What is digital transformation? | McKinsey – McKinsey
Digital transformation is the fundamental rewiring of how an organization operates. The goal of a digital transformation, as outlined in the new McKinsey book Rewired: A McKinsey Guide to Outcompeting in the Age of Digital and AI (Wiley, June 20, 2023), should be to build a competitive advantage by continuously deploying tech at scale to improve customer experience and lower costs.
Simon Blackburn is a senior partner in McKinsey’s Sydney office; Jeff Galvin is a senior partner in the Tokyo office; Kia Javanmardian, Naufal Khan, and Vik Sohoni are senior partners in the Chicago office; Eric Lamarre is a senior partner in the Boston office; Harry Robinson is a senior partner in the Southern California office; Richard Sellschop is a senior partner in the Stamford office; Kate Smaje is a senior partner in the London office; Lareina Yee is a senior partner in the Bay Area office; and Rodney Zemmel is a senior partner in the New York office.
Like many commonly used phrases, “digital transformation” has devolved into a catchall term that means different things to different people. That’s a problem. Digital transformation is critical for organizations to not only compete but survive. If leaders can’t be clear about what a digital transformation is—and align their organization around a specific program—they can’t expect to be successful.
Digital transformations are different from regular business transformations, in both small and big ways. For one thing, business transformations usually end once a new behavior has been achieved. Digital transformations, on the other hand, are long-term efforts to rewire how an organization continuously improves and changes (and that means really long term; most executives will be on this journey for the rest of their careers). That’s because technology is not only becoming further integrated in business but also constantly evolving. For example, given the growing importance of AI in generating business insights and enabling decision-making logic, any digital transformation should also be an AI transformation.
As we’ll show, successful digital transformations hinge less on how companies use digital and more on how they become digital.
Learn more about McKinsey Digital.
Successful digital transformation requires a variety of coordinated actions. Rewired lays out six capabilities critical for successful digital transformation:
No digital transformation can be successful without coordinated action across all these areas.
Digital transformations have a much improved probability for success when teams focus on changing entire domains (for example, a customer journey, process, or functional area) rather than only on use cases (a single step within the domain, such as answering a customer-service call). A focus on domains is conducive to effective change because it encompasses all related activities to deliver a complete solution. So instead of focusing on just one step of a process—such as creating the process for a customer to open a bank account through an app—the domain would also include all the other activities (account setup, verification, workflow automation, etcetera) required to open the account. Reckoning with all those other activities is what allows a solution to deliver its value. A domain should be large enough to be valuable and noticeable to the company but small enough to be transformed without relying too much on other parts of the business. Managing the interconnectivity of use cases and solutions within a domain is one of the keys to transformation success.
Learn more about McKinsey Digital.
AI, and particularly generative AI, is upending how companies operate and build value, presenting huge opportunities including content generation, new discoveries (particularly in fields such as pharmaceuticals and chemicals), and coding.
But it can be easy to get distracted by shiny new toys. The lessons of past technology innovations still apply: value comes from having a clear understanding of business goals and how technology can help meet them. It’s important to experiment and learn rapidly, but it’s also critical to resist the temptation to develop use cases with exciting new technology that doesn’t end up creating value for the business.
Building value with generative AI requires the same strong competencies needed for a successful digital transformation, including a clear strategy, an in-house digital talent pool, and a responsive and scalable operating model. And it’s not just a one-and-done: companies that wish to incorporate gen AI into their value propositions will need to continually revisit their digital transformation road maps and review prioritized solutions to determine how new iterations of generative AI models can support their goals.
A successful digital transformation touches a broad range of an organization’s functions so they can work together in new ways. This requires large-scale and coordinated investments. The only person who can make that level of sustained change happen is the CEO. One of the CEO’s crucial jobs is to ensure alignment, commitment, and accountability among the leadership team. Without any of these, progress on digital transformations can rapidly stall.
Leaders at the C-suite and business unit level have crucial tasks as well. When it comes to tech, the chief information officer typically focuses on improving the inner workings of the company with technology. The chief technology officer usually works on improving customer offerings with technology. Chief digital officers, in many cases, act as coleaders of the transformation and typically work with digital and AI technologies to create new digital experiences for users. The chief human resources officer plays a crucial role early in the transformation to secure digital talent and to put in place the talent management practices that will develop and retain digital talent, while the CFO oversees the transformation business case and the tracking of the value realization. Finally, the chief risk officer needs to direct the integration of risk checks into the development process, and understand how to respond to new risks, such as data privacy and cybersecurity, that a digital and AI transformation may generate.
Learn more about McKinsey Digital.
It can be surprisingly difficult to know how a digital transformation is going. Without properly tracking and measuring outcomes, leaders will struggle to manage performance and ensure that the changes happening are creating value.
Knowing what to measure is half the battle. In digital transformations, key performance indicators (KPIs) usually fall into three categories:
To be digital, every company needs to rewire how it works. Once upon a time, Amazon was just another start-up: it had to invest in its technology, data, performance management, and talent practices over years to become an industry leader. The good news is that successful digital transformations aren’t just the purview of the tech titans. Established companies of all kinds can be successful on their digital transformation journeys. Here are three examples:
Learn more about McKinsey Digital, and learn about digital transformation–related job opportunities if you’re interested in working at McKinsey.
