The seven traits of an effective digital enterprise

mck 2

I really enjoy the free content provided by McKinsey & Company’s Insights. If you haven’t already signed up for their free newsletter, go do it — it is one of the sources of business and leadership inspiration I never miss. It is a wonderful example of establishing thought leadership through content. And just to be clear, I have no business connection to McKinsey, I authentically admire their work and recommend it.

A recent post, The sevent traits of an effective digital enterprise by Londoners ’Tunde Olanrewaju, Kate Smaje, and Paul Willmott was particularly thought-provoking. I thought I would summarize the main points and add my own two cents to the discussion. You might like to chime in with your own observations in the comment section.

1. Be unreasonably aspirational

mck 1Leadership teams must be prepared to think quite differently about how a digital business operates. Digital leaders set aspirations that, on the surface, seem unreasonable. Being “unreasonable” is a way to jar an organization into seeing digital as a business that creates value, not as a channel that drives activities.

Some companies frame their targets by measures such as growth or market share through digital channels. Others set targets for cost reduction based on the cost structures of new digital competitors. Either way, if your targets aren’t making the majority of your company feel nervous, you probably aren’t aiming high enough.

Schaefer view: I agree, assuming a digital competency is already established. However, if this is entirely new, stretch goals can kill momentum and provide ammunition to the critics. If you are early in your digital journey, build “quick wins” into your initiative to create an initiative that grows.

2. Acquire new capabilities

mck 2The skills required for digital transformation probably can’t be groomed entirely from within. Leadership teams must be realistic about the collective ability of their existing workforce. Leading companies frequently look to other industries to attract digital talent, because they understand that emphasizing skills over experience when hiring new talent is vital to success, at least in the early stages of transformation. The best people in digital product management or user-experience design may not work in your industry. Hire them anyway.

Schaefer view: I completely agree. Most companies can’t afford the time to groom or re-train talent. Bring in established leaders and give them room to perform.

3. ‘Ring fence’ and cultivate talent

mck 3A bank or retailer that acquires a five-person mobile-development firm and places it in the middle of its existing web operations is more likely to lose the team than to assimilate it. Digital talent must be nurtured differently, with its own working patterns, sandbox, and tools.

After a few false starts, Wal-Mart Stores learned that “ring fencing” its digital talent was the only way to ensure rapid improvements. Four years ago, the retail giant’s online business was lagging. It was late to the e-commerce market as executives protected their booming physical-retail business. It eventually established @WalmartLabs, an “idea incubator,” as part of its growing e-commerce division in Silicon Valley—far removed from the company’s Bentonville, Arkansas, headquarters.

Schaefer view: The Wal-Mart approach worked (increasing revenues 30 percent in 2013) but it is also extreme and risks turning digital into a silo, or even worse, disconnecting it from the business entirely. There is something to be said for giving a digital team “space” and some autonomy in an established company as long as you can also create integrated marketing efforts. 

4. Challenge everything

mck 4The leaders of incumbent companies must aggressively challenge the status quo rather than accepting historical norms. Look at how everything is done, including the products and services you offer and the market segments you address, and ask “Why?” Assume there is an unknown start-up asking the exact same question as it plots to disrupt your business. Digital leaders examine all aspects of their business—both customer-facing and back-office systems and processes, up and down the supply chain—for digitally driven innovation.

In 2007, car-rental company Hertz started to deploy self-service kiosks similar to those used by airlines for flight check-in. In 2011, it leapfrogged airlines by moving to dual-screen kiosks—one screen to select rental options via touch screen, a second screen at eye level to communicate with a customer agent using real-time video.

Schaefer view: This is a timely point that connects to the “Is Being Disruptive a Strategy” podcast Tom Webster and I recently published. Was the Hertz example a true disruption, a new business model, or a logical improvement on the kiosks and competencies they already had?

I agree that companies must be in a constant state of re-invention but realistically, how many companies can strategcially disrupt themselves? Practically speaking, most managers just want to hold on to their jobs and get a bonus. There are very few examples of successful disruptions that were internally-induced. More likely, companies can counter-attack or buy the disruptor.

5. Be quick and data driven

mck 5Rapid decision making is critical in a dynamic digital environment. Twelve-month product-release cycles are a relic. Organizations need to move to a cycle of continuous delivery and improvement, adopting methods such as agile development and “live beta,” supported by big data analytics, to increase the pace of innovation. Continuous improvement requires continuous experimentation, along with a process for quickly responding to bits of information.

Integrating data sources into a single system that is accessible to everyone in the organization will improve the “clock speed” for innovation. P&G, for example, created a single analytics portal, called the Decision Cockpit, which provides up-to-date sales data across brands, products, and regions to more than 50,000 employees globally. The portal, which emphasizes projections over historical data, lets teams quickly identify issues, such as declining market share, and take steps to address the problems.

Schaefer view: Amen.

6. Follow the money

mck6Many organizations focus their digital investments on customer-facing solutions. But they can extract just as much value, if not more, from investing in back-office functions that drive operational efficiencies. A digital transformation is more than just finding new revenue streams; it’s also about creating value by reducing the costs of doing business.

Often, great value is found in optimizing back-office functions. At Starbucks, one of the leaders in customer-experience innovation, just 35 of 100 active IT projects in 2013 were focused on customer- or partner-facing initiatives. One-third of these projects were devoted to improving efficiency and productivity away from the retail stores, and one-third focused on improving resilience and security.

Schaefer view: I think this is an excellent point and one I wish would be recognized by more businesses. A different McKinsey research report in 2012 said that MOST of the money is in cost savings, particularly in applying social technologies to areas like Procurement and the Supply Chain. In a research project I worked on last year for the US Air Force, my team found almost no evidence that these technologies are being embraced this way.

7. Be obsessed with the customer

mck 7Rising customer expectations continue to push businesses to improve the customer experience across all channels. Excellence in one channel is no longer sufficient; customers expect the same frictionless experience in a retail store as they do when shopping online, and vice versa. Moreover, they are less accepting of bad experiences; one survey found that 89 percent of consumers began doing business with a competitor following a poor customer experience. On the flip side, 86 percent said they were willing to pay more for a better customer experience.

This customer obsession is what enables companies to go beyond what’s normal and into the extraordinary. If online retailer Zappos is out of stock on a product, it will help you find the item from a competitor. Little wonder that 75 percent of its orders come from repeat customers.

Schaefer view: Can’t argue with that. Still, if I read about Zappos one more time in a case study I will gouge my eyes out. 

Now it’s your turn. What’s your take?

The illustrations in this article were also featured in the original post. So not only does McKinsey have great content, they also present it in a beautiful way. A lesson to be learned there. 

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  • Jason Jue

    Goes without saying, probably, but an effective tactic for most of these traits is to hire effective organizations (consultants, agencies, contractors, and technology vendors) because the digital enterprise is changing so quickly. I’d be curious to see some metrics about internal vs. external use of talent and technology.

  • That is an outstanding point Jason. I think often that hiring help upfront (like me for example!) is essential. But at some point the company culture has to take over. I don’t see my role as a “do-er” but as a teacher to get things turned in a direction where the culture can be self-sustaining. That is a very, very difficult thing to do because the inertia usually heads back to the old way of doing things. Great comment!

  • Being quick and customer driven is what is fueling so many self published authors, too. The ability to respond right now has made such a difference in my business. And I totally agree with where you disagree (grin). I doubt very much that say, Amazon, is trying to be disruptive. They are just thinking so far ahead, it feels like disruption to the businesses stuck in the now (or the past). Apple was good at that, too, with Jobs at the helm.

  • Agree big fan of the Mckinsey newsletter and they do a great job of presenting information in a consumable and enjoyable way.. So many aren’t prepared for digital and aren’t willing to invest in training or best practices but I loved this line @businessesgrow:disqus ” If you are early in your digital journey, build “quick wins” into your initiative to create an initiative that grows.” – So true!

  • I like that Pauline — think so far ahead that it seems disruptive : )

  • Thanks Brian. I think that is important because the cultural shift is more important than the monthly numbers at that point.

  • Alice Ackerman, MD,

    Mark, I love this post! And I have to say, that these 7 points apply fully to my environment (medicine) as well as yours. I also generally agree with your take home messages, and can apply them directly to my “industry.”

    Here are my responses to the 7 points:
    1. Stretch goals are incredibly important, and we utilize them to drive behavior and link daily activities to bigger strategic goals. However, the underlying resistance to digital runs deep among many of the established leaders and influencers within the medical community. Fear is fulminant and widespread. Hence the importance of the early wins, as you noted.

    2. Here I would say, while many medical systems do have to look outside their own organizations to have access to critical thought leadership in digital, they also need to identify when they have someone inside who is willing and able to lead the pack, or even serve as a cheerleader, they should do that. It is easier to listen to and believe “one of your own” when they are advocating something new, since they can fully relate to the basic work of the organization. So, for me, as the first physician blogger in my organization, I have now “proven” that its possible to do this without going to jail or being consumed by social media to the exclusion of all of life’s other joys and necessities. Yes I still eat, drink, sleep, work and play with my grandchildren despite my interactions on Twitter, Facebook and the blog. So I encourage medical systems to look within first, then look outside to help to support the lone voice on the inside and make him or her successful.

    3. Ring-fencing the innovation team can help initially to allow them room to think, but runs the risk of failing to change culture or lead to enduring change unless the ring has tentacles out into the rest of the organization. This is true of digital as well as other innovations. Medical organizations are using innovation teams to improve patient experience, change operations, re-design job descriptions. Much of this work involves digital, but will never completely replace the face-to-face tasks most of us do each day. So the team has to work within operations when its time to stop thinking and start doing.

    4. Hospitals and physician practices should also always be in the state of examining their status quo processes to see how they can be done better, quicker and more efficiently. We have been slowly adopting principles generally associated with standard business practices such as Lean and Six Sigma, but we CAN’T just jump into disruptive technologies, even if we want to. Here, we are limited by standing regulations and sometimes arbitrary rules that govern our interactions with patients, as well as payors. So even though we now have data to prove, for instance, that seeing a mental health provider for counseling via digital means is just as effective, or sometimes even better than a personal on-site visit. However, these are rarely paid for by insurance carriers, and so the market of digital providers has not expanded as rapidly as it would if that were different. Also, digital technology has been used by entrepreneurial physician groups, now for decades, to provide tele-ICU services, which can make it possible for a community hospital to care safely for patients at a higher intensity of illness than if they were dependent completely upon local practitioners.

    5. Exactly true in medicine as well. Data is everything. But having the RIGHT data is critical, as sometimes our institutions tend to collect what is easy to collect and not necessarily what is truly meaningful for rapid cycle decision making.

    6. Here, we in medicine have been falling behind a bit. In an effort to embrace digital for our health records (much of it required under the ACA) we have in some cases ended up pushing menial tasks such as typing to our highest paid and scarcest employees. Doctors and nurses now are completing forms on the computer that once were the role of the clerks and other office assistance. Where is healthcare’s greatest expense? In personnel. So sometimes we may ridiculous decisions that push us backwards. There are so many ways in which digital could actually make us more efficient if only we would embrace them.

    7. Much has been published about the growth of consumerism in medicine. This is where we are headed. In fact we are nearly there. Unfortunately not all of our medical facilities, groups and systems are ready to truly give our patients what they want–instead they spend a lot of time hiring consultants who tell us what they THINK the patients want. We need to stop being afraid of the consumer. We need to use digital to enable quicker conversations between patient and provider, easier more direct access, lower cost to the consumer and the payer, and better outcomes.

    Oh gosh, I guess I wrote a whole post here. Sorry about that, but sometimes its hard to stop. And anyway, its been a while since I left any comments.

  • Agree and with so much change its hard to really project the big numbers.. ideally its about teaching change and creating more agile solutions and processes that allow for change!

  • Nice! I just added that feed to my Feedly, will be sure to keep up with it, although not sure why – since you seem to be covering all that’s relevant from a digital marketer’s standpoint!

    Quick note @businessesgrow:disqus – the link to the article is broken in your blog post. 🙂

    Wanted to add a quick little nugget of information to the “Follow the Money” portion of your post. When The Food Bank asked Toyota for a donation, instead of giving them a monetary infusion, Toyota decided to “optimize” their processes. After doing so, they reduced the wait times in soup kitchens by almost FIVE TIMES. One saw a drop of wait time go from 90 minutes to 18 minutes.

    I think that’s truly remarkable and ties back well with the point you were making.

  • yes, you did! : ) I hope you use this as a post on your own. it’s great! So nice to see you back in the comment section Dr, A!

  • Thanks SO MUCH Avtar for pointing out that broken link. I appreciate the assist!

    Very interesting point and anecdote. I’m a Toyota fan.

  • Love that point. Great wisdom there Brian.

  • Means a lot coming from you @businessesgrow:disqus looking forward to meeting you IRL sometime soon!

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