Harvard Business Review

Rewired for value: Digital and AI transformations that work

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“I’m seeing digital everywhere in my company except the bottom line.” It’s not unusual to hear a version of that grouse in many C-suites, and the data bears it out. Large companies globally have captured, on average, only 31 percent of expected revenue lift and 25 percent of expected cost savings from their digital and AI transformations.

As we argue in our book Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI, leadership commitment and alignment around the value at stake in a digital and AI transformation are crucial. Securing those elements is hard if leaders are skeptical that the necessary investments of time and money are worth it. While many reports show high correlations between digital performance and value, hard evidence tying digital and AI transformations to improvements in operational KPIs and financial performance has been scant. Until now.

To plug this data gap, McKinsey turned to the banking sector, which has enough history with digital transformations to produce meaningful findings and where we own a unique longitudinal data set (see sidebar, “About the analysis”).

The results of our analysis make a convincing case that digital leaders are creating much more shareholder value than laggards.

Between 2018 and 2022, digital leaders achieved average annual total shareholder returns of 8.1 percent, versus 4.9 percent for laggards. Leaders also had significantly better returns on pretax tangible equity (ROTE), growing it from 15.5 percent in 2018 to 19.3 percent in 2022, versus laggards’ more modest growth, from 13.6 percent to 15.3 percent in the same period.

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The source of the greater value capture by the sector’s digital leaders is their success at growing revenue and better containing expense growth. Between 2018 and 2022, digital leaders grew their active customer base 0.5 percent and their retail revenues at 0.8 percent annually, while digital laggards saw zero growth in their active customer base and a decline in retail revenues of 1.4 percent annually. Over the same time period, leaders’ operating expenses grew at 1.3 percent per year, while laggards’ grew at almost twice that rate: 2.3 percent per year.

What are the indicators of this difference in growth? It’s not mobile adoption, where the difference between leaders and laggards hasn’t changed over time (Exhibit 1). The reason is that it’s relatively straightforward to create an app, and any new feature is quickly seen and copied. The mobile app must perform well, but it’s just a table stake.

In digital servicing, the gap between digital leaders and laggards has remained constant.

Digital sales, however, is a much more revealing indicator. Here, leaders have almost doubled their advantage over laggards over the five-year period (Exhibit 2). The analysis shows that digital leaders grew digital sales from 40 percent to 70 percent, while digital laggards grew from 8 percent to 17 percent.

In digital sales, the gap between digital leaders and laggards is continuing to grow.

The reason for this large differential is that to drive digital sales, leading banks go well beyond the mobile app to digitally transform what’s hard to see and hard to copy: the end-to-end process from origination to fulfillment to servicing. To do this, they must orchestrate hundreds of teams capable of developing digital and AI innovations, day in, day out, and across all their customer journeys and core business processes. Knowing what to do is important, but executing on the “how” is what makes the difference.

3D Book jacket cover of Rewired

Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI

This is a shortened abstract of “The value of digital transformation,” which originally appeared in Harvard Business Review.

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