Commentary

Strategic Priorities For Digitizing Business

According to McKinsey’s latest survey on digitization, many companies are gaining momentum with their digital initiatives. Executives say their CEOs are more involved in digital efforts than ever before and that their enterprises are now investing enough to meet their overall digital goals. Yet the latest survey also finds that many respondents say their companies must address key organizational issues before digital can have a truly transformative impact on their business.

Top Strategic Priorities for Digital Business Initiatives (% of C-level Execs)

Priority

Ranked 1

Ranked 2

Ranked 3

Digital engagement of customers

30%

21%

18%

Digital innovation of products, operating or business model

24

21

19

Big data and advanced analytics

14

16

15

Digital engagement of employees, suppliers, business partners

9

16

19

Digital customer life cycle management

8

14

18

Automation

14

10

10

Source: McKinsey & Company, July 2014

Respondents agree that their companies’ digital programs are growth oriented, that future spending on digital will increase, and that a large portion of future company growth will be driven by digital efforts, says the report. But organizational challenges and a dearth of talent are common, significant hurdles that prevent companies from scaling up their digital efforts or seeing clear returns on their investments. And, less than 40% of executives say their companies have accountability measures in place, either through targets, incentives, or “owners” of digital programs, while only 7% say their organizations understand the exact value at stake from digital.

More than three-quarters of executives say the strategic intent behind their digital programs is either to build competitive advantage in an existing business or to create new business and tap new profit pools.

Digitization’s strategic importance is top of mind for many company leaders. CEOs and other C-level executives are devoting more of their personal attention and are more directly involved in digital initiatives now than ever before. Company leaders are also spearheading digital strategy: 41% of respondents say their CEOs are responsible for their organizations’ overall digital agendas.

Level of C-Suite Support in Digital Business Initiatives (2014)

Officer

Support and Sponsor

Support and Engage

Chief Information Officer

40%

28%

CEO

38

23

CMO

31

30

CFO

17

29

Chief Digital Officer

17

13

Board of Directors

14

13

Source: McKinsey & Company, July 2014

Given the focus on growth and rising C-suite interest, a sizable share of executives have high expectations for digital. More than one-third of all respondents expect at least 15% of their companies’ growth in the next three years will be driven by digital, says the report. Among companies pursuing digital to create new business, more than half of executives expect this level of growth. In the high-tech and telecommunications sectors, and in North America, respondents also report higher-than-average expectations for future, digital-led growth.

Expected Share of Growth From Digital Efforts Over 3 Years

 

Expected Share of Growth

Strategic Digital Objective (% of Respondents)

5-9%

10-14%

≥15%

All responses

19%

18%

35%

Create new business/new profit pools

11

20

54

Competitive advantage

22

20

31

Shoring up business/keeping pace

25

13

30

Cutting costs

21

12

11

Source: McKinsey & Company, July 2014

 

 

 

To achieve this growth, organizations are maintaining a clear focus on customers. Executives expect the largest share of their digital growth in the coming years will be from digital customer engagement, followed closely by the digital innovation of products, operating models, or business models.

Respondents most often rank digital customer engagement as a top strategic priority, too, and report that current spending patterns mirror digital priorities. Of the six trends, automation ranks the lowest. Just 34% of executives say it’s a top-three priority for their companies.

Digital Customer Engagement Ranked First Among Top 3 Digital Trends

Engagement

As Strategic Priority

As Share of Digital Budget

Digital engagement of customers

30%

29%

Digital innovation of products/op model/business model

24

25

Big data and advanced analytics

14

11

Digital engagement of employees/suppliers/partners

9

15

Digital customer life cycle management

8

5

Automation

14

8

Source: McKinsey & Company, July 2014

As digital becomes more integrated into businesses, executives acknowledge that some investments must change. Across the trends, respondents are most likely to say their companies are under investing in big data and analytics, though they predict that in three years’ time, big data will become a higher spending priority, says the report. Only one-fifth of executives report that their organizations spend at least 5% of their current cost base on digital programs, reaching this level in three years’ time.

Organizationally, companies are struggling, says the report. Less than 40% of executives say their companies have accountability measures in place for their digital objectives, either through measurable targets, performance incentives for relevant employees, or an executive “owner” of their digital programs. Larger companies (annual revenues of $1 billion or more) in particular are struggling with unsuitable organizational structures and inflexible business processes. These structures and processes function effectively with legacy channels, but, according to respondents, are hindering their companies’ efforts to take advantage of new digital opportunities.

Structural Issues Are The Top Hurdle To Meeting Digital Goals.

Most Significant Challenges

% of All Respondents

Difficulty finding talent

28%

Organization structure not correctly designed

22

Business processes to inflexible

19

Lack of quality data

18

Inability to experiment

17

Source: McKinsey & Company, July 2014

Only one-third of respondents say at least one in ten of their employees spends any time working on digital projects. Of the challenges companies face in meeting their digital priorities, difficulty finding talent often tops the list. Roughly nine out of ten executives say their companies have some pressing need for digital talent in the next year, especially in analytics, which CIOs and chief technology officers cite even more frequently than average

Looking ahead, the report concludes that these three needs are paramount:

  • Understand the value. Most organizations have only a basic grasp on the value that digital can create. CEOs need to push their teams to understand better what they can gain from digital initiatives in order to match priorities and investments with the areas of highest value
  • Focus on organization-wide impact. Effective organizational structures, accountability, and meaningful metrics and incentives are largely lacking. Executives must work to ensure that their structures and business processes are set up to take full advantage of the opportunities that digital efforts offer
  • Prioritize talent. Building and acquiring technical and functional skills, as well as creating an environment that encourages development and retention, will be key to maintaining competitive parity and driving growth in the near term

To review the complete report, including detailed charts, please visit McKinsey here.

 

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