For digital laggards it’s time to enter crisis mode, according to a report from McKinsey and Company. Digital disruption is threatening the revenue of organisations that fail to adapt to digitisation, and the threat will only increase, the authors write.
“Companies can ill afford to wait or be seduced into thinking that they’ll have enough time to respond when a real challenge hits — or that half measures will suffice to stave off the challenge,” according to the study’s authors.
“History shows that this approach just hasn’t worked.”
The report, ‘Turnaround artists: How companies can catch up to the digital revolution“, suggests a more urgent mindset is required and digital laggards don’t have any time to waste.
“By the time disruptive shifts take hold, companies can find themselves on the back foot, scrambling to stave off obsolescence in parts of the business and bring needed innovations to market quickly enough,” the authors argue.
The bad news for organisations already struggling with digitisation is that there is still a lot more to come.
While industries are currently just 40 per cent digitised, the pace of disruption is rapidly growing, the authors write.
“The reality is that for most large companies today, it’s not a question of if digital will upend their business but when.”
All this means it’s time for a “crisis” mindset, even if there isn’t a crisis occurring.
“A crisis mindset can simultaneously force important decisions, drive activity across many fronts, and radically accelerate the pace of change.”
It’s a rapid approach to decision making and experimentation, for organisations playing digital catch up, and the report outlined the five steps required.
1. Break the compromise
In a digital turnaround the status quo just won’t cut it, according to the report. Safer, incremental changes are “the death of a rapid turnaround,” the authors write. “Digital is by its nature disruptive, so the transformation needs to be disruptive as well. Successful programs require leaders to be bold and think big.”
According to research in the report, organisations that fail to turn things around will risk losing a significant share of their revenue to digitisation, “while those that are willing to disrupt themselves through bold action can drive significant growth”.
In some cases action can take precedence over analysis and several experiments in the field can be better than developing bulletproof plans, the authors argue.
2. Bring in the digital muscle
Transformations require specific skills and management — something that is amplified in a rapid digital transformation. A good starting point is bringing in a CDO that is well skilled in managing change.
“In a rapid transformation program, the CDO needs to be the primary agent and driver of change by putting in place new performance metrics, creating a culture that rewards different behaviours, harnessing influencers in the business to drive the change, and role modelling new ways of working.”
It is also important the CDO has the necessary budget and clout that a digital transformation requires, according to the report.
However, the authors cautioned that bringing in a CDO is not a silver bullet — “sometimes the CEO or a ‘council’ of leaders acts as the main driver of change”.
3. Activate many fronts
Leaders in digital turnaround programs not only invest substantially in digital, they do so across many dimensions.
This potentially becomes chaotic if not managed well and requires a certain amount of oversight, according to the report.
“We’ve found that it’s essential to put in place a management tool that can track the many ‘minitransformations’ happening across the organisation. To be useful, this tool needs to provide sufficient transparency so that the CDO can track progress at a meaningful level of detail.”
The “minitransformations” strategy is one aspect that separates digital turnaround projects from more traditional transformations.
4. Establish a digital control tower
The report recommends establishing a “transformation office”, managed by a CDO who has “a broad remit and significant decision-making authority”. While dedicated teams are commonplace in transformations, the difference here is the mindset. A transformation office employs a “private equity management approach”.
“Experiments are evaluated frequently. Poor performers are quickly defunded, but additional funding is released for successful experiments that meet their milestones.”
The payoff of a successful transformation office is greater organisation involvement, transparency and accountability.
5. Make the change personal
Developing digital turnaround stories helps employees understand what the change means for them. “These are short briefs describing the change they want to happen.”
As usual this starts at the top. Buy-in and active involvement from senior leaders is “easier to cultivate”, ultimately helping employees play their necessary role in the change and maintaining their morale, according to the report.