Over time, we’ve seen advances in technology change the landscape of business – you only need to look at the industrial revolution to see what we’re talking about. And today, the landscape of business is being changed again, this time by digital technologies, with research by McKinsey showing that digitisation is having a comparable impact.
While digital technologies have been fully embraced by the likes of retail, the media and high tech, the truth is that industries overall are less than 40% digitised, suggesting a digital divide is on quite clearly on its way. As digital adoption in business grows even more, it will start to affect revenue and profit growth for the bottom quartile of companies, while the top quartile will prosper disproportionately.
So how do you make sure your company continues to grow? According to McKinsey, the biggest differentiator between companies that win and companies that don’t comes down to bold and tightly integrated digital strategies.
As a matter of fact, McKinsey’s October 2017 research on understanding and encouraging digital reinvention showed that there are a few factors that successful digital transformations have in common, and it’s these factors that help to build a culture for successful digitisation, higher revenue and faster growth.
1. They understand the pace of digital technology
McKinsey’s research found that companies who neglect signals of digital turbulence in their industries tend to be disrupted. It’s the companies that understand how fast digital technology is shaping their industry who are most likely to take action.
Companies who operate in digitally advanced industries, such as high-tech, feel the pressures of digitisation more readily, and are therefore more eager to go on the offensive. McKinsey’s research showed that one fourth of high-tech companies are actively on the offensive, which is 2.5 times more than across all other sectors.
What does this mean? Keep an ear to the ground, and if you sense turbulence on the horizon, it’s time to act, and fast.
2. They know that startups aren’t the only risk
There’s a commonly-held belief that start-ups and digital natives are the greatest threat to a company’s market share, however, the truth is that existing businesses in your industry who compete in digital ways pose just as great a threat to your bottom line as new digital entrants do.
In fact, the threat can be even greater. This is because, on average, existing companies who decide to compete digitally already own a larger market share than disruptors and digital natives do.
Businesses should therefore not only track startups entering their market, but also 1. take a good look at traditional competitors that may become digital reinventors and 2. established companies from adjacent fields.
3. They equally defend their core business and focus on diversification
Typical companies follow a pattern of focusing on their core business with a plan for diversification later. However, true digital reinventors tend to devote an equal amount of time and resources to their core business and diversification.
With that being said, McKinsey’s research found that investing in non-core activities only could be detrimental. If your business needs to choose between the two, then focusing on digital reinvention in your core business first is the wiser option, since core businesses are generally the main revenue drivers for companies.
McKinsey’s research found that when reinventors increased offensive action in both core and digital, total revenue as well as profit growth increased.
4. They have leaders who are committed to taking action
A lot of established businesses can face roadblocks throughout the digital transformation process, and in a sense, this is to be expected – when businesses grow, so too do their routines, procedures and competencies. When something works, it can be harder to let them go.
What McKinsey has found is that established companies are more likely to undertake digitisation when its leaders are more committed to taking action. For example, a C-level executive advocating for the project or putting certain managers in charge of the transformation.
5. They experiment with frontier technologies, invest boldly and at scale
Digital transformations only succeed if companies take time to understand and master the right digital technology architecture.
McKinsey’s research found that successful digital reinventors make sure they utilise the full range of digital technologies and distribute them across their business to support any application or process that is ‘mission critical.’ When organisation-wide adoption is successful, the research shows that companies come out on top, with the return of their digital investments being double or more than their counterparts who might only digitise a single business function.
Winning companies also research and explore AI technology, such as upgrading any machine learning algorithms they have to deep learning ones. The research also found that companies need to master each generation of technology before moving onto the next, otherwise they’re at risk of not achieving ROI.
Should your company invest in a digital transformation? It’s something that should be explored, lest you get left behind.
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