The Case for Digital Reinvention

The Case for Digital Reinvention

A new report from McKinsey provides further evidence of a strong positive correlation between digital maturity and subsequent financial performance (see also our previous blog post Digital Leaders Outperform Digital Laggards).

In an era of rapid digital change and digital disruption, the report concludes that “bold, tightly integrated digital strategies will be the biggest differentiator between companies that win and companies that don’t”. The biggest payouts will go to companies that initiate digital disruptions. Fast-followers with operational excellence and superior organisational health won’t be far behind.

Based on detailed research (methodology here), the report lists the distinguishing characteristics of ‘digital winners’:

  • ‘Leading digital’ companies invest more boldly in digital than their less well-performing counterparts. Companies who respond most aggressively to industry digitisation outperform others in terms of revenue and profit growth. The majority of companies are not sufficiently bold in the magnitude and scope of their digital investments.
  • Digital leading companies fully align strategy and action. Digital reinvention requires redesign of end-to-end business processes, paying close attention to the customer experience, IT requirements and organisational issues such as structure, talent, incentives and culture. The implementation plan prioritises digital initiatives that generate the greatest economic value.
  • Building capabilities to deliver the strategy is critical. The report is clear “that no organisation will have all of the capabilities it needs within its own walls”. Executives must develop a digital ecosystem of external teams, partners, suppliers and customers, including a mix of platform players, delivery specialists and niche outfits with specific industry expertise and capabilities.
  • In summary, companies in the top-quartile of financial performance closely tie their digital and corporate strategies, invest significantly more in digital and develop strengths in organisational culture compared to poorer performing companies. ‘Digital winners’ are less likely to be hindered by siloed mind-sets and behaviour or by a fragmented view of the customer.
  • The report concludes that a strong organisational culture is critical to digital success – “it enhances the ability to perceive digital threats and opportunities, bolsters the scope of actions companies can take in response to digitisation and supports the coordinated execution of those actions across functions, departments and business units”.

The main conclusions of the McKinsey report raise important implications across many of the sectors we operate in. For example, in the water utility industry, digital transformation has become critical to success in a post-1st April open, deregulated marketplace – see Water Deregulation: Is the Industry Ready Digitally?

The report’s findings are also highly relevant to the public sector, especially regarding the importance of organisational issues to digital success.

The full McKinsey report can be accessed here – The Case for Digital Reinvention