Digital's McKinsey

Taken from McKinsey journal

What ‘digital’ really means

July 2015 by Karel Dörner and David Edelman

Companies today are rushing headlong to become more digital. But what does digital really mean?

For some executives, it’s about :
- Technology,
- A new way of engaging with customers, or
- An entirely new way of doing business.

Such diverse perspectives often trip up leadership teams because they reflect a lack of alignment and common vision about where the business needs to go.

Digital should be seen less as a thing and more a way of doing things, and it can broken down into three attributes:
- Creating value at the new frontiers of the business world,
- Creating value in the processes that execute a vision of customer experiences, and
- Building foundational capabilities that support the entire structure.

Creating value at new frontiers

Being digital requires being open to reexamining your entire way of doing business and understanding where the new frontiers of value are. Capturing new frontiers may be about developing entirely new businesses in adjacent categories, or it may be about identifying and going after new value pools in existing sectors.

Unlocking value from emerging growth sectors requires a commitment to understanding the implications of developments in the marketplace and evaluating how they may present opportunities or threats. The IoT, for example, is starting to open opportunities for disrupters to use unprecedented levels of data precision to identify flaws in existing value chains. In the automotive industry, cars connected to the outside world have expanded the frontiers for self-navigation and in-car entertainment. In the logistics industry, the use of sensors, big data, and analytics has enabled companies to improve the efficiency of their supply-chain operations.

Being digital means being closely attuned to how customer decision journeys are evolving in the broadest sense. That means understanding how customer behaviors and expectations are developing inside and outside your business, as well as outside your sector, which is crucial to getting ahead of trends that can deliver or destroy value.

Creating value in core businesses

Rethinking how to use new capabilities to improve how customers are served, with understanding each step of a customer’s purchasing journey—regardless of channel—and thinking about how digital capabilities can design and deliver the best possible experience. Developing the flexibility, efficiency, and speed to deliver the right product efficiently in a way the customer wants, or focus on delivering insights about customers that in turn drive marketing and sales decisions.

Digital is about implementing a cyclical dynamic where processes and capabilities are constantly evolving based on inputs from the customer, fostering ongoing product or service loyalty. Making this happen requires an interconnected set of four core capabilities:

Proactive decision making. Relevance is the currency of the digital age. This requires making decisions, based on intelligence, that deliver content and experiences that are personalized and relevant to the customer. Remembering customer preferences is a basic example of this capability, but it also extends to personalizing and optimizing the next step in the customer’s journey. Blend data from multiple channels into one view of what customers are doing and what happens as a result. Analytics and intelligence provide near-real-time insights into customer needs and behaviors that then determine the types of messages and offers to deliver to the customer.

Contextual interactivity.  Analyzing how a consumer is interacting with a brand and modifying those interactions to improve the customer experience. The content and experience may adapt as a customer shifts from a mobile phone to a laptop or from evaluating a brand to making a purchasing decision. The rising number of customer interactions generates a stream of intelligence that allows brands to make better decisions about what their customers want. And the rapid rise of wearable tech and the IoT represents the latest wave of touchpoints that will enable companies to blend digital and physical experiences even more.

Real-time automation. Automation of customer interactions can boost the number of self-service options that help resolve problems quickly, personalize communications to be more relevant, and deliver consistent customer journeys no matter the channel, time, or device. Automating the supply chain and core business processes can drive down costs, providing more flexibility to respond to and anticipate customer demand.

Journey-focused innovation. Serving customers well gives companies permission to be innovative in how they interact with and sell to them.  Expanding into new businesses and services will extend the relationship with the customer. These innovations in turn fuel more interactions, create more information, and increase the value of the customer-brand relationship.

Building foundational capabilities

The technological and organizational processes that allow an enterprise to be agile and fast. This foundation is made up of two elements:

Mind-sets. Use data to make better and faster decisions, devolving decision making to smaller teams, and develop much more iterative and rapid ways of doing things. Thinking in this way should incorporate a broad swath of how companies operate, including creatively partnering with external companies to extend necessary capabilities. A digital mind-set institutionalizes cross-functional collaboration, flattens hierarchies, and builds environments to encourage the generation of new ideas. Incentives and metrics are developed to support such decision-making agility.

System and data architecture. Digital in the context of IT is focused on creating a two-part environment that decouples legacy systems from those that support fast-moving, often customer-facing interactions. A key feature of digitized IT is the commitment to building networks that connect devices, objects, and people. This approach is embodied in a continuous-delivery model where cross-functional IT teams automate systems and optimize processes to be able to release and iterate on software quickly.

Digital is about unlocking growth now. How companies might interpret or act on that definition will vary, but having a clear understanding of what digital means allows business leaders to develop a shared vision of how it can be used to capture value.