Digital transformation is everywhere on the agendas of corporate boards and has risen to the top of CEOs’ strategic plans. Digital Transformation: McKinsey’s Take. Technology is changing consumer behavior and consumer behavior is influencing changes in technology, including which technologies companies choose to adopt and integrate into their martech stack. Since 2000, over 50 percent of Fortune 500 companies have been acquired, merged, or declared bankruptcy, with no end in sight. PLAN TO BE FLEXIBLE We all love Agile working, and change management should be no different. When a power grid is fully connected, utilities can aggregate, evaluate, and correlate the interactions and relationships of vast quantities of data from all manner of devices—plus weather, load, and generation-capacity information—in near real time. The more miles driven, the more data Tesla collects, and the more it grows as a competitive force. New, highly agile, digitally native firms are entering the market and could sig-nificantly disrupt existing business models. In autos, think of Tesla as IoT on wheels. In the subsequent four decades, the dynamics of Moore’s law and the associated technological advances of minicomputers, relational databases, computers, the Internet, and the smartphone have created a thriving $2 trillion information-technology industry—much as Bell foretold. Digital transformation. A virtuous cycle is at work here. Here are six key things to consider when approaching it: 1. These are performance orientated benefits and show that digital transformation is proven to increase productivity and helps companies enhance customer experience. Many enterprises that fail to transform themselves will disappear. That is why it is so important to have a solid digital transformation plan. Why digital transformation should be a strategic priority for health insurers Basel Kayyal, Sti eve Keyll, and Madhu Pawar Healthcare Systems and Services Practice. How are you? Previously, he founded Siebel Systems, serving as its CEO and chairman from 1993 until its acquisition by Oracle, in 2006. What used to be a largely paper-based process is now digitized through online workflow processes. In retail, Amazon As the world becomes more digital and more volatile, survival itself becomes less certain. CFOs might have an instrumental role in digital transformation. “If I am not making you sweat,” he told an executive audience, “I should be.”6 6.Julie Bort, “Retiring Cisco CEO delivers dire prediction: 40 percent of companies will be dead in 10 years,” Business Insider, June 2015, businessinsider.com. Now the synchronous arrival of Tesla, Uber, and autonomous vehicles is creating chaos. Related Article: Digital Transformation Efforts Stall Without Cultural Change Employees Are Key to Driving Change. The experience of customers is at the heart of digital. Paige O’Neill, CMO of Sitecore, says: “It’s important to keep in mind that digital transformation is not a single project or change, but an organization-wide restructure that extends to the people, the operations and the technology.” Never miss an insight. Equally important, CFOs are increasingly bringing data-driven risk management awareness to strategic planning at the CEO and board levels to inform decisions ranging from entering new markets to planning new facilities. Use minimal essential Imagine for a minute that you own one of the car accessories shops in town. It’s increasingly clear that we’re entering a highly disruptive extinction event. I’m seeing leaders who get this. Digital transformation is vital to all businesses, regardless of size. More importantly, they want it fast. Digital transformation is about sweeping change. Gould pointed out that fossil records show that species change does not advance gradually but often massively and disruptively. McKinsey & Company convened the CEOs of ten European PHI companies for a roundtable focused on digital transformation. A change in mindset. Little has changed, as most digital transformation projects fall on the shoulders of the IT department to implement. Press enter to select and open the results on a new page. Where new talent is required to bolster C-level efforts, CEOs are recruiting for roles such as chief digital officer with the authority and budget to make things happen. You send out fliers and post print ads as a marketing strategy. Among the fruits: increased productivity and profitability, a lower cost of operation, and economic growth. It’s more important than ever to stay competitive and relevant in the digital world. SMBs know how important it is to start planning for digital transformation: More than 80% agree that technology is reshaping their industries, businesses and workplaces. The world’s obsession with the latest technology, social media and apps revolve around a desire for an easier life. © 2020 Copyright TechHQ | All Rights Reserved, may be a determining factor for a successful, Google faces its third major lawsuit of the year. This is something new. What is Digital Transformation? Hey, Ari. With the 21st-century digital transformation, the adoption cycle has inverted. Change is essential for success. Hundreds