Articles referenced:
This article was autogenerated from a news feed from CDO TIMES selected high quality news and research sources. There was no editorial review conducted beyond that by CDO TIMES staff. Need help with any of the topics in our articles? Schedule your free CDO TIMES Tech Navigator call today to stay ahead of the curve and gain insider advantages to propel your business!
Simon Blackburn is a senior partner in McKinsey’s Sydney office; Jeff Galvin is a senior partner in the Tokyo office; Kia Javanmardian, Naufal Khan, and Vik Sohoni are senior partners in the Chicago office; Eric Lamarre is a senior partner in the Boston office; Harry Robinson is a senior partner in the Southern California office; Richard Sellschop is a senior partner in the Stamford office; Kate Smaje is a senior partner in the London office; Lareina Yee is a senior partner in the Bay Area office; and Rodney Zemmel is a senior partner in the New York office.
Like many commonly used phrases, “digital transformation” has devolved into a catchall term that means different things to different people. That’s a problem. Digital transformation is critical for organizations to not only compete but survive. If leaders can’t be clear about what a digital transformation is—and align their organization around a specific program—they can’t expect to be successful.
Digital transformations are different from regular business transformations, in both small and big ways. For one thing, business transformations usually end once a new behavior has been achieved. Digital transformations, on the other hand, are long-term efforts to rewire how an organization continuously improves and changes (and that means really long term; most executives will be on this journey for the rest of their careers). That’s because technology is not only becoming further integrated in business but also constantly evolving. For example, given the growing importance of AI in generating business insights and enabling decision-making logic, any digital transformation should also be an AI transformation.
As we’ll show, successful digital transformations hinge less on how companies use digital and more on how they become digital.
Learn more about McKinsey Digital.
Successful digital transformation requires a variety of coordinated actions. Rewired lays out six capabilities critical for successful digital transformation:
No digital transformation can be successful without coordinated action across all these areas.
Digital transformations have a much improved probability for success when teams focus on changing entire domains (for example, a customer journey, process, or functional area) rather than only on use cases (a single step within the domain, such as answering a customer-service call). A focus on domains is conducive to effective change because it encompasses all related activities to deliver a complete solution. So instead of focusing on just one step of a process—such as creating the process for a customer to open a bank account through an app—the domain would also include all the other activities (account setup, verification, workflow automation, etcetera) required to open the account. Reckoning with all those other activities is what allows a solution to deliver its value. A domain should be large enough to be valuable and noticeable to the company but small enough to be transformed without relying too much on other parts of the business. Managing the interconnectivity of use cases and solutions within a domain is one of the keys to transformation success.
Learn more about McKinsey Digital.
AI, and particularly generative AI, is upending how companies operate and build value, presenting huge opportunities including content generation, new discoveries (particularly in fields such as pharmaceuticals and chemicals), and coding.
But it can be easy to get distracted by shiny new toys. The lessons of past technology innovations still apply: value comes from having a clear understanding of business goals and how technology can help meet them. It’s important to experiment and learn rapidly, but it’s also critical to resist the temptation to develop use cases with exciting new technology that doesn’t end up creating value for the business.
Building value with generative AI requires the same strong competencies needed for a successful digital transformation, including a clear strategy, an in-house digital talent pool, and a responsive and scalable operating model. And it’s not just a one-and-done: companies that wish to incorporate gen AI into their value propositions will need to continually revisit their digital transformation road maps and review prioritized solutions to determine how new iterations of generative AI models can support their goals.
A successful digital transformation touches a broad range of an organization’s functions so they can work together in new ways. This requires large-scale and coordinated investments. The only person who can make that level of sustained change happen is the CEO. One of the CEO’s crucial jobs is to ensure alignment, commitment, and accountability among the leadership team. Without any of these, progress on digital transformations can rapidly stall.
Leaders at the C-suite and business unit level have crucial tasks as well. When it comes to tech, the chief information officer typically focuses on improving the inner workings of the company with technology. The chief technology officer usually works on improving customer offerings with technology. Chief digital officers, in many cases, act as coleaders of the transformation and typically work with digital and AI technologies to create new digital experiences for users. The chief human resources officer plays a crucial role early in the transformation to secure digital talent and to put in place the talent management practices that will develop and retain digital talent, while the CFO oversees the transformation business case and the tracking of the value realization. Finally, the chief risk officer needs to direct the integration of risk checks into the development process, and understand how to respond to new risks, such as data privacy and cybersecurity, that a digital and AI transformation may generate.
Learn more about McKinsey Digital.
It can be surprisingly difficult to know how a digital transformation is going. Without properly tracking and measuring outcomes, leaders will struggle to manage performance and ensure that the changes happening are creating value.
Knowing what to measure is half the battle. In digital transformations, key performance indicators (KPIs) usually fall into three categories:
To be digital, every company needs to rewire how it works. Once upon a time, Amazon was just another start-up: it had to invest in its technology, data, performance management, and talent practices over years to become an industry leader. The good news is that successful digital transformations aren’t just the purview of the tech titans. Established companies of all kinds can be successful on their digital transformation journeys. Here are three examples:
Learn more about McKinsey Digital, and learn about digital transformation–related job opportunities if you’re interested in working at McKinsey.
Articles referenced:
This article was autogenerated from a news feed from CDO TIMES selected high quality news and research sources. There was no editorial review conducted beyond that by CDO TIMES staff. Need help with any of the topics in our articles? Schedule your free CDO TIMES Tech Navigator call today to stay ahead of the curve and gain insider advantages to propel your business!
