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Digital dilemma: Why anything less than superb execution leads to failure

Jacques Bughin identifies the five core elements that make a crucial difference for companies executing a digital transformation.

– So your company has taken the plunge to reinvent for the digital era. You’ve revamped your strategy and reshuffled your asset portfolio with the goal of building an aggressive digital business that will leave your competitors in the analog dust. Even better, you are embracing a new organizational design and culture to turbocharge your transformation.

At this point in your digital reinvention, you are quite possibly among the one in 10 incumbents in your industry that has the core building blocks in place. The last mile of the journey is, of course, superb execution—and this may be the trickiest leg of your odyssey. Our research on corporate digital transformations shows that the impact of execution is asymmetric: While great execution is responsible for 25% of a company’s digital success, anything less than that will cause you to fall behind, turning you into one of the 50% of incumbents that don’t survive their industries’ digital disruption.

Poor execution is easy to recognize, but what separates good execution from great? In our statistical analyses, we have found five core elements that make the crucial difference.

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  1. Take your digital capabilities to the next level
    It’s a given that a traditional business wishing to succeed in the digital age needs to upgrade its digital capabilities. For example, marketers have to gain expertise in search engine optimization and social media in order to compete in the digital sphere. But you have to go further by defining and investing in complementary capabilities. A company whose strategy relies heavily on big-data analytics needs an army of engineers and coders, but it also needs business people able to translate engineers’ analytic insights into new processes and product solutions. As I noted in the November 2016 issue of Applied Marketing Analytics, “About 40% of the profit impact arising from big data investments is the result of complementary investments both in big data coders and translators.”
  2. Build agility into the right digital processes
    Economists have long stressed the importance of dynamic capabilities – the ability to reconfigure how you deliver distinctive value in response to changing conditions – in corporate performance. In the digital age, this agility is all the more crucial.

    Additionally, we are finding that companies’ dynamic capabilities have to be tailored to their offensive strategies, or the effort is a waste of time. Consider, for instance, how newspapers have developed entirely new processes to operate in the digital age. The New York Times, for example, has revamped its newsrooms to enable multimedia journalism, and runs articles online before they go into print editions in order to meet the new bar of timeliness.
  3. Invest more in digital than your competitors – but not too much more
    Companies pursuing offensive digital strategies need to invest more in digital operations than their average competitor, our research demonstrates – but not too much more. Typically, your investment should exceed that of your competitors by 20% to 40%, depending on your industry; beyond that, the return starts to diminish. The rationale is simple: The average player tends to pursue defensive strategies, largely focusing on preserving its existing business. An offensive strategy’s goal is expanding reach, which requires a higher investment.

    Furthermore, to be successful, you can’t cherry-pick one or two isolated opportunities. Rather, it’s important to build digital capabilities at scale in each aspect of your business from the start.
  4. Focus on efficiency and growth at the same time
    Our research is very clear on one point: Focusing digital investments on boosting cost efficiency alone can be self-defeating, as revenue tends to decline more rapidly during major disruptions than organizations can shave costs.

    Likewise, focusing solely on growth will not deliver the full benefits of digitization, as margins on digital products and services tend to be lower than in traditional business. Accordingly, you need reduce costs to make your digital sales profitable. Superb digital execution requires addressing both efficiency and the development of new markets and product lines.
  5. Enlist enough employees in your digital reinvention campaign
    To overcome an organization’s natural tendency to resist change, especially when that change is painful, you need to include all the functional domains in the strategy’s implementation as early as possible. You will need ambassadors who can demonstrate the strategy’s benefits and help establish new digital processes. Companies that successfully launch digital transformations, we have found, ensure that 30% to 40% of their employees directly embrace the digital goals – a critical mass that curbs the organizational tendency to stand still.

Jacques Bughin is a senior partner in our Brussels office and a director of the McKinsey Global Institute.