.
  • They have invested ahead of their peers in digital talent.

Increase the agility of creating, executing, and adjusting strategy

One of the biggest factors that differentiate the top economic performers from others is how quick and adaptable they are in setting, executing, and adjusting their digital strategies—in other words, the velocity and adaptability of their operating models for digital strategy. Both are necessary for companies to achieve first-mover (or very-fast-follower) status, which we know to be a source of significant economic advantage.   So how do they do it? We looked at the frequency with which companies follow 11 operational practices of digital strategy. With the exception of M&A—which typically requires a much longer time frame than the other ten, often due to regulatory reasons—respondents in the top revenue decile say their companies carry out each one more frequently than their peers (Exhibit 1). The link between frequency and performance also holds up when looking at earnings before interest and taxes (EBIT). 

That speed in strategy links with financial outperformance is not surprising and is consistent with our other work on strategy planning. As the pace of digital-related changes continues to accelerate, companies are required to make larger bets and to reallocate capital and people more quickly. These tactical changes to the creation, execution, and continuous modification of digital strategy enables companies to apply a “fail fast” mentality and become better at both spotting emerging opportunities and cutting their losses in obsolescent ones, which enables greater profitability and higher revenue growth.

* * *

Here is a direct link to the complete article.

The survey content and analysis were developed by Jacques Bughin, a director of the McKinsey Global Institute and senior partner in McKinsey’s Brussels office; Tanguy Catlin, a senior partner in the Boston office; and Laura LaBerge, a senior expert in the Stamford office.

They wish to thank Soyoko Umeno for her contributions to this work.

 

Posted in

Leave a Comment





This site uses Akismet to reduce spam. Learn how your comment data is processed.