Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
Digital transformation – separating myths from reality
Steven Spittaels
June 2017
REINVENTING YOUR BUSINESS TOGETHER
| BIG DATA | ANALYTICS | INNOVATION |
2 McKinsey & Company
Digital transformation is hard
The goalposts keep moving, forcing questions on
strategy and business models.
It is unclear who should own the digital agenda.
Acquiring and releasing talent is painful.
The business case does not add up.
The risks are hard to assess.
Transformation takes longer than the time available.
3 McKinsey & Company
Executives at incumbents are seeking advice from Silicon Valley
4 McKinsey & Company
Here are some of the things you might hear in Silicon Valley... but which to believe
1
2
3
4
5
6
7
Digital is disrupting every sector
Disruptors have the upper hand
Winning requires bold
investment in transformation
Agility is the best strategy Culture change is
critical
CEOs must lead the digital
agenda
Building new businesses is
better than reshaping old
ones
5 McKinsey & Company
Myth 1 Digital is disrupting every sector.
6 McKinsey & Company
Every sector is being disrupted
RETAIL
LEISURE
SHIPPING
MANUFACTURING
TRANSPORT
INCUMBENT ATTACKER
7 McKinsey & Company
Digital is even disrupting sectors that are traditionally immune to attackers
Market capitalisation1 $ Billions
SOURCE: Capital IQ, Skift Research
30
35
25
20
10
0
15
5
2014 15 2016
1 Valuation insteaed of Market capitalization for Airbnb
8 McKinsey & Company
Myth #1 Digital is disrupting every sector.
• Digital disruption is affecting every sector
• An understanding of your sector’s pace
and scale of disruption will determine
appropriate action
9 McKinsey & Company
Myth #2 Disrupters have the upper hand.
10 McKinsey & Company
Estimated market share of new digital entrants/adjacencies Percent
8
8
13
14
15
16
17
18
25
26
Consumer packaged goods
Automotive and assembly
Transportation
Finance and Insurance
Retail
Professional services
Telecom
Information Technology
Healthcare
Media
SOURCE: 2016 McKinsey Digital Survey
Disruptors are taking share in most sectors
11 McKinsey & Company
What they did
Shifted from commoditized manufacturing to customized
services
Deployed next generation technology to help customer
develop agronomic insights
But incumbents have also had significant digital success
Making
tractors
Online services
for farmers
Old business model New verticals
SOURCE: Operator website; Annual report; Press search
12 McKinsey & Company
Myth #2 Disrupters have the upper hand.
• There is much incumbents can learn
from disruptors
• Incumbents have many capabilities that
can be deployed to win
13 McKinsey & Company
Myth #3 Winning requires bold investment in transformation.
14 McKinsey & Company
4
7%
11%
6 5 3 1 2
There is a clear return on digital investment
SOURCE: 2016 McKinsey Digital Survey
Level of digital investment
Significant digital
investment1
Little digital
investment
EBIT growth
Revenue growth
1 Assumes that investment is digital is proportional to level of disruption achieved
Impact of digital boldness on Revenue and EBIT
% growth
15 McKinsey & Company
But investment needs to be selective – only half the firms are making a clear return on capital invested in digital
1 Assumes average cost of capital of 10%
SOURCE: 2016 McKinsey Digital Survey
51
24
25
Negative ROI
ROI is more than
cost of capital
ROI is less than
cost of capital1
Digital initiatives ROI
Percent of companies
16 McKinsey & Company
Myth #3 Winning requires bold investment in transformation.
• Prioritise digital and make bold
strategic investments to win
• Be selective on investments to ensure
healthy return on capital
17 McKinsey & Company
Myth #4 Agility is the best strategy.
18 McKinsey & Company
Many firms are starting to consider the Spotify agile model
Agile model Traditional model
DevOps
Design
Mortgage
origination
CEO CEO
• Siloed teams with management
overhead struggle to react
quickly to changes in the
market
• Cross-functional teams with end-
to-end ownership, closer to
customer and adapt quickly
Current
accounts
19 McKinsey & Company SOURCE: Operator website; Annual report; Press search
% of digital revenues
14 13
46% 47%
2015
30%
12 11 2010
42% 35% 32%
Example acquisitions
Why strategy was important
• Extreme pace of market
disruption would have made a
purely organic agile response
ineffective
• Strategy allowed identification
of high potential segments,
e.g., B2B & services
What they did
Divested 4 physical
businesses & acquired 22
digital ones
DMGT/Daily Mail predicted the acceleration of physical media disruption
20 McKinsey & Company
Myth #4 Agility is the best strategy. • A clear digital strategy is critical to set
direction, agility is important in
realising goals
21 McKinsey & Company
Myth #5 Building new businesses is better than reshaping old ones.
