In today’s fast-paced business world, going digital isn’t just a buzzword – it’s a necessity for survival. Companies that master digitization can unlock incredible growth, streamline operations, and stay ahead of the competition.
According to McKinsey, businesses aim for 5-10% annual growth and cost savings through digital initiatives, but achieving these goals is no small feat.
Digitization touches every part of an organization, from customer interactions to internal processes, making it a complex but rewarding journey.
To help businesses thrive, McKinsey outlines six key building blocks for creating a high-performing digital enterprise:
strategy and innovation, customer decision journey, process automation, organization, technology, and data and analytics. Let’s break these down in simple terms and explore how they can transform your business into a digital powerhouse.
Why Digitization Matters for Business Growth
Digitization is reshaping how businesses operate and compete. McKinsey’s research highlights that companies with strong digital strategies can expect significant boosts in revenue and efficiency.
However, the challenge lies in coordinating people, processes, and technology across the organization. Without a clear plan, even hefty investments in digital tools can fall short of delivering results.
The stakes are high – data from Standard & Poor’s shows that the average corporate lifespan has dropped from 61 years in 1958 to just 18 years in 2011.
By 2027, 75% of today’s S&P 500 companies could disappear if they fail to adapt. Digitization isn’t just about keeping up; it’s about staying alive in a rapidly evolving market.
To succeed, businesses need a structured approach.
The six building blocks provide a roadmap for navigating the complexities of digital transformation.
Whether you’re a small business or a global corporation, these principles can guide you toward becoming a high-performing digital enterprise.
Let’s dive into each block and see how they work together to drive digital success.
Strategy and Innovation: Crafting a Future-Proof Digital Strategy
A strong digital strategy is the foundation of any successful transformation.
Unlike traditional strategies that rely on past data, effective digital strategies look forward, anticipating where value will shift in the next 3-5 years.
McKinsey found that 90% of digital leaders integrate digital into their overall business strategy, compared to just 60% of other leaders.
This forward-thinking approach involves identifying high-value opportunities, divesting from declining markets, and building a digitally enabled business model.
For example, a large retailer saw declining margins in consumer electronics and decided to sell that division. Instead, it invested in an online retailer to capitalize on the growing e-commerce trend.
Similarly, GE used a company-wide social graph to connect employees with customers, giving salespeople a competitive edge and boosting marketing ROI by 350 times.
These examples show how a bold, experimental approach – through prototyping and limited releases, can uncover new opportunities and drive business growth.
How to Excel in Strategy and Innovation
Look Ahead: Perform a granular analysis of where value is shifting in your industry.
Test and Learn: Use scenario testing to challenge assumptions and explore new business models.
Partner Up: Build active investment partnerships to strengthen your market position.
By focusing on future value and embracing experimentation, businesses can create a digital strategy that keeps them ahead of the curve.
Customer Decision Journey: Understanding Your Customers’ Path
Understanding how customers make decisions is critical for digital success.
McKinsey’s research shows that businesses that master the customer decision journey can increase satisfaction by up to 20%, boost revenue by 10-15%, and cut service costs by 15-20%.
With nearly 50% of B2B purchases happening on digital platforms and $2 trillion in retail sales influenced by digital channels, knowing your customers’ behaviors is a game-changer.
Digital leaders use deep data analysis and ethnographic research to identify high-value customer segments, like busy folks who shop online.
By tailoring experiences to these segments, businesses can deliver personalized interactions that resonate.
For instance, a major bank used customer data to refine its marketing, unlocking $300 million in profitability. This shows how a deep understanding of the customer journey can drive both revenue and loyalty.
How to Optimize the Customer Decision Journey
Go Omnichannel: Create a seamless experience across all customer touchpoints.
Act in Real-Time: Use customer feedback to adjust strategies dynamically.
Focus on Key Journeys: Align metrics with top customer journeys and form cross-functional teams to improve them.
By prioritizing the customer decision journey, businesses can build stronger connections and drive customer satisfaction.
Process Automation: Streamlining for Efficiency and Experience
Process automation is a powerful tool for cutting costs and improving customer experiences.
When done right, automation can scale quickly without significant additional investment, improving cost performance by up to 90%. It’s not just about digitizing existing processes – it’s about reinventing them to eliminate inefficiencies and enhance customer satisfaction.
For example, an energy company reduced customer churn by 40% by simplifying its service renewal process to just two clicks.
A bank slashed mortgage approval times from days to one minute, cutting costs by 70%.
These wins come from focusing on high-value customer journeys and using agile development to test and refine solutions quickly.
How to Master Process Automation
Rethink Processes: Eliminate unnecessary steps to create leaner workflows.
Work Agile: Use small, cross-functional teams to prototype and test solutions rapidly.
Balance Efficiency and Experience: Automate to save costs while enhancing customer satisfaction.
By automating smartly, businesses can achieve operational efficiency and deliver better customer experiences.
Organization: Building an Agile, Collaborative Culture
Traditional, rigid organizational structures don’t work in a digital world.
Successful companies adopt agile, flexible models that align with customer-focused goals. McKinsey notes that 65% of digital leaders foster a risk-tolerant culture, encouraging bold initiatives.
This requires simplifying structures, empowering cross-functional teams, and focusing on capabilities over hierarchy.
AT&T, for example, created innovation hubs called AT&T Foundries, which completed projects three times faster than other parts of the company.
Nike built a direct-to-consumer division to drive its e-commerce growth, achieving double-digit revenue increases and over $1 billion in annual web sales.
These examples show how aligning the organization with digital goals can unlock business agility.
How to Transform Your Organization
Simplify Structures: Let strategy guide structure, focusing on customer objectives.
Empower Teams: Use small, cross-functional teams with diverse expertise.
Measure What Matters: Track metrics like customer lifetime value and omnichannel behavior.
A flexible, collaborative organization is key to sustaining digital transformation.
Technology: Adopting a Two-Speed IT Approach
Legacy IT systems can hold businesses back, but overhauling them takes time.
Digital leaders use a two-speed IT model, balancing rapid development for customer-facing programs with slower, stable updates for core systems.
This approach allows businesses to innovate quickly while maintaining reliable data management.
A European bank, for instance, used concurrent design to cut its account-registration process from 15 steps to 5, enabling customers to open accounts in minutes using a mobile device.
By embracing DevOps and continuous delivery, businesses can reduce time to market and lower costs, ensuring technology supports digital innovation.
How to Leverage Technology for Digital Success
Go Two-Speed: Develop fast-paced IT for customer programs and stable systems for core functions.
Embrace DevOps: Integrate development and operations for faster, more efficient delivery.
Iterate Quickly: Release and refine software in near-real time based on customer feedback.
A modern IT approach ensures businesses stay agile and responsive in a digital world.
Data and Analytics: Turning Insights into Action
Data is the fuel of digital transformation. Companies that excel in data and analytics see a 126% profit improvement over competitors.
Success comes from choosing the right data, focusing analytics on clear business goals, and having skilled teams to translate insights into action.
With the rise of the Internet of Things (IoT), data opportunities are exploding.
By 2020, IoT devices were expected to grow to 30 billion, enabling real-time insights.
For example, a UK insurance company used telematics to monitor driving habits, reducing claims by 30%.
UPS used data monitors on trucks to optimize loading and maintenance, boosting efficiency. These examples highlight how data can drive business performance.
How to Excel in Data and Analytics
Act on Imperfect Data: Start with what you have and refine as you go.
Run Frequent Tests: Use cross-functional teams to test hundreds of hypotheses monthly.
Hire Translators: Employ experts who can bridge business goals and analytics insights.
By leveraging data effectively, businesses can make smarter decisions and unlock new growth opportunities.
Bringing It All Together for Digital Transformation
The six building blocks – strategy and innovation, customer decision journey, process automation, organization, technology, and data and analytics, are interconnected.
Success comes from integrating them thoughtfully, managing dependencies, and aligning them with your business goals. Whether you’re a startup or an established company, these principles provide a clear framework for navigating the complexities of digital transformation.
Start by assessing your company’s strengths and weaknesses.
If legacy IT is a bottleneck, prioritize technology and process automation.
If customer engagement is lagging, focus on the customer decision journey.
By tailoring your approach and measuring progress with customer-centric metrics, you can build a high-performing digital enterprise that thrives in today’s interconnected world.
Final Thoughts on Achieving Digital Excellence
Digitization is no longer optional – it’s a must for businesses aiming to grow and survive. The six building blocks offer a practical guide to mastering this transformation.
By crafting a forward-thinking strategy, understanding your customers, automating processes, fostering an agile organization, leveraging modern technology, and harnessing data, you can position your business for long-term success.
Embrace these principles, experiment boldly, and watch your business thrive in the digital age.
