A few weeks ago, McKinsey released Bullish on Digital, a short report on how companies are faring with digital technologies and strategies based on a recent online survey of 850 CEOs and other senior executives. The survey asked the executives about their companies progress and obstacles in embracing five major digital trends: big data and advanced analytics, digital engagement of customers, digital engagement of employees and external partners, automation, and digital innovation.
Adapting to the ongoing digitization of the economy, and of society in general, is arguably the most challenging transformation every business is facing, so it’s quite interesting to see what the McKinsey survey uncovered.
All-in-all, executives feel that their companies are, at best, about one-quarter of the way toward their digital business objectives. Organizational alignment and leadership are the critical factors in the success or failure of their digital strategies. But, despite the organizational and leadership challenges, they are generally optimistic that their companies are making progress and more fully embracing digital capabilities.
The report notes that while all five trends are important to the bottom line, they expect digital customer engagements to provide the largest financial returns. The survey data indicates that considerable progress has been made in just the last year in improving marketing consistency across online and offline channels and in reaching customers with personalized offers and information.
This is not surprising. A company can differentiate itself from competitors in one of two key ways: by providing a superior client experience or by offering the lowest prices. For companies that prefer the former, digital channels are likely to be the most cost-effective way of reaching out to their clients. The explosive growth of mobile devices means that you can be engaged with your customers whether they are at home, at work, or shopping in your store. But, these digital customers can be fickle and hard to satisfy. Some executives also fear a negative impact due to the difficulty of keeping up with their fast changing behaviors and high expectations.
The client engagement questions seemed to focus primarily on marketing, offers and information, with little mention of customer service. While well-targeted offers are very important, I have long felt that superior customer service is the key to customer retention and loyalty. Products and services might be commoditizing, but you never, ever, want your customers to feel like they are being treated like commodities and taken for granted.
A successful business will try to make each of its clients feel special not only by understanding and addressing their unique requirements, but also by providing excellent customer service and quickly resolving problems when they come up. This is really hard, perhaps because it requires well-trained and empowered employees in addition to the right digital information and tools. Which is also why it may very well be most important way for a business to stand out from its competitors.
Big data and advanced analytics is another digital business trend that has made significant progress in the past year. “Notably, respondents report increased use of data to improve decision making, R&D processes, and budgeting and forecasting. What’s more, executives say their companies are using analytics to grow: the largest shares report focusing their analytics efforts on either increasing revenue or improving process quality. Reducing costs tends to rank as a lower-level priority.”
But, as is the case with just about all disruptive innovations, it will take time for companies to learn how to best leverage advances in big data for business value. While some of us view big data as having the potential of leading to a scientific and management revolution over time, others are already asking Is Big Data an Economic Big Dud?, the title of an article in the August 18 New York Times Sunday Review. The article notes that “The astounding rate of growth [of Internet-based big data] would make any parent proud, . . .” It then adds:
“For its next act, the industry has pinned its hopes, and its colossal public relations machine, on the power of Big Data itself to supercharge the economy. . . There is just one tiny problem: the economy is, at best, in the doldrums and has stayed there during the latest surge in Web traffic. The rate of productivity growth, whose steady rise from the 1970s well into the 2000s has been credited to earlier phases in the computer and Internet revolutions, has actually fallen. The overall economic trends are complex, but an argument could be made that the slowdown began around 2005 - just when Big Data began to make its appearance. Those factors have some economists questioning whether Big Data will ever have the impact of the first Internet wave, let alone the industrial revolutions of past centuries.”
What happened to the fame and riches we were promised? Our young prodigy is already disappointing us despite its huge potential. In fact, as some recent articles have noted, big data has already reached the peak of inflated expectations in the so-called hype cycle for disruptive technologies, and is now falling into the trough of disillusionment. Will it keep falling through the trough and soon be forgotten? Or will it, after a period of hard work and maturity, eventually move on to the slope of enlightenment on its way to a long life in the plateau of productivity? Unlike a successful new product, transformative revolutions, - whether technological, scientific or management, - take a relatively long time to play out. We are all just beginning to learn about data science, the emerging discipline that is focused on extracting valuable insights out of all that big data.
The McKinsey survey observes that, unlike the progress in big data and client engagements, companies have been significantly slower in leveraging digital technologies to engage their employees and external partners. This is, once more, not surprising. For a number of years, many executives have been advocating a culture of collaboration as one of the keys to transformational change in their companies. They wholeheartedly agree that social media platforms and applications are having a big impact on the way people collaborate and generally relate to each other in the workplace and across their ecosystem of partners.
However, study after study keeps finding that despite the widespread success of public social networks, many companies have been slow to embrace social media as an integral part of their workplace. This is a particular problem for younger employees who are extensively using social media technologies in their personal lives, but cannot properly do so at work. Part of the problem is that the benefits of connecting to customers are easier to measure and quantify, while those involving employees and partners are more social and cultural in nature. Social and cultural changes require strong senior management leadership.
For example, the Social CIO, a study by Forrester Research published about a year ago, concludes that the number of businesses that are truly executing social initiatives remains surprisingly small. Companies are making investments in social platforms and technologies, but, in general, their efforts remain haphazard and disjointed. The report writes that:
“While the speed at which ideas traverse public social networks is phenomenal, surprisingly few organizations have managed to fully exploit the power of open knowledge sharing inside and outside their company walls. Many businesses have set up social technologies in their organizations, yet few have truly made the technical, cultural, and process changes necessary to reap the full opportunities and benefits of these tools or the vast amounts of data they capture.”
The McKinsey's survey’s most valuable insight is its finding that: “Despite the host of technical challenges in implementing digital, respondents say the success (or failure) of these programs ultimately relies on organization and leadership, rather than technology considerations. . . Executives most often attribute the success of digital programs to managerial factors - senior management’s interest and attention, internal leadership, good program management, and alignment between organizational structure and goals - and are less likely to cite any technical considerations. Interestingly, the absence of senior-management interest is the factor respondents most often identify as contributing to an initiative’s failure.”
The report concludes on an optimistic note: “Challenges aside, executives remain bullish on digital business,” and offers advice in three key areas:
- “Find the right digital leaders. Leadership is the most decisive factor for a digital program’s success or failure. . .”
- “Manage expectations. Just as important as finding the right leader is setting the right agenda and maintaining an aspirational vision without straying into overexuberance for digital. . .”
- “Prioritize talent. Not surprisingly, survey respondents indicate concerns about finding the talent their companies need to realize their digital goals. Technical, functional, and business skills are all critical for digital programs. . .”