The seven traits of an effective digital enterprise

mck 2

I really enjoy the free content provided by McKinsey & Company’s Insights. If you haven’t already signed up for their free newsletter, go do it — it is one of the sources of business and leadership inspiration I never miss. It is a wonderful example of establishing thought leadership through content. And just to be clear, I have no business connection to McKinsey, I authentically admire their work and recommend it.

A recent post, The sevent traits of an effective digital enterprise by Londoners ’Tunde Olanrewaju, Kate Smaje, and Paul Willmott was particularly thought-provoking. I thought I would summarize the main points and add my own two cents to the discussion. You might like to chime in with your own observations in the comment section.

1. Be unreasonably aspirational

digital enterpriseLeadership teams must be prepared to think quite differently about how a digital business operates. Digital leaders set aspirations that, on the surface, seem unreasonable. Being “unreasonable” is a way to jar an organization into seeing digital as a business that creates value, not as a channel that drives activities.

Some companies frame their targets by measures such as growth or market share through digital channels. Others set targets for cost reduction based on the cost structures of new digital competitors. Either way, if your targets aren’t making the majority of your company feel nervous, you probably aren’t aiming high enough.

Schaefer view: I agree, assuming a digital competency is already established. However, if this is entirely new, stretch goals can kill momentum and provide ammunition to the critics. If you are early in your digital journey, build “quick wins” into your initiative to create an initiative that grows.

2. Acquire new capabilities

digital enterpriseThe skills required for digital transformation probably can’t be groomed entirely from within. Leadership teams must be realistic about the collective ability of their existing workforce. Leading companies frequently look to other industries to attract digital talent, because they understand that emphasizing skills over experience when hiring new talent is vital to success, at least in the early stages of transformation. The best people in digital product management or user-experience design may not work in your industry. Hire them anyway.

Schaefer view: I completely agree. Most companies can’t afford the time to groom or re-train talent. Bring in established leaders and give them room to perform.

3. ‘Ring fence’ and cultivate talent

mck 3A bank or retailer that acquires a five-person mobile-development firm and places it in the middle of its existing web operations is more likely to lose the team than to assimilate it. Digital talent must be nurtured differently, with its own working patterns, sandbox, and tools.

After a few false starts, Wal-Mart Stores learned that “ring fencing” its digital talent was the only way to ensure rapid improvements. Four years ago, the retail giant’s online business was lagging. It was late to the e-commerce market as executives protected their booming physical-retail business. It eventually established @WalmartLabs, an “idea incubator,” as part of its growing e-commerce division in Silicon Valley—far removed from the company’s Bentonville, Arkansas, headquarters.

Schaefer view: The Wal-Mart approach worked (increasing revenues 30 percent in 2013) but it is also extreme and risks turning digital into a silo, or even worse, disconnecting it from the business entirely. There is something to be said for giving a digital team “space” and some autonomy in an established company as long as you can also create integrated marketing efforts. 

4. Challenge everything

digital enterpriseThe leaders of incumbent companies must aggressively challenge the status quo rather than accepting historical norms. Look at how everything is done, including the products and services you offer and the market segments you address, and ask “Why?” Assume there is an unknown start-up asking the exact same question as it plots to disrupt your business. Digital leaders examine all aspects of their business—both customer-facing and back-office systems and processes, up and down the supply chain—for digitally driven innovation.

In 2007, car-rental company Hertz started to deploy self-service kiosks similar to those used by airlines for flight check-in. In 2011, it leapfrogged airlines by moving to dual-screen kiosks—one screen to select rental options via touch screen, a second screen at eye level to communicate with a customer agent using real-time video.

Schaefer view: This is a timely point that connects to the “Is Being Disruptive a Strategy” podcast Tom Webster and I recently published. Was the Hertz example a true disruption, a new business model, or a logical improvement on the kiosks and competencies they already had?

I agree that companies must be in a constant state of re-invention but realistically, how many companies can strategcially disrupt themselves? Practically speaking, most managers just want to hold on to their jobs and get a bonus. There are very few examples of successful disruptions that were internally-induced. More likely, companies can counter-attack or buy the disruptor.

5. Be quick and data driven

mck 5Rapid decision making is critical in a dynamic digital environment. Twelve-month product-release cycles are a relic. Organizations need to move to a cycle of continuous delivery and improvement, adopting methods such as agile development and “live beta,” supported by big data analytics, to increase the pace of innovation. Continuous improvement requires continuous experimentation, along with a process for quickly responding to bits of information.

Integrating data sources into a single system that is accessible to everyone in the organization will improve the “clock speed” for innovation. P&G, for example, created a single analytics portal, called the Decision Cockpit, which provides up-to-date sales data across brands, products, and regions to more than 50,000 employees globally. The portal, which emphasizes projections over historical data, lets teams quickly identify issues, such as declining market share, and take steps to address the problems.

Schaefer view: Amen.

6. Follow the money

mck6Many organizations focus their digital investments on customer-facing solutions. But they can extract just as much value, if not more, from investing in back-office functions that drive operational efficiencies. A digital transformation is more than just finding new revenue streams; it’s also about creating value by reducing the costs of doing business.

Often, great value is found in optimizing back-office functions. At Starbucks, one of the leaders in customer-experience innovation, just 35 of 100 active IT projects in 2013 were focused on customer- or partner-facing initiatives. One-third of these projects were devoted to improving efficiency and productivity away from the retail stores, and one-third focused on improving resilience and security.

Schaefer view: I think this is an excellent point and one I wish would be recognized by more businesses. A different McKinsey research report in 2012 said that MOST of the money is in cost savings, particularly in applying social technologies to areas like Procurement and the Supply Chain. In a research project I worked on last year for the US Air Force, my team found almost no evidence that these technologies are being embraced this way.

7. Be obsessed with the customer

mck 7Rising customer expectations continue to push businesses to improve the customer experience across all channels. Excellence in one channel is no longer sufficient; customers expect the same frictionless experience in a retail store as they do when shopping online, and vice versa. Moreover, they are less accepting of bad experiences; one survey found that 89 percent of consumers began doing business with a competitor following a poor customer experience. On the flip side, 86 percent said they were willing to pay more for a better customer experience.

This customer obsession is what enables companies to go beyond what’s normal and into the extraordinary. If online retailer Zappos is out of stock on a product, it will help you find the item from a competitor. Little wonder that 75 percent of its orders come from repeat customers.

Schaefer view: Can’t argue with that. Still, if I read about Zappos one more time in a case study I will gouge my eyes out. 

Now it’s your turn. What’s your take?

The illustrations in this article were also featured in the original post. So not only does McKinsey have great content, they also present it in a beautiful way. A lesson to be learned there. 

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