Here is a brief excerpt from a transcript of a podcast sponsored by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.
To learn more about the McKinsey Quarterly, please click here.
* * *
Companies that successfully adopt digital technology don’t view it as an extra; digitization becomes central to what they are because they transform their value propositions and evolve every level of the organization so that it becomes data driven, customer obsessed, and highly agile. In this episode of the McKinsey Podcast, recorded in November 2015, principals Karel Dorner and David Edelman talk with Barr Seitz about why, decades into the digital revolution, companies are still trying to define what digital really is and struggling to make the most of it. An edited transcript of their conversation follows.
* * *
Barr Seitz: Hello and welcome to the McKinsey Podcast. I’m Barr Seitz, global publishing lead for McKinsey’s Marketing & Sales and Digital practices. I’m very happy to introduce my two guests, Karel Dorner, a partner in McKinsey’s Munich office and a leader of the McKinsey Digital Practice, and Dave Edelman, a partner in our Boston office and global leader of our Digital Marketing Group. Karel and Dave are also the authors of “What ‘digital’ really means,” one of the top articles published this year on mckinsey.com. I’ll be talking to Dave and Karel about the meaning of digital, why knowing the meaning is important, and how leaders can use that understanding to help transform a business at its core rather than at the edges.
Dave, the first question is for you. I’m fascinated by this idea that a good two decades or so into the digital revolution, we still feel the need to define what digital means. And yet, clearly, that’s the case. What is digital and what is it not, and why do businesses have such trouble defining it?
David Edelman: Barr, I think I’m going to take that question backward. Businesses have trouble defining digital because, for the most part, it seemed like an extra channel that they added on to their businesses—for customer service, an extra way customers could interact with them; for sales, an additional set of marketing channels. It always seemed like something added on to the business.
But what’s clear today—and emphasized by companies that have really created whole new business models based on digital—is that digital is not just about more; it’s about different. And you need to take a different view of how a business is affected by digital. We see digital as being three things. Digital can be the levers by which you think about new ways to assemble your overall business model, the way you make money, the way you deliver a value proposition overall. In parallel with that, digital also is a new way to interact with customers to take your value proposition and bring it to market. Third, digital is a different way of operating within a company, and within a broader ecosystem, to actually make those products and services happen.
The hard thing for businesses is that looking at digital through those lenses can be so different from the way you operate now. A classic example of this is the transformation that General Electric is going through. Instead of just, for example, selling a jet engine or selling a locomotive, they’re selling uptime. They’re using sensors on all of their equipment to track how their products perform. Then they’re proactively managing maintenance and upgrades.
They’re essentially selling what customers want—which is speed, time, and performance, rather than just buying a thing, a jet engine. That’s a pretty radical change in how you think about your business model.
Karel Dorner: Taking Dave’s example, this is not just bringing out a new product or the next version of an existing product. This is fundamentally changing the value proposition toward the customer, and it eventually affects all parts of the enterprise. It will affect the product-development side that has developed these jet engines. It will affect the sales division—how are they actually selling this; what are the sales models? Also, what are the channels? So there’s a marketing element there, as well. The service department also will very clearly be affected.
And that’s why leaders have to bring this perspective of what digital means for their companies, for their customers, into the entire organization and focus the organization behind a common goal. Otherwise, we see that companies are not able to create the momentum that is needed to become successful. In the past 20 years, digital opportunities were often scattered around. There were some initiatives popping up here and there; everybody more or less defined a personal version of digital. And that led to subcritical efforts that stalled and then led to miserable results.
* * *
Here is a direct link to the transcript.
David Edelman is a principal in McKinsey’s Boston office, and Karel Dorner is a principal in the Munich office. This interview was conducted by McKinsey Digital and Marketing & Sales practices’ Barr Seitz.