of leading companies have formed the Industrial Internet Consortium to accelerate the adoption of “cyberphysical systems” in energy, healthcare, manufacturing, smart cities, and transportation. Digital transformation efforts rely on digital technology to convert customer insight into customer-centric products and services. Yet, digital transformation is important for your business. Gould’s theory addresses the discontinuity in fossil records that puzzled Charles Darwin. For many large organizations, it's building a new business within the established company. “Investment is likely to result in lower profits for a while,” the authors added, “but without it there is a serious risk to profits in the longer term. And if I’m managing my business plan on this definition of digital, are the commercial officer and the operations guy too? McKinsey found that organizations with fewer than 100 employees are 2.7 times more likely to report a successful digital transformation than those with more than 50,000 employees. Before the ubiquity of the personal computer or the Internet, the late Harvard sociologist Daniel Bell predicted the advent of the Information Age in his seminal work The Coming of Post-Industrial Society.2 2.Daniel Bell, The Coming of Post-Industrial Society: A Venture in Social Forecasting, New York, NY: Basic Books, 1973. Digital technology has transformed the landscape of client engagement, commerce, marketing and more, in such a way that impacts every area of your business. The experience for the customers ends up being typically faster, cheaper, more seamless, and easier because it's accessible everywhere, and it's much more user-friendly. During the roundtable, which took place in London in January 2018, the CEOs reflected on their companies’ approaches to digital and the opportunities for value capture that a digital customer experience presents. We're talking about digital business. They’re all over it: they want to launch five transformation initiatives right now; they’re talking to me and every digital leader they know about where the technology threats are coming from; and they’re hiring the best people to advise them. Whether your business generates revenue through client services, digital media, or physical goods, technological innovations can transform your means of production, distribution, and customer service. The only way to succeed with digital transformation and maximize returns on digital projects and initiatives is to ensure that the organization’s board and leaders are aligned on the definition of digital and are able to articulate that definition in a way that the entire organization can rally around. This is not the case, the two should not be confused and that is why digital transformation must be accompanied by a change programme. Digital transformation, according to McKinsey’s research, is extraordinarily difficult. Ari Libarikian: I'm good, Michael. Each of the steps you take should be successive and calculated beforehand. “As for the role of the CFO, there are two lessons worth emphasizing,” explained Catlin. Obviously, there is no digital transformation without a change in technology. Why digital transformation should be a strategic priority for health insurers Digital technologies and applications have the potential to markedly enhance a payor’s profits. It’s not about shiny objects. Because the industry itself is undergoing a paradigm shift, businesses need to rethink the way they operate. Source. Learn more about cookies, Opens in new For boards, if this isn’t on your agenda, then you’ve got the wrong agenda. Digital technologies and applications have the potential to markedly enhance a payor’s profits. In Germany, leading industry CEOs formed a working group, Industrie 4.0, to advise the federal government on industrial policy needed for the “fourth industrial revolution,” grounded in IoT and AI. So when I see CEOs who may be experimenting here and there with AI or the cloud, I tell them that’s not enough. Michael Porter of the Harvard Business School speculates that the new world of smart, connected devices represents a sea change in the fundamental dynamics of competition.5 5.Michael E. Porter and James E. Heppelmann, “How smart, connected products are transforming competition,” Harvard Business Review, November 2014; and Michael E. Porter and James E. Heppelmann, “How smart, connected products are transforming companies,” Harvard Business Review, October 2015, hbr.org. A digital business is basically a business that's centered around technology in the construction, delivery, service of the product. They just don’t see the massive disruption headed their way from digital threats, seen or unseen, and they don’t seem to understand it will happen very quickly. Tinkering is insufficient. Digital transformation is often used to boost agility and operational efficiency. By joining McKinsey I therefore think I would have an opportunity to work with and learn from the best consultants in the industry. An estimated $2 trillion is being spent this decade to “sensor” that value chain by upgrading or replacing the multitude of devices in the grid infrastructure