Download What is “digital”?

JUNE 2015
What is “digital”?
David Edelman and Karel Dörner
Companies today are rushing headlong to become
more “digital”. But what does “digital” really mean?
Based on our experiences in many C-suites, the answers to this question vary broadly.
For some executives, digital is about technology; for others, it’s about a new channel to engage
with customers; and for others still, digital represents an entirely new way of doing business. Such
diverse perspectives often trip up leadership teams because they reflect a lack of alignment and
common vision about where the business needs to go. That often results in piecemeal initiatives or
misguided efforts that lead to missed opportunities, sluggish performance, or false starts.
Even as CEOs push forward on digital agendas, it’s worth pressing pause to take time to clarify
vocabulary and sharpen language so that business leaders have a clear and common
understanding of what digital means in general, and what it means for their business.
It’s tempting to look for simple definitions but to be meaningful and sustainable, we believe that
“digital” should be regarded less as a thing and more as a way of doing things. To make this
definition more concrete, we’ve broken it down into three attributes. This first is about creating
value at the new frontiers of the business world; the second focuses on the cycle of core processes
that execute a vision around customer experiences; and the third highlights the foundational
capabilities that support the entire structure.
Frontiers: New value
Being digital requires being open to re-examining the entire way of doing business and
understanding where the new frontiers of value are. For some companies, capturing new frontiers
will be about developing entirely new businesses; for others, it will be about identifying and
pursuing new value pools in existing sectors.
Unlocking that value from emerging growth vectors calls for a deep commitment to understanding
the implication of external developments in the marketplace, and evaluating them for potential
opportunities or threats. The Internet of Things, for example, is starting to open up opportunities
for disruptors to use the unprecedented levels of data precision to identify flaws in existing value
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chains. In the automotive industry, for example, connecting cars to the outside world has
expanded the frontiers for self-navigation or in-car entertainment. In the logistics industry, the
use of sensors, big data, and analytics has enabled companies to improve the efficiency of their
supply-chain operations.
At the same time, being digital is about being closely attuned to how customer decision journeys
are evolving in the broadest sense. That means understanding how customer behaviors and
expectations are developing inside and outside each individual business as well as outside each
sector, which is crucial to getting ahead of trends that can deliver or destroy value.
Core: New ways of working
The next element of “digital” is based on rethinking how to use digital capabilities to enhance how
to serve the customer. This element is grounded in an obsession with understanding each step of a
customer’s omnichannel journey and thinking about how to use digital capabilities to design and
deliver the best possible experience. This degree of focus on the customer extends to all parts of
the business. The supply chain, for example, becomes a focus for developing the flexibility,
efficiency, and speed to deliver the right product exactly as the customer wants it. Data and
metrics focus on delivering accurate customer insights, which then drive decisions on marketing
and sales.
Critically, digital isn’t about just working to deliver a one-off customer journey but about
implementing a cyclical dynamic in which processes and capabilities constantly evolve based on
inputs from the customer. In practice, this requires an interconnected set of four core capabilities:
•
Proactive decision making: Relevance is the currency of the digital age. This means making
decisions based on intelligence to deliver content and experiences that are personalized and
therefore relevant to the customer. Remembering customer preferences is a basic example of
this capability, but it also extends to personalizing and optimizing the next step in the
customer’s journey. Data providers such as Clickfox blend data from multiple channels into
one omnichannel view of what customers are doing and what happens as a result. In the back
office, analytics and intelligence provide near-real-time insights into customer needs and
behaviors that then determine appropriate messages and offers.
•
Contextual interactivity: As the consumer interacts with the brand across the touchpoints of
the journey, the company interprets the data to modify interactions to improve the customer
experience. Content and experience adapt as the customer’s context shifts from a mobile
phone to a laptop, for example, or from evaluating a brand to making a purchase decision.
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The rising number of customer interactions generates a stream of intelligence that allows the
brand to make better decisions about what their customers want. The rapid rise of wearable
technology and the Internet of Things represent the latest wave of touchpoint interactions
that will enable companies to blend digital and physical experiences even more.
•
Real-time automation: To support this cyclical give-and-take dynamic and help the customer
complete a task now requires extensive automation. Automation can boost the number of selfservice options to help customers quickly resolve a problem, personalize communications to
be more relevant, and deliver consistent customer journeys no matter the channel, time, or
device. Automating supply-chain and core business processes can drive down costs, but it is
also crucial to providing the company with more flexibility to respond to and anticipate
customer demand.
•
Journey-focused innovation: Serving customers well gives companies “permission” to
innovate how they interact with and sell to those customers. That innovation can include
expanding existing customer journeys into new businesses and services, ideally to the benefit
of both company and customer. These innovations in turn fuel more interactions, create
more information, and increase the value of the customer-brand relationship.
Foundation: New Agility
The third element of the definition of “digital” is about the technology and organizational
processes that allow an enterprise to be agile and fast. This foundation is made up of two
elements:
•
Mind-sets: Being digital is about using data to make better and faster decisions, devolving
decision making to smaller teams, and developing more iterative and faster ways of doing
things. Thinking in this way shouldn’t be limited to just a handful of functions but should
incorporate a broad swath of operational approaches, including creative partnering with
external companies to extend necessary capabilities. A digital mind-set institutionalizes
cross-functional collaboration, flattens hierarchies, and builds out environments to
encourage the generation of new ideas. Incentives and metrics are developed to support such
decision-making agility.
•
System and data architecture: “Digital” in the context of IT is focused on creating a twopart environment that decouples legacy systems that support critical functions and need to
run at a slower pace from those that can support fast-moving, often customer-facing
interactions. A key feature of digitized IT is the commitment to building networks that
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connect devices, objects, and people. This approach is embodied in a continuous-delivery
model in which cross-functional IT teams (DevOps) automate systems and optimize
processes to be able to release and iterate on software quickly.
“Digital” is about unlocking growth in today’s “now” world. How companies interpret or act on
that definition will vary, but having a clear understanding of what digital means allows business
leaders to develop a shared vision of how to use it to capture value.
David Edelman is a principal in McKinsey’s Boston office, and Karel Dörner is a principal in
the Munich office.
Copyright © 2015 McKinsey & Company. All rights reserved.