Karel Dörner Principal, McKinsey Digital

Digital Transformation @ Scale

LINKEDIN EXECUTIVE SUMMIT

MUNICH, 8 September 2016

McKinsey & Company 2

Digitization of everything Cybersecurity

threats

McKinsey & Company 3

More digitization to come as more technologies (mostly digital) continue to transform the economy

SOURCE: McKinsey Global Institute analysis

Disruptive Dozen – Selected for scope and scale of impact

(next 10 years)

Machines working for us

Advanced

robotics

Autonomous and

near-autonomous

vehicles

3D printing

Next-generation

genomics

Advanced materials

Changing the building

blocks of everything IT and how we use it

Mobile internet Cloud

technology

Internet of Things

(IoT)

AI, Machine-

learning

Automation of

knowledge work

Energy

storage

Rethinking energy comes of age

Advanced oil and

gas exploration

and recovery

Renewable energy

Blockchain/

Cryptocurrencies

Human-Computer

Interfaces (AR, VR etc)

Digital IDs/ Biometrics

Quantum Computing

…

More…

McKinsey & Company 4 SOURCE: McKinsey

Digital maturity

of the sector

Evolution over time

Digital is fundamentally affecting all industries – with varying speed and scope

Health Public

sector

Oil and gas

Chemicals and agriculture

Assembly

Retail distribution

High tech

Retail banking Telecoms

Media

Tourism

Automotive Winner takes

it all dynamics

McKinsey & Company 5

Between industries, a large gap between digital leaders and the rest

SOURCE: USDEC

An objective and

comprehensive

measure of digital

maturity

correlating with

financial

performance

What is the

Digital

Quotient?

Pharma/

Medical

Products

Distribution of Digital Quotient score by industry (global)

Points (out of 100)

32

49

Global average: 33

Insurance Banking Transport

And

Logistics

Media/

Entertain-

ment

Telecom Retail Travel/

Hospitality

28 31

35 36

37

42

McKinsey & Company 6 SOURCE: Forbes, McKinsey interview October 2015

Digital matters also for industrial companies

"Industrial companies

are in the information

business whether they

want to be or not." Jeff Immelt (CEO GE)

McKinsey & Company 7

Digital “haves” and “have-mores”

3 × faster profit and

margin growth

2 × faster wage growth Higher productivity

and innovation

Faster revenue

growth

SOURCE: McKinsey Global Institute analysis

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How do we get started? – We hear a lot of questions on this …

SOURCE: McKinsey Digital

With what digital field of action do I start?

Should I found a new venture?

Should I build a digital business unit?

What capabilities do I need?

Should I hire a Chief Digital Officer?

How should I adjust my organization?

How do I lead a digital enterprise?

How do I make it an holistic and effective

transformation?

How do I make a quick start?

McKinsey & Company 9

We see 6 patterns for success

SOURCE: McKinsey analysis

Define a clear

target picture

Follow and understand

the customer

Use Digital to unlock

big potential in internal

processes

Think "Quan"

and "Qual" together Organize for Digital

Get a Digital state

of mind

1 2 3

4 5 6

McKinsey & Company 10 SOURCE: McKinsey DOTMatrixTM

Digitization can disrupt industries when it changes the nature of supply, demand, or both Left: Undistort demand

▪Address unmet demand by unbundling

▪Make it easy and make it now

Right: Un-constrain supply

▪Uncover latent supply

(aka yield mgmt.)

▪Make capacity available in smaller

increments Middle: Make new markets

▪Find new ways to connect supply

and demand, eg., by lowering

transaction costs

Left: Create new VP

▪Enrich the product with information

▪Convert the product into a social

offering or a service

Right: Re-imagine BS

▪Change supply-side cost structure by

automating, virtualizing, or

disintermediating

Middle: Hyperscale platform

▪Create operating leverage through

process automation and network effects

▪Lock in customers and suppliers by

offering free access to information

Demand Supply

Degree of change in the nature of supply and demand Modest

Extreme

Make new markets

Unconstrain supply

Hyperscale platforms

Create new value pro-positions

Reimagine business systems

Undistort demand

1

McKinsey & Company 11

1 Average by category

SOURCE: McKinsey Channel Partner database, experts interview, press clippings

Amazon has a strong value position in B2C and B2B

Unbeatable assortment Local, segment-specific stores

2

B2C -

2,150 1

129 1

94%

B2B 900

10,000

- 91%

McKinsey & Company 12

Next generation Carrera-Bahn: Wanna play?

SOURCE: Anki OVERDRIVE

Do you know your

customers?

Creating customer

profiles through

▪Gaming behavior

▪Locations

▪Actions (in-app sales)

▪...

2

McKinsey & Company 13 SOURCE: McKinsey analysis

Artificial intelligence to transform service operations

Digitization of service ops:

>64% of enquiries in service center resolved by AI

3

McKinsey & Company 14

Think quantitative! Think qualitative!

Think both quan-

& qualitative!

Unleash your full potential – think "Quan" and "Qual" together 4

SOURCE: McKinsey analysis

McKinsey & Company 15

Spotify has achieved an agile structure and has become a role model for others

SOURCE: Scaling Agile @ Spotify, Oct. 2012 and May 2014, YOUSE

5

Overview of Spotify’s SW

development “organization”

YOUSE – Digital Insurance company built based

on the Spotify model

McKinsey & Company 16 SOURCE: Press research, McKinsey Digital

Hire a CDO – but get it right!

Digital transformation across functions and departments

Especially, marketing and

technology

Change agent, transform

traditional businesses into

digital world

What?

How? Extensive authority

Direct line to CEO

Disrupt functional silos

Needs business

responsibility or doomed to fail

5

McKinsey & Company 17

Six key attributes characterize a digital state of mind

SOURCE: McKinsey analysis

6

Openness &

transparency

Fail-fast

mentality

Quick

delivery

Experi-

mentation

Customer

centricity

Fact-based

decisions

McKinsey & Company 18

The insightful "eat" the HIPPO1

SOURCE: McKinsey

6

1 Highest paid person's opinion

McKinsey & Company 19

Winning together – successful cooperation between startups and corporates

SOURCE: McKinsey analysis

6

Startups leverage corporates‘

assets …

Distribution channels

Stable business processes

Network

Financial basis

… and corporates learn

from startups

Disruptive business

models

Flexibility

Agility

Scalability of software

solutions Photo:

Dimitri Daniloff

McKinsey & Company 20

Digital Transformation – It’s difficult, but it's feasible!

SOURCE: Press clipping

Thank you! McKinseyDigital.com