so that all of them are remotely machine addressable.4 4.Derived from Estimating the Costs and Benefits of the Smart Grid: A Preliminary Estimate of the Investment Requirements and the Resultant Benefits of a Fully Functioning Smart Grid, Electric Power Research Institute, March 2011. Digital transformation: the importance of culture. This means that economies of scale take on whole new proportions, which leads to the rise of ecosystems. McKinsey and Company, a global management consulting firm, conducted a study which concluded that e-care is the future of customer service . Porter suggests that the Internet of Things isn’t simply a matter of competitive advantage; it is existential. Understanding digital transformation. In the coming months, CFOs and their teams, have a real opportunity to shine and make a big contribution to transformation efforts. Today’s electric-power grid—composed of billions of electric meters, transformers, capacitors, phasor measurement units, and power lines—is perhaps the largest and most complex machine ever developed.3 3.George Constable et al., A Century of Innovation: Twenty Engineering Achievements that Transformed our Lives, Washington, DC: Joseph Henry Press, 2003. You ask yourself very difficult questions once your marginal cost is zero,” said Catlin. Its share of the US e-commerce market is 34 percent and could increase to 50 percent by 2021.8 8.Phil Wahba, “Amazon will make up 50 percent of all US e-commerce by 2021,” Fortune, April 2017, fortune.com. Internal processes. And that, in turn, means organizations should care even more about the digital transformation of learning. A McKinsey survey in 2016 found that 40% of business leaders are unsure of what an enterprise architect does. The resulting structural change in the global economy, he wrote, would be on the order of the Industrial Revolution. The… cookies, precise predictive and prescriptive analytics, Healthcare records and genome sequences will be digitized, Operators will use predictive maintenance, How smart, connected products are transforming competition, How smart, connected products are transforming companies, will attempt to transform themselves digitally, Retiring Cisco CEO delivers dire prediction: 40 percent of companies will be dead in 10 years, Why Morgan Stanley is so bullish on Tesla and the Model 3, Amazon will make up 50 percent of all US e-commerce by 2021. As a result, the primary focus of digital transformation is to use cutting-edge technology to improve the customer experience. Years of research on transformations has shown that the success rate for these efforts is consistently low: less than 30 percent succeed. Leadership from the top is necessary to overcome the organizational resistance to change that can make a digital transformation difficult. The chance of superior outcomes also rises when companies hold people accountable for meeting the individual goals they’ve been given. The term transformation is also increasingly used for a digital reinvention: companies fundamentally reworking the way they’re wired and, in particular, how they go to market,” the authors wrote. is digitally transforming the industry with data, AI, and network effects. I witnessed many of these tech-adoption cycles over the past 30 years. We are living in the age of digital. CFOs have a critical role to play in an organization’s digital transformation strategy — and it’s important to remember that their training helps bring critical insights into the boardroom. Building your digital transformation strategy: 7 steps to success. Why is digital transformation so important? Many companies recognize this, with 92%of leaders d… There are a plethora of definitions of digital transformation, and here are a few: Brian Solis’s definition of DT is entirely holistic, “[DT implies] the realignment of, or new investment in, technology, business models, and processes to drive new value for customers and employees.”. In this blog article, we’ll explore why leadership in digital transformation processes is so important. Yet, for some companies, digital transformation becomes more of a concept and something to […] Large-scale organizational changes, says the research firm, can be designed scientifically. Digital IQ. It changes everything about how products are designed, manufactured, sold, delivered, and serviced—and it forces CEOs to rethink how companies execute, with new business processes, management practices, and information systems, as well as everything about the nature of customer relationships. Meanwhile, as big data sets become staggeringly large, they change the nature of business decisions. McKinsey’s research indicates that by 2030, the skills needed in the workforce will be radically different from those valued today. Other CEOs are seeking inspiration by organizing visits to the headwaters of disruption, at companies like Apple, Tesla, and Uber. In the finance department, machine learning can automate manual processes like invoice tracking. How are you? Isabelle Kocher, CEO of Engie, an integrated energy company based in Paris, has assembled a C-suite team to step up the transformation of the company. Successful organizations tend to look inward when making digital transformation strategies. