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Monday, March 20, 2017

Case of Digital Reinvention 4



As executives assess the scope of their investments, they should ask themselves if they have taken only a few steps forward in a given dimension—by digitizing their existing customer touchpoints, say. Others might find that they have acted more significantly by digitizing nearly all of their business processes and introducing new ones, where needed, to connect suppliers and users.
To that end, it may be useful to take a closer look at Exhibit 6, which comprises six smaller charts. The last of them totals up actions companies take in each dimension of digitization. Here we can see that the most assertive players will be able to restore more than 11 percent of the 12 percent loss in projected revenue growth, as well as 7.3 percent of the 10.4 percent reduction in profit growth. Such results will require action across all dimensions, not just one or two—a tall order for any management team, even those at today’s digital leaders.

Looking at the digital winners

To understand what today’s leaders are doing, we identified the companies in our survey that achieved top-quartile rankings in each of three measures: revenue growth, EBIT growth, and return on digital investment.

We found that more than twice as many leading companies closely tie their digital and corporate strategies than don’t. What’s more, winners tend to respond to digitization by changing their corporate strategies significantly. This makes intuitive sense: many digital disruptions require fundamental changes to business models. Further, 49 percent of leading companies are investing in digital more than their counterparts do, compared with only 5 percent of the laggards, 90 percent of which invest less than their counterparts. It’s unclear which way the causation runs, of course, but it does appear that heavy digital investment is a differentiator.

Leading companies not only invested more but also did so across all of the dimensions we studied. In other words, winners exceed laggards in both the magnitude and the scope of their digital investments (Exhibit 7). This is a critical element of success, given the different rates at which these dimensions are digitizing and their varying effect on economic performance. 





Strengths in organizational culture underpin these bolder actions. Winners were less likely to be hindered by siloed mind-sets and behavior or by a fragmented view of their customers. A strong organizational culture is important for several reasons: it enhances the ability to perceive digital threats and opportunities, bolsters the scope of actions companies can take in response to digitization, and supports the coordinated execution of those actions across functions, departments, and business units.

Bold strategies win

So we found a mismatch between today’s digital investments and the dimensions in which digitization is most significantly affecting revenue and profit growth. We also confirmed that winners invest more, and more broadly and boldly, than other companies do. Then we tested two paths to growth as industries reach full digitization.

The first path emphasizes strategies that change a business’s scope, including the kind of pure-play disruptions the hyperscale businesses discussed earlier generate. As Exhibit 8 shows, a great strategy can by itself retrieve all of the revenue growth lost, on average, to full digitization—at least in the aggregate industry view. Combining this kind of superior strategy with median performance in the nonstrategy dimensions of McKinsey’s digital-quotient framework—including agile operations, organization, culture, and talent—yields total projected growth of 4.3 percent in annual revenues. (For more about how we arrived at these conclusions, see sidebar “About the research.”).







Most executives would fancy the kind of ecosystem play that Alibaba, Amazon, Google, and Tencent have made on their respective platforms. Yet many recognize that few companies can mount disruptive strategies, at least at the ecosystem level. With that in mind, we tested a second path to revenue growth (Exhibit 9).






In the quest for coherent responses to a digitizing world, companies must assess how far digitization has progressed along multiple dimensions in their industries and the impact that this evolution is having—and will have—on economic performance. And they must act on each of these dimensions with bold, tightly integrated strategies. Only then will their investments match the context in which they compete.

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