Companies can’t afford to underestimate the speed at which the world is changing

McKinsey Digital’s new lead for the United Kingdom, Ireland, and Israel offices, Ruben Schaubroeck, spoke with Thomas Farrar, a manager of communications in the firm’s UK office, about digital transformation, leadership and why speed and pace are becoming so important for CEOs.

Thomas: You’ve recently moved to London from Brussels. Do you think UK businesses have any specific advantages in embracing digital transformation compared to businesses in other G7 countries?

Ruben: Yes. I’d say the number one advantage is that the United Kingdom has one of the most attractive talent markets globally. There’s a wealth of highly-skilled talent here across every digital discipline, from AI and analytics to design thinking and cloud computing.

On the one hand, this presents a huge opportunity for UK businesses that are looking to innovate operations through digital transformation. On the other, it’s led to a highly competitive talent market, making attracting and retaining this talent increasingly challenging for businesses.

Many large companies can attract skilled digital workers with big salaries, but to retain top talent CEOs must consider how to engender an attractive company culture and how to organize working conditions that accommodate and benefit a range of talent profiles and working styles.

Thomas: Conversely, are there any specific risks or challenges that are unique to UK businesses embracing digital transformation?

Ruben: It might not necessarily be unique to the United Kingdom, but a common challenge I have heard from many leaders of large UK businesses is how to maintain pace and speed while embracing digitization.

From our experience advising large businesses, there’s a direct correlation between how quickly companies can make informed decisions and allocate resources to how much impact can be made through digital transformation, and in turn, the degree to which financial results and outcomes for customers can be improved.

Transforming large organizations isn’t easy. You must gain buy-in, train staff and shift the culture of the company. It’s like trying to change the course of a container ship once it’s underway—it will take time and you must be patient.

But there are ways to mitigate this. Business leaders must improve the frequency of their budgeting regiment, their agility in reallocating resources, and the cadence of decision-making to increase the clock speed of their organizations.

Thomas: What lasting impact will COVID-19 have on digital transformation in business?

Ruben: There’s no question the pandemic has massively accelerated the rate of digitization, especially in sectors where this was less prevalent to begin with. Sectors like banking and telecom were already highly digitized, but if you look at grocery retailers for example, this sector has had a huge boost throughout the pandemic, and has had to invest heavily in digital transformation to keep customers.

Our research shows that consumer trends that came out of the pandemic period, such as the growth of customers switching to online grocery shopping, are very sticky—once exposed to best-in-class experiences and offerings, these customers are now favoring speed and convenience and may be reluctant to return to old habits. Consequently, if a retailer’s digital capabilities were insufficient at the beginning of the pandemic and customers switched to a more digitally savvy competitor, it’s likely going to be increasingly difficult for that retailer to earn them back.

Thomas: Could you share a specific example where a digital transformation has significantly changed the way a company operates?

Ruben: I worked with an auction company to transform its operations using digital. The company connected the producers of goods with wholesale and retail sellers. These transactions had always been completed in a very physical way. The company had to bring the goods to one location to be auctioned, and then had to transport the same goods to another location via trucks and planes. Furthermore, major changes in trading patterns, such as increases in small transactions and direct producer-to-buyer sales, were diminishing the volume of goods sold through the marketplace.

In response, we helped the auction company build a unified digital marketplace for auctions and direct trading of products. This would be a disruptive process, but an essential one—competitors and start-ups had spotted the same opportunity and had begun competing for market share. The cost of inaction was clear.

To expedite the transformation, the client brought together a team of digital specialists—product owners, designers, architects, engineers—and used an agile framework to create a concept and launch a minimum viable product (MVP) of the new platform. The next step was to build it, test it with sellers and make rapid iterations.

The new marketplace scaled up quickly because it brought producers and buyers onto a single platform and integrated with the auction company’s existing services. In two-and-a-half years, 100 percent of the auction company’s volume was being sold and shipped via the digital trading platform. This transformation laid the technical and organizational foundations to radically shift the company’s earnings model.

Thomas: What are the key building blocks companies will need to invest in?

Ruben: I think there are a few core tech capabilities that are essential.

The first is machine learