McKinsey: Unlocking Success In Digital Transformations

Technology Magazine takes an in-depth look at McKinsey & Company’s report on what makes a successful digital transformation, below.

As digital technologies dramatically reshape industry after industry, many companies are pursuing large-scale change efforts to capture the benefits of these trends or simply to keep up with competitors. In a new McKinsey Global Survey on digital transformations, more than eight in ten respondents say their organizations have undertaken such efforts in the past five years.1 Yet success in these transformations is proving to be elusive. While our earlier research has found that fewer than one-third of organizational transformations succeed at improving a company’s performance and sustaining those gains, the latest results find that the success rate of digital transformations is even lower.

The results from respondents who do report success point to 21 best practices, all of which make a digital transformation more likely to succeed. These characteristics fall into five categories: leadership, capability building, empowering workers, upgrading tools, and communication. These categories suggest where and how companies can start to improve their chances of successfully making digital changes to their business.

Transformations are hard, and digital ones are harder

Years of research on transformations has shown that the success rate for these efforts is consistently low: less than 30 per cent succeed. This year’s results suggest that digital transformations are even more difficult. Only 16 per cent of respondents say their organizations’ digital transformations have successfully improved performance and also equipped them to sustain changes in the long term. An additional 7 per cent say that performance improved but that those improvements were not sustained.

Even digitally savvy industries, such as high tech, media, and telecom, are struggling. Among these industries, the success rate does not exceed 26 per cent. But in more traditional industries, such as oil and gas, automotive, infrastructure, and pharmaceuticals, digital transformations are even more challenging: success rates fall between 4 and 11 per cent.

Success rates also vary by company size. At organizations with fewer than 100 employees, respondents are 2.7 times more likely to report a successful digital transformation than are those from organizations with more than 50,000 employees.

The anatomy of digital transformations

Whether a change effort has succeeded or not, the results point to a few shared traits of today’s digital transformations. For one, organizations tend to look inward when making such changes. The most commonly cited objective for digital transformations is digitizing the organization’s operating model, cited by 68 per cent of respondents. Less than half say their objective was either launching new products or services or interacting with external partners through digital channels. Digital transformations also tend to be wide in scope. Eight in ten respondents say their recent change efforts involved either multiple functions or business units or the whole enterprise. Additionally, the adoption of technologies plays an important role in digital transformations. On average, respondents say their organizations are using four of 11 technologies we asked about, with traditional web tools cited most often and used in the vast majority of these efforts.

At the same time, the results from successful transformations show that these organizations deploy more technologies than others do. This might seem counterintuitive, given that a broader suite of technologies could result in more complex execution of transformation initiatives and, therefore, more opportunities to fail. But the organizations with successful transformations are likelier than others to use more sophisticated technologies, such as artificial intelligence, the Internet of Things, and advanced neural machine-learning techniques.

The keys to success

Having these technologies on hand is only one part of the story. The survey results indicate how, exactly, companies should make the technology-supported changes that differentiate successful digital transformations from the rest

The research points to a set of factors that might improve the chances of a transformation succeeding. These factors fall into five categories:

• having the right, digital-savvy leaders in place
• building capabilities for the workforce of the future
• empowering people to work in new ways
• giving day-to-day tools a digital upgrade
• communicating frequently via a traditional and digital method

Building capabilities for the workforce of the future

The survey results confirm that developing talent and skills throughout the organization — a fundamental action for traditional transformations — is one of the most important factors for success in a digital change effort. Of our 21 keys to success, three relate to the workforce’s digital capabilities. First is redefining individuals’ roles and responsibilities so they align with a transformation’s goals, which can help clarify the roles and capabilities the organization needs. Respondents are 1.5 times more likely to report a successful digital transformation when this practice is in place.

Two other keys relate to engaging the specific roles of integrators and technology-innovation managers, who bridge potential gaps between the traditional and digital parts of the business. People in these roles help foster stronger internal capabilities among colleagues. Integrators are employees who translate and integrate new digital methods and processes into existing ways of working. Because they typically have experience on the business side and also understand the technical aspects and business potential of digital technologies, integrators are well equipped to connect the traditional and digital parts of the business. For their part, technology-innovation managers possess specialized technical skills and lead work on a company’s digital innovations.

Empowering people to work in new ways

Digital transformations require cultural and behavioural changes such as calculated risk-taking, increased collaboration, and customer-centricity, as our previous research has shown. In this survey, the results suggest two primary ways in which companies with successful transformations are empowering employees to embrace these changes.

The first is reinforcing new behaviours and ways of working through formal mechanisms, long proved as an action that supports the organizational change. One related key to transformation success is establishing practices related to working in new ways. Respondents who say their organizations established at least one new way of working, such as continuous learning or open work environments, as part of their change efforts are more likely than others to report successful transformations. Another key is giving employees a say on where digitization could and should be adopted. When employees generate their own ideas about where digitization might support the business, respondents are 1.4 times more likely to report success.

Communicating frequently via traditional and digital methods

As we have seen in traditional change efforts, clear communication is critical during a digital transformation. More specifically, one key to success is communicating a change story, which helps employees understand where the organization is headed, why it is changing, and why the changes are important. At organizations that follow this practice, a successful transformation is more than three times more likely. A second key is senior leaders fostering a sense of urgency for making the transformation’s changes within their units, a practice where good communication is central. Other results suggest that when communicating change stories, successful organizations tend to relay a richer story than others do.