22 McKinsey & Company
There are multiple options
Approach Description Example
Brownfield
start-up
Create independent
start-up
Acquire and
integrate Acquire new digital
capabilities and
integrate into existing
operations
Transform the
core
Internal
organisational
change
Rebalance
portfolio
Rebalance from
declining to growing
segments
Why this approach was ideal…
Allow truly disruptive behaviour
while benefiting from parent
company resources
Enable rapid scale up of digital
capabilities and targeting on non-
traditional demographics
Leverage key assets such as
existing customer base and core
banking systems
Change strategic direction of
entire company and exit
underperforming businesses
23 McKinsey & Company
Myth #5 Building new businesses is better than reshaping old ones. • Choose the right transformation
approach
24 McKinsey & Company
Myth #6 CEOs must lead the digital agenda.
25 McKinsey & Company SOURCE: Operator website; Annual report; Press search
Schibsted was
competing in a
shrinking market…
But there are many successful cases where the CEO is not leading
• Industry-wide newspaper
print ad revenues
decreased by 36% or
$16bn (2009-14)
…when their Digital
Transformation EVP led
a major initiative…
• Invested ~EUR 2.5 bn into online
business
• Acquired mature digital
companies to enter new markets
…to transform them
into a global digital
media & advertising
player
• Grew online classified revenue to
EUR 543m
• Increased presence across 44+
countries
26 McKinsey & Company
Evidence suggests that non-CEO support may be even more critical to program success
0.51 0.49 0.480.44
0.40
0.510.55
CIO CDO CFO BU head Board of
Directors
CEO CMO
Correlation of executive support and digital success1
SOURCE: 2016 McKinsey Digital Survey
1 Success defined as top quartile based on digital ROI, Revenue and EBIT
27 McKinsey & Company
Myth #6 CEOs must lead the digital agenda. • Digital needs a clear leader, but
does not always have to be CEO
• Digital is always a team effort –
top team must be fully aligned
28 McKinsey & Company
Myth #7 Culture change is critical.
29 McKinsey & Company
Different culture styles – Core vs new business
Customer acceptance unclear
"Trial and error"
"Learning by doing"
Experimenting
Flexibility
Creative approaches
Developing new businesses
Customer usage/segments known
Proven processes
Scale effects and experience
Efficiency
Focus
Established approaches
Growing the core
Foundations – Organizing for Digital
2 different leadership styles
and different KPIs required
30 McKinsey & Company
Myth #7 Culture change is critical. • Culture is one of the biggest barriers to
digital transformation
• Culture change starts with senior leaders
31 McKinsey & Company
7 Myths - Proven or Disproved?
Digital is disrupting every sector 1
3 Winning requires bold investment in
transformation
7 Culture change is critical
2 Disruptors have the upper hand
4 Agility is the best strategy
5 Building new businesses is better
than reshaping old ones
6 CEOs must lead the digital agenda
32 McKinsey & Company
Marketing & Sales 4.0
Digital frontend
processes
Integrated physical
and digital experience
Digital marketing and
social media
Omni-channel
Customer relationship and
lifecycle management
…
Advanced commercial
model
Operations 4.0
Digital support
functions, e.g., HR
Digital and Open
Innovation
Product Design
Predictive
maintenance
End-to-end digitization
Digital procurement
Digital manufacturing
…
Automation
SOURCE: Digital McKinsey
What you can take away – if you have a photographic memory
Data security
Big data and advanced
analytics
System and data archi-
tecture (2-speed IT)
Devices
Technology Organization and culture
2-speed org: agility
and waterfall
Culture: cross-functional
and flat hierarchies
Digital talent
Partner management
Connectivity
Thinsk about step-outs - examples
Digital agriculture
Distributed energy
Connected
home/building
Digital commerce
Connected car and
autonomous driving
E-government and
e-education Industry 4.0
Digital logistics Digital media and
entertainment
Digital banking/FinTech and Digital insurance
Digital patient and
e-health
Smart city/
infrastructure Build new
ecosystems
Develop
business
architecture
Strengthen
foundation
33 McKinsey & Company
What can you take away – for people like me
47 McKinsey & Company
You need to
take action on
digital
immediately
1
Get the
strategy and
organisational
structure right
before you
start spending
2
Make sure you
get wide C-
level support
(including the
CEO)
3
Culture
change is non-
negotiable
4