• by Jack Loechner , Staff Writer @mp_research, July 24, 2014

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.

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.

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.

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.

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.

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.