The Wayward Journey

McKinsey & Company published a short article a couple of weeks ago that is long on leadership and organizational insight. “The seven habits of highly effective digital enterprises” by ’Tunde Olanrewaju, Kate Smaje and Paul Willmott is worth a read, with observations and examples about how companies are successfully transforming themselves in the digital age. What struck me is that nearly every one of the seven habits applies to all aspects of business, whether you’re digitally engaged or not.

In fact, I think if you just delete the word “digital” from the title, you’d have a good template for organizational success. So here are the seven habits. See how many of these you are doing.

1. Be unreasonably aspirational. “Being ‘unreasonable’ is a way to jar an organization into seeing digital as a business that creates value, not as a channel that drives activities,” say the authors. As I considered the examples given—Burberry and Netflix—I couldn’t help but think of Jim Collins and Jerry Porras’ Built to Last: Successful Habits of Visionary Companies. The companies that are able to envision a future are the ones that succeed. They aspire to become or create something that may not even exist or be achievable—at least not by current thinking. As the article notes, Netflix was a successful renter of DVDs, but it aspired to become a leader in a technology that was only in its infancy—streaming video. At the end of last year, NetFlix had 40 million streaming subscribers. Not bad for a bunch of dreamers.
2. Acquire new capabilities. Here the authors deviate a bit from everything you always heard about hiring for attitude, not skills. But if you want digital transformation, you need people who have proven digital skills. This is the “acqui-hire” approach that you’ve seen tech giants like Apple, Google and Facebook adopt in recent years when they acquire small start-ups to fill in the gaps they have in their own talent pool. Of course, not everyone can go out there and buy a whole company just to get a few talented people. But I think McKinsey is right in saying that talent can be mighty important, especially in the early stages of transformation.
3. “Ring fence” and cultivate talent. McKinsey found that the most successful digital transformations occur when companies fence off their digital groups from the rest of the organization, protecting them from “business as usual” and giving them free rein to innovate. “Digital talent must be nurtured differently, with its own working patterns, sandbox and tools,” McKinsey says. The question is, how long do you let the digital team operate as its own skunkworks? “To deliver in an omnichannel world, where customers expect seamless integration of digital and analog channels, seamless internal integration should be the end goal,” the authors suggest. In other words, in the beginning it makes sense to build a separate digital team and give them what they need, but eventually they need to be integrated into the organization. That’s not just a model for digital. Any new, important project can benefit from the same approach.
4. Challenge everything. “Look at how everything is done,” says McKinsey, “including the products and services you offer and the market segments you address, and ask ‘Why?’ Assume there is an unknown start-up asking the exact same question as it plots to disrupt your business.” Apple is often cited as a transformational model, moving from computer maker to one of the largest distributors of music, not to mention reinventing the cell phone and the way we use mobile devices. After all, it was Steve Jobs who said that leaders are always deeply dissatisfied with the status quo, restless for change and impatient for progress. “Digital leaders examine all aspects of their business—both customer-facing and back-office systems and processes, up and down the supply chain—for digitally driven innovation,” McKinsey says.
5. Be quick and data driven. “Rapid decision-making is critical in a dynamic digital environment,” the authors write. “Organizations need to move to a cycle of continuous delivery and improvement, adopting methods such as agile development and ‘live beta,’ supported by big data analytics, to increase the pace of innovation. Continuous improvement requires continuous experimentation, along with a process for quickly responding to bits of information.” Examples include companies like U.S. Express that collects data in real time from tens of thousands of sources and then uses business-intelligence tools to extract insights about its fleet operations. P&G is another example. It provides up-to-date sales data across brands, products and regions to more than 50,000 employees globally.
6. Follow the money. “A digital transformation is more than just finding new revenue streams,” says McKinsey. “[I]t’s also about creating value by reducing the costs of doing business.” The authors say that while testing and experimentation is critical, “teams must quickly zero in on the digital investments that create the most value—and then double down.” Often, the authors report, great value is found in optimizing back-office functions. They give the example of Starbucks, where only a third of its active IT projects were focused on customers in 2013. One-third of its projects were devoted to improving efficiency and productivity, and another third focused on improving resilience and security.
7. Be obsessed by the customer. No surprises here, but it certainly bears repeating: “A healthy obsession with improving the customer experience is the foundation of any digital transformation.” I would say that goes for any business transformation. As the authors note, “Rising customer expectations continue to push businesses to improve the customer experience across all channels. Excellence in one channel is no longer sufficient; customers expect the same frictionless experience in a retail store as they do when shopping online, and vice versa.” What’s key is the ability to learn from every customer interaction. Successful companies are obsessed with getting the experience right and using digital to fine-tune interactions. As the authors state, “This mind-set is what enables companies to go beyond what’s normal and into the extraordinary. If online retailer Zappos is out of stock on a product, it will help you find the item from a competitor. Little wonder that 75 percent of its orders come from repeat customers.”