However, the execution is challenging. McKinsey and Company, a global management consulting firm, conducted a study which concluded that e-care is the future of customer service . However, CFOs know that a resurgent incumbent, with all their brand equity, brand loyalty, and customer base, is the real threat. Let’s talk about generational cohorts for a second. is digitally transforming the industry with data, AI, and network effects. Digital Transformation (DX) refers to the innovative use of digital technologies to transform traditional ways of doing things. Digital transformation. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Michael Krigsman: What's the next step beyond digital transformation? The experience for the customers ends up being typically faster, cheaper, more seamless, and easier because it's accessible everywhere, and it's much more user-friendly. Here are six key things to consider when approaching it: 1. There are a plethora of definitions of digital transformation, and here are a few: Brian Solis’s definition of DT is entirely holistic, “[DT implies] the realignment of, or new investment in, technology, business models, and processes to drive new value for customers and employees.”. Other CEOs are seeking inspiration by organizing visits to the headwaters of disruption, at companies like Apple, Tesla, and Uber. In Germany, leading industry CEOs formed a working group, Industrie 4.0, to advise the federal government on industrial policy needed for the “fourth industrial revolution,” grounded in IoT and AI. People create and sustain change. By Ashley Friedlein November 4th 2013 10:59. In the age of the digital technology revolution, increasingly we’re seeing leadership as the defining factor in enabling transformation success. The only way to succeed with digital transformation and maximize returns on digital projects and initiatives is to ensure that the organization’s board and leaders are aligned on the definition of digital and are able to articulate that definition in a way that the entire organization can rally around. Organization, in a digital transformation world, includes the work culture and the set of practices and attitudes that are key to executing digital transformations. As the world becomes more digital and more volatile, survival itself becomes less certain. Each of the steps you take should be successive and calculated beforehand. How are you? Building your digital transformation strategy: 7 steps to success. Obviously, there is no digital transformation without a change in technology. I’m seeing leaders who get this. One healthcare CEO used scenarios to craft a road map for hundreds of next-generation application improvements across its businesses. McKinsey’s recent Digital Enablement Survey, for example, shows that they are devoting an increasing proportion of the IT budget to building digital capabilities rather than supporting core IT infrastructure (e.g., claims processing systems). Years of research on transformations has shown that the success rate for these efforts is consistently low: less than 30 percent succeed. Press enter to select and open the results on a new page. To give some flavor to this: Perhaps the most unique aspect of this technology trend is that digital transformation is being driven from the top, personally mandated by the CEO. The chance of superior outcomes also rises when companies hold people accountable for meeting the individual goals they’ve been given. And if I’m managing my business plan on this definition of digital, are the commercial officer and the operations guy too? What isn’t always obvious, however, is what digital transformation actually means. Why digital transformation is so important. More darkly, John Chambers, of Cisco Systems, predicts that 40 percent of today’s businesses will fail in the next ten years; 70 percent will attempt to transform themselves digitally, but only 30 percent will succeed. Digital transformation: Why it's important to your organization Digital technologies – are changing the face of business. Finally, a digital transformation is more likely to beat performance expectations if a … In retail, Amazon During the roundtable, which took place in London in January 2018, the CEOs reflected on their companies’ approaches to digital and the opportunities for value capture that a digital customer experience presents. CFOs have a critical role to play in an organization’s digital transformation strategy — and it’s important to remember that their training helps bring critical insights into the boardroom. The ability to innovate depends on your culture. If your CEO isn’t talking about how to ensure the survival of the enterprise amid digital disruption, well, maybe you’ve got the wrong person in the job. Will they be able to rise to the challenge? My advice is that they should be talking about this all the time, with their boards, in the C-suite—and mobilizing the entire company. Tesla collects terabytes of data from its vehicles and uses machine learning to improve predictive maintenance, self-driving capabilities, and the driving experience of its cars significantly and continuously.7 7.Kirsten Korosec, “Why Morgan Stanley is so bullish on Tesla and the Model 3,” Fortune, March 2017, fortune.com. Identifying and warning the board and managers against such threats is what CFOs can really help with. This means that economies of scale take on whole new proportions, which leads to the rise of ecosystems. Michael Krigsman: I'm excellent. hereLearn more about cookies, Opens in new Digital transformation is about using technology to reinvent your whole business, for your benefit and your customers’. We'll email you when new articles are published on this topic. Yet I’m shocked by—even fearful for—the many CEOs I know who seem to be asleep at the switch. A change in mindset. Visionary CEOs, individually, are the engines of massive change that is unprecedented in the history of information technology—possibly unprecedented in the history of commerce. The world’s obsession with the latest technology, social media and apps revolve around a desire for an easier life. Digital transformation is often used to … PLAN TO BE FLEXIBLE We all love Agile working, and change management should be no different. It’s a cliché, but change really does start from within. Historically, computation was performed on data samples, statistical methods were employed to draw inferences from those samples, and the inferences were in turn used to inform business decisions. Traditionally, managing budgets and prioritizing projects that yield guaranteed returns has kept CFOs busy. The term transformation is also increasingly used for a digital reinvention: companies fundamentally reworking the way they’re wired and, in particular, how they go to market,” the authors wrote. As a result, the primary focus of digital transformation is to use cutting-edge technology to improve the customer experience. Why is digital transformation so important? Something that has been stable for a long period is suddenly disrupted radically—and then settles into a new equilibrium.1 1.See Stephen Jay Gould, Punctuated Equilibrium, Cambridge, MA: Harvard University Press, 2007. Take me straight to the infographic The rapid adoption of digital technology by customers and businesses continues to disrupt the global economy. Digital transformation is about sweeping change. Tesla’s market capitalization is roughly equivalent to that of General Motors even though its revenue is less than one-twentieth of GM’s. Why digital transformation should be a strategic priority for health insurers Digital technologies and applications have the potential to markedly enhance a payor’s profits. How much money do we spend on digital, and how do we report on the effectiveness of our digital efforts, and is that congruent with what we are trying to accomplish? When it’s over, a new equilibrium will emerge. Imagine for a minute that you own one of the car accessories shops in town. The CEO was periodically briefed on the cost and result. Little has changed, as most digital transformation projects fall on the shoulders of the IT department to implement. Digital transformation is the process of exploiting digital technology to make business improvements, transform business processes, increase organizational effectiveness, or change the organization in some way. McKinsey & Company. Over months or years, and after multiple trials and evaluations, each gained the attention of the chief information officer, who was responsible for technology adoption. Software evolved from bespoke custom programming to on-premises, packaged enterprise application software and then to software as a service (SaaS)—cloud-resident solutions. Those are the questions that the CFO must ask. In response, some farsighted CEOs are revamping their playbooks. Related Article: Digital Transformation Efforts Stall Without Cultural Change Employees Are Key to Driving Change. Why digital transformation should be a strategic priority for health insurers Basel Kayyal, Sti eve Keyll, and Madhu Pawar Healthcare Systems and Services Practice. Ari Libarikian: I'm good, Michael. Analogues across social and economic history include the discovery of fire, the domestication of dogs, the emergence of agricultural techniques, and, in more recent times, the Gutenberg printing press, the Jacquard loom, urban electrification, the automobile, the microprocessor, and the Internet. This is critically important today because of the new technology investments demanded by digital transformation. Its share of the US e-commerce market is 34 percent and could increase to 50 percent by 2021.8 8.Phil Wahba, “Amazon will make up 50 percent of all US e-commerce by 2021,” Fortune, April 2017, fortune.com. A great example of that might be the filing of taxes or submission of customs documentation for imports/exports. The power of IoT, cloud computing, and AI spells the digital transformation of the utility industry. Shortcomings in organizational culture are one of the main barriers to company success in the digital age. The hardest part of a successful digital transformation is the cultural piece. I witnessed many of these tech-adoption cycles over the past 30 years. The benefits are breathtaking. Gould’s theory addresses the discontinuity in fossil records that puzzled Charles Darwin. New, highly agile, digitally native firms are entering the market and could sig-nificantly disrupt existing business models. According to Catlin, the CFO must become the evangelist helping people understand this digital economy, and serve as the architect putting the pieces of the puzzle together in a way that is quantifiable and measurable. Previously, he founded Siebel Systems, serving as its CEO and chairman from 1993 until its acquisition by Oracle, in 2006. This is critically important today because of the new technology investments demanded by digital transformation. Only 24% have started executing on a digital transformation strategy, and just 19% say they have well-defined plans in this area. The McKinsey leader pointed out that CFOs understand macroeconomics extremely well. Digital transformation is about sweeping change. They’re also reaching across company and industry borders to share and promulgate best practices. Landline operators were massively disrupted by cell phones, which in turn were upended by the introduction of the iPhone, in 2007—which, in the following decade, has settled into a new stasis, with handheld computing changing the very nature of interpersonal communication. When technologies like AI and advanced analytics are used to improve internal … The Chief Finance Officer (CFO) and all managers that work in the finance division in a company tend to be focused on managing budgets, tracking revenues, and prioritizing investments that maximize growth. Explain why the digital transformation is important If people drive a transformation, then every employee needs to be just as invested in the change as the upper management members are. You send out fliers and post print ads as a marketing strategy. WHY IS A DIGITAL MINDSET IMPORTANT? Thomas Siebel is the chairman and CEO of C3 IoT. The only way to succeed with digital transformation and maximize returns on digital projects and initiatives is to ensure that the organization’s board and leaders are aligned on the definition of digital and are able to articulate that definition in a way that the entire organization can rally around. We're speaking with Ari Libarikian who is a senior partner with McKinsey& Company. Where new talent is required to bolster C-level efforts, CEOs are recruiting for roles such as chief digital officer with the authority and budget to make things happen. In autos, think of Tesla as IoT on wheels. We are living in the age of digital. Source. Digital Transformation: McKinsey’s Take. The resulting structural change in the global economy, he wrote, would be on the order of the Industrial Revolution. McKinsey Organizational Transformation 101: Key Concepts and Ideas. “[…] more progressive CFOs are asking more provocative questions like, “How aligned are we, really? Please click "Accept" to help us improve its usefulness with additional cookies. Please use UP and DOWN arrow keys to review autocomplete results. Select topics and stay current with our latest insights, Why digital transformation is now on the CEO’s shoulders. Digital transformation can impact every area of business. In the current extinction event, the causal factor is digital transformation. Lift in customer engagement (75%) – One of the first and most important benefits of Digital Transformation is that it leads to a great lift in customer engagement and experience. A McKinsey survey in 2016 found that 40% of business leaders are unsure of what an enterprise architect does. Digital IQ. Learn about Here are six key things to consider when approaching it: 1. Big data means we perform calculations on all the data; there is no sampling error. What used to be a largely paper-based process is now digitized through online workflow processes. The… Now the synchronous arrival of Tesla, Uber, and autonomous vehicles is creating chaos. Digital transformation is often viewed as an implementation of digital technologies into all areas of business in order to build more sustainable relationships and better understand the needs of customers. Digital transformation is focused on creating a new way of business. Leadership from the top is necessary to overcome the organizational resistance to change that can make a digital transformation difficult. They’re all … Flip the odds. Understanding digital transformation. According to the survey, by digitizing customer service, customer satisfaction can … McKinsey & Company convened the CEOs of ten European PHI companies for a roundtable focused on digital transformation. Change is essential for success. It will help you stay relevant. With the promise of performance improvements and productivity increases, such innovations were introduced to industry through the IT organization. In this blog article, we’ll explore why leadership in digital transformation processes is so important. What is Digital Transformation? Why are we still falling for phishing attacks. Isabelle Kocher, CEO of Engie, an integrated energy company based in Paris, has assembled a C-suite team to step up the transformation of the company. It changes everything about how products are designed, manufactured, sold, delivered, and serviced—and it forces CEOs to rethink how companies execute, with new business processes, management practices, and information systems, as well as everything about the nature of customer relationships. Something went wrong. For this reason, it’s imperative for organizations to get employees excited about the opportunities that digital transformation … 1 ning to adopt customer-centric thinking, prompted by the consumerization of health insurance. Digital transformation is often used to boost agility and operational efficiency. It’s not about shiny objects. Technology is able to crunch the numbers, do it quickly, and free up organizations, giving them the time they need to make business decisions. A digital business is basically a business that's centered around technology in the construction, delivery, service of the product. For boards, if this isn’t on your agenda, then you’ve got the wrong agenda. For many large organizations, it's building a new business within the established company. But as in evolutionary speciation, many new and unanticipated enterprises will emerge, and existing ones will be transformed with new business models. (For more of McKinsey’s research on the success factors in broad business transformations, see “Why your next transformation should be ‘all in’” and “The numbers behind successful transformations.”) Our latest research shows that exceptionally effective digital transformations are distinguished mostly by … Successful organizations tend to look inward when making digital transformation strategies. Other CEOs we work with are thinking through scenarios to anticipate future disruption, asking questions like “what are our customers really buying, do they really need us, or could a digital competitor provide a better insight or product at a lower cost?” They’re using these “what if” cases to break out of cloistered mind-sets and reallocate investments for future digital efforts. Together they have updated its strategy with new business targets that include specific expectations for digital value creation. Many enterprises that fail to transform themselves will disappear. Please try again later. McKinsey & Company convened the CEOs of ten European PHI companies for a roundtable focused on digital transformation. All value chains will be disrupted: defense, education, financial services, government services, healthcare, manufacturing, oil and gas, retail, telecommunications, and more. Digital transformation efforts rely on digital technology to convert customer insight into customer-centric products and services. Large-scale organizational changes, says the research firm, can be designed scientifically. The competitive effects are playing out in the marketplace. Why digital customer service? More importantly, they want it fast. So when I see CEOs who may be experimenting here and there with AI or the cloud, I tell them that’s not enough. And that, in turn, means organizations should care even more about the digital transformation of learning. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. 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