Digital transformation separating myths from reality. Pascal Grieder April 2017

Transcription

1 Digital transformation separating myths from reality Pascal Grieder April 2017

2 Here are some of the things you might hear in Silicon Valley... but which to believe Digital is disrupting every sector Disruptors have the upper hand Winning requires bold investment in transformation Agility is the best strategy Building new businesses is better than reshaping old ones CEOs must lead the digital agenda Culture change is critical 2

3 Myth 1 Digital is disrupting every sector. 3

4 Every sector is being disrupted INCUMBENT ATTACKER TRANSPORT RETAIL SHIPPING LEISURE MANUFACTURING 4

5 But the pace and scale of disruption is different by sector Pace of disruption 1.0 Media Finance and insurance 0.5 Education Wholesale Distributor Professional services Avg. Pace across sectors -0.5 Pharmaceuticals Manufacturing Infrastructure Agriculture Entertainment and recreation Transportation Utilities Retail Health care -1.0 Hospitality Avg. Scale across sectors Scale of disruption SOURCE: Digital Europe: Pushing the Frontier, Capturing the Benefits, June

6 Myth #1 Digital is disrupting every sector. Digital disruption is affecting every sector An understanding of your sector s pace and scale of disruption will determine appropriate action 6

7 Myth #2 Disrupters have the upper hand. 7

8 Disruptors are taking share in most sectors Estimated market share of new digital entrants/adjacencies Percent Media 26 Information Technology 25 Telecom Professional services Healthcare Retail Finance and Insurance Transportation Automotive and assembly 8 Consumer packaged goods 8 SOURCE: 2016 McKinsey Digital Survey 8

9 But incumbents have also had significant digital success What they did Shifted from commoditized manufacturing to customized services Deployed next generation technology to help customer develop agronomic insights Old business model New verticals Making tractors Online services for farmers SOURCE: Operator website; Annual report; Press search 9

10 Incumbents can learn from disruptors Disrupters Agility Innovation Capability Greenfield Incumbents Customers Data Balance sheet Cash flow Brand Talent 10

11 Myth #2 Disrupters have the upper hand. There is much incumbents can learn from disruptors Incumbents have many capabilities that can be deployed to win 11

12 Myth #3 Winning requires bold investment in transformation. 12

13 There is a clear return on digital investment Impact of digital boldness on Revenue and EBIT % growth 11% Revenue growth 7% EBIT growth Little digital investment Significant digital investment 1 Level of digital investment 1 Assumes that investment is digital is proportional to level of disruption achieved SOURCE: 2016 McKinsey Digital Survey 13

14 But investment needs to be selective only half the firms are making a clear return on capital invested in digital Digital initiatives ROI Percent of companies Negative ROI 24 ROI is less than cost of capital 1 25 ROI is more than cost of capital 51 1 Assumes average cost of capital of 10% SOURCE: 2016 McKinsey Digital Survey 14

15 Myth #3 Winning requires bold investment in transformation. Prioritise digital and make bold strategic investments to win Be selective on investments to ensure healthy return on capital 15

16 Myth #4 Agility is the best strategy. 16

17 Many firms are starting to consider the Spotify agile model Traditional model CEO Agile model CEO Design DevOps Mortgage origination Current accounts Siloed teams with management overhead struggle to react quickly to changes in the market Cross-functional teams with endto-end ownership, closer to customer and adapt quickly 17

18 Agility is important but strategy plays a more significant role in determining success of firms Implementation / agility 18% Factors that correlate with high performance Culture 13% 36% Strategy 33% Organisation SOURCE: 2016 McKinsey Digital Survey 18

19 Myth #4 Agility is the best strategy. A clear digital strategy is critical to set direction, agility is important in realising goals 19

20 Myth #5 Building new businesses is better than reshaping old ones. 20

21 Building new businesses can be a good choice New business venture Parent company Successes EBIT margin of Jetstar exceeds that of Qantasbranded airlines (12.4% vs. 9.5% respectively) Predix is projected to be worth $24bn by 2020, with revenue of $4bn (200% CAGR from 2016) SOURCE: Qantas 2016 Annual Report; Bank of America Merrill Lynch (June 2016) 21

22 But there are multiple options Approach Description Example Why this approach was ideal Transform the core Internal organisational change Leverage key assets such as existing customer base and core banking systems Brownfield start-up Acquire and integrate Create independent start-up Acquire new digital capabilities and integrate into existing operations Allow truly disruptive behaviour while benefiting from parent company resources Enable rapid scale up of digital capabilities and targeting on nontraditional demographics Rebalance portfolio Rebalance from declining to growing segments Change strategic direction of entire company and exit underperforming businesses 22

23 Myth #5 Building new businesses is better than reshaping old ones. Choose the right transformation approach 23

24 Myth #6 CEOs must lead the digital agenda. 24

25 The most appropriate digital leader varies based on the task at hand Led by CEO CDO or CIO Examples When appropriate Digital requires significant changes in business models, culture or organisational structures Cross-BU collaboration or portfolio rebalancing is necessary Digital pace and scale of change in the sector is moderate to high but does not impact core business model Impact does not require significant cross-bu collaboration 25

26 Evidence suggests that non-ceo support may be even more critical to program success Correlation of executive support and digital success CIO BU head Board of Directors CFO CMO CDO CEO 1 Success defined as top quartile based on digital ROI, Revenue and EBIT SOURCE: 2016 McKinsey Digital Survey 26

27 Myth #6 CEOs must lead the digital agenda. Digital needs a clear leader, but does not always have to be CEO Digital is always a team effort top team must be fully aligned 27

28 Myth #7 Culture change is critical. 28

29 Culture and organisational challenges represent a major roadblock for digital transformations Percent 42 Cultural barrier Other barrier Organisational challenges 1 Cultural and behavioural challenges Lack of understanding of digital trends Lack of talent for digital Lack of IT infra-structure Lack of dedicated funding Business process too rigid Lack of data Lack of senior support 1 Combination of (i) structural org and (ii) conflicts between traditional and digital channels SOURCE: 2016 McKinsey Digital Survey 29

30 Myth #7 Culture change is critical. Culture is one of the biggest barriers to digital transformation Culture change starts with senior leaders 30

31 7 Myths - Proven or Disproved? 1 2 Digital is disrupting every sector 3 Winning requires bold investment in transformation 4 Disruptors have the upper hand Agility is the best strategy 5 Building new businesses is better than reshaping old ones 6 7 CEOs must lead the digital agenda Culture change is critical 31

32 What can you take away from today? You need to take action on digital immediately Get the strategy and organisational structure right before you start spending Make sure you get wide C- level support (including the CEO) Culture change is nonnegotiable 47 32

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