Six building blocks for creating a digital enterprise

Digitization affects almost everything in today’s organizations, which makes capturing its benefits uniquely complex. Here are the most important aspects that winning companies consider

By: Driek Desmet, Ewan Duncan, Jay Scanlan, and Marc Singer
Courtesy: McKinsey

Few companies need to be sold on the benefits of digitization. McKinsey research shows that companies have lofty ambitions: They expect digital initiatives to deliver annual growth and cost efficiencies of 5 to 10% or more than that in the next three to five years. Yet despite the often—substantial investments companies have made in digital initiatives,few see that kind of growth.

That’s because getting the engine in place to digitize at scale is uniquely complex. Since digital touches so many parts of an organization, any large digital program requires unprecedented coordination of people, processes, and technologies. A strategy to increase revenue from high-value customer segments, for example, requires analytics-based insights into which purchasing journeys generate the most value, a clear vision and plan for how to capture that value, and technologies and tools to digitize interactions with customers. New capabilitiesand teams are also needed to manage and coordinate the delivery of those journeys across the organization.

Of course, adapting over time has always been essential to corporate success. Yet while the average corporate life span has been falling for more than half a century— Standard & Poor’s data show it was 61 years in 1958, 25 years in 1980, and just 18 years in 2011—digitization is placing unprecedented pressure on organizations to evolve. At the present rate, 75% of S&P 500 incumbents will be gone by 2027. That means managing your transition to a digitally-driven business model isn’t just critical to beating competitors; it’s crucial to survival.

SIX BUILDING BLOCKS

In our experience, companies that have successfully transitioned to become high-performing digital enterprises are able to orchestrate six building blocks: Strategy and innovation, the customer decision journey, process automation, organization, technology, and data and analytics. Now, not every digital initiative requires each building block to be developed and used to the same degree. Some blocks will also serve as more natural starting points, depending on a company’s circumstances—for instance, a company whose IT constraints make it hard to deliver a cutting-edge customer experience will naturally want to focus on the technology and process elements first. But we’ve found that this framework provides executives with a coherent structure for thinking through and managing large-scale digital programs.

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