Here is a brief excerpt from an article written by Driek Desmet, Ewan Duncan, Jay Scanlan, and Marc Singer for the McKinsey Quarterly, published 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.
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Digitization affects almost everything in today’s organizations, which makes capturing its benefits uniquely complex. Here are the most important aspects that winning companies consider.
Few companies need to be sold on the benefits of digitization. McKinsey research shows that companies have lofty ambitions: they expect digital initiatives to deliver annual growth and cost efficiencies of 5 to 10 percent or more in the next three to five years.1 Yet despite the often-substantial investments companies have made in digital initiatives, few see that kind of growth.
That’s because getting the engine in place to digitize at scale is uniquely complex. Since digital touches so many parts of an organization, any large digital program requires unprecedented coordination of people, processes, and technologies. A strategy to increase revenue from high-value customer segments, for example, requires analytics-based insights into which purchasing journeys generate the most value, a clear vision and plan for how to capture that value, and technologies and tools to digitize interactions with customers. New capabilities and teams are also needed to manage and coordinate the delivery of those journeys across the organization.
Of course, adapting over time has always been essential to corporate success. Yet while the average corporate life span has been falling for more than half a century—Standard & Poor’s data show it was 61 years in 1958, 25 years in 1980, and just 18 years in 2011—digitization is placing unprecedented pressure on organizations to evolve. At the present rate, 75 percent of S&P 500 incumbents will be gone by 2027.3 That means managing your transition to a digitally driven business model isn’t just critical to beating competitors; it’s crucial to survival.
Six building blocks
In our experience, companies that have successfully transitioned to become high-performing digital enterprises are able to orchestrate six building blocks: strategy and innovation, the customer decision journey, process automation, organization, technology, and data and analytics (exhibit). Now, not every digital initiative requires each building block to be developed and used to the same degree. Some blocks will also serve as more natural starting points, depending on a company’s circumstances—for instance, a company whose IT constraints make it hard to deliver a cutting-edge customer experience will naturally want to focus on the technology and process elements first. But we’ve found that this framework provides executives with a coherent structure for thinking through and managing large-scale digital programs.
The First Building Block: Staking out your strategic position
Digital strategy is intrinsic to business strategy today. In fact, 90 percent of digital leaders (versus 60 percent of all leaders) have fully integrated digital into their strategic-planning process. The best digital strategies don’t rely on past analyses, but instead start fresh and carve out a vision based on where they believe value is likely to shift over the next three to five years (see sidebar, “Staking out your strategic position”). They assess at a granular level where value is likely to be disrupted within their own business and market, and they isolate where and how they will compete. Effective digital strategies prioritize a handful of interventions where the business can exploit significant opportunities (and divest or reduce exposure in markets where value is declining), then craft a digitally enabled business model around them. That could mean creating a new way for customers to purchase a product, moving into new businesses, or exploiting competitive advantages such as proprietary data in new ways.
For example, one large retailer actively reviewed its portfolio and decided to divest its consumer-electronics business when it saw margins eroding. It then invested in an online retailer when it realized the strong growth trajectory of e-commerce in the sector. When GE identified a strategic goal it needed to work toward—making deeper connections with decision makers—it designed a company-wide social graph that tapped customer connections and relationships across its 300,000-strong employee base. That enormous internal network gave salespeople and account managers a significant leg up in forging new connections and provided marketing with a return that was about 350 times its investment.
A digital strategy also increasingly blurs the boundaries between strategy and execution. In fact, 60 percent of digital leaders run strategy by experimentation through limited releases and prototyping, for example.
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While each of these building blocks is important, the real value is in being able to integrate them and manage the cross-business contingencies and dependencies of a large-scale digital initiative (for more on using the six building blocks, see our infographic “From good to great” in the downloadable PDF of this article). The digital revolution has given birth to an interconnected world that binds customers, employees, managers, and systems together in a network of unprecedented complexity and opportunity. Making sense of those connections and building value requires a new interdisciplinary model of work that is redefining how companies succeed today.
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Here is a direct link to the complete article.
Driek Desmet is a director in McKinsey’s Singapore office, Ewan Duncan is a director in the Seattle office, Jay Scanlan is a principal in the London office, and Marc Singer is a director in the San Francisco office.