Digitisation can unlock another $US13 trillion dollars of economic value over the next decade, most industries have reached their digital tipping point, and providing effective leadership remains a major challenge but one that must be overcome.

Yet sadly, most businesses are failing to achieve their transformational goals, especially when the focus is on customer experience.

Those are among the top insights from management consultancy McKinsey and Co in a paper called “Twenty-five years of digitization: Ten insights into how to play it right”.

According to the authors of the paper, vast new economic value can be unlocked through the application of digitisation, automation, and AI. These technologies create new opportunities and improve productivity, the proceeds of which can be reinvested in the economy.

The authors note, “The way firms use digital technologies on the ground amply demonstrates the productivity dividend that is possible. Sectors with a high level of digitisation also display the largest productivity growth.”

Not surprisingly, services and sectors which deliver products that are “… less physical and more immaterial” are leading the way. Media and finance are pegged as leaders, while the pharmaceutical sector — as it has all decade — remains a laggard, as does much of manufacturing.

This is the first of ten insights in the paper. The others include:

  • Digital superstars are rising far beyond the US big four and China’s big three;
  • Digital natives are calling the shots;
  • Digital changes everything — even industry boundaries;
  • Agile is the new way to compete;
  • Playing the platform economy is an “in the money” option;
  • Self-cannibalisation and innovation are a necessity for digital reinvention;
  • Going after the right M&A is key;
  • Effective management of digital transformation is vital — but challenging;
  • Leveraging, and transitioning from, digital to new frontier technologies is an imperative.

Interestingly, McKinsey says that by 2018 digital natives likely represented about 12 per cent of total revenue generated across sectors of developed countries. While this figure may seem low the Men in Black say it represents a tipping point.

“Their digital revenue is roughly the size of the total digital-only revenue of incumbent firms. Digital startups generate more than half (54 per cent) of the total digital revenue of their main industry — but more than 70 per cent of digital revenue in sectors such as retail and pharmaceutical products.” (See chart).

CHART: A digital tipping point has been reached in most industries.

Steady, or she goes

Very few incumbents are using digitisation to move beyond their traditional sector borders, though averages can be deceiving.

“There are large variations, however. The share in media is double this, but in retail banking is half this.”

For those that make the leap, the rewards are found in better performance relative to their peers. “Digital revenue is 25 per cent higher than that of the average incumbent. The revenue of those diversifying firms generate already accounts for about ten per cent of total revenue of a sector (on average), and close to 25 per cent of the same sector’s digital revenue.”

Everybody dies in the end

Finally, as it has argued consistently during the digital decade, McKinsey says leadership is critical to success and difficult to deliver.

According to the paper, having the right digital strategy in place is not enough — execution is vital. “Unfortunately, the evidence suggests that failure to be effective happens five times more often than success.”

The majority of the businesses it surveys are failing to achieve the profitability they targeted from digital transformation and only eight per cent have exceeded their expectations.

Failure is more likely than success, irrespective of the objectives of digital transformation. And this pattern plays out across industries and countries.

“In fact, failure tends to be higher in digital transformations linked to customer experience, the most common type of transformation. This suggests that there is a genuine management issue that needs to be addressed.”

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