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. The hardest part of a successful digital transformation is the cultural piece. Basel Kayyali, Steve Kelly, and Learn about In the age of technology, finance managers and leaders, especially the CFO, must change their outlook. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Digital transformation is focused on creating a new way of business. Finally, a digital transformation is more likely to beat performance expectations if a … McKinsey’s Smaje made one very important point during the conversation about the role of CFOs in the future — “A resurgent incumbent in your sector is significantly more damaging than many of the digital attackers”. Organization, in a digital transformation world, includes the work culture and the set of practices and attitudes that are key to executing digital transformations. However, the execution is challenging. This is critically important today because of the new technology investments demanded by digital transformation. Many private health insurance (PHI) companies are now embracing digital to transform both how they interact with customers and how they manage their organizations. However, the execution is challenging. Something fundamentally important is happening, and it’s something that corporate leaders find highly motivating—and urgent. Is that feasible in the age of digital transformation? Select topics and stay current with our latest insights, Why digital transformation is now on the CEO’s shoulders. The only way to succeed with digital transformation and maximize returns on digital projects and initiatives is to ensure that the organization’s board and leaders are aligned on the definition of digital and are able to articulate that definition in a way that the entire organization can rally around. We use cookies essential for this site to function well. For this reason, it’s imperative for organizations to get employees excited about the opportunities that digital transformation … Source: Shutterstock. Why a Digital Transformation Strategy Is More Crucial Than Ever. This is critically important today because of the new technology investments demanded by digital transformation. Smaje said that a majority of firms tend to fear digital disruptors or attackers using technology to create new and innovative solutions. With the promise of performance improvements and productivity increases, such innovations were introduced to industry through the IT organization. PLAN TO BE FLEXIBLE We all love Agile working, and change management should be no different. One healthcare CEO used scenarios to craft a road map for hundreds of next-generation application improvements across its businesses. The evidence suggests that we are seeing a mass disruption in the corporate world like Gould’s recurring episodes of mass species extinction. Do they all agree with that definition?” said Smaje. Something went wrong. They’re also reaching across company and industry borders to share and promulgate best practices. The power of IoT, cloud computing, and AI spells the digital transformation of the utility industry. More darkly, John Chambers, of Cisco Systems, predicts that 40 percent of today’s businesses will fail in the next ten years; 70 percent will attempt to transform themselves digitally, but only 30 percent will succeed. Take me straight to the infographic The rapid adoption of digital technology by customers and businesses continues to disrupt the global economy. Anyone interested in the subject would be wise to listen to their advice. “So, I think the CFO’s first role is to explain to business leaders how the economics of their businesses are changing. This is not the case, the two should not be confused and that is why digital transformation must be accompanied by a change programme. All value chains will be disrupted: defense, education, financial services, government services, healthcare, manufacturing, oil and gas, retail, telecommunications, and more. This is where an effective commun… 1 ning to adopt customer-centric thinking, prompted by the consumerization of health insurance. hereLearn more about cookies, Opens in new It is quite dramatic. Analogues across social and economic history include the discovery of fire, the domestication of dogs, the emergence of agricultural techniques, and, in more recent times, the Gutenberg printing press, the Jacquard loom, urban electrification, the automobile, the microprocessor, and the Internet. Historically, computation was performed on data samples, statistical methods were employed to draw inferences from those samples, and the inferences were in turn used to inform business decisions. our use of cookies, and They can then apply AI machine-learning algorithms to those data to optimize the operation of the grid, reduce the cost of operation, enhance resiliency, increase reliability, harden cybersecurity, enable a bidirectional power flow, and reduce greenhouse-gas emissions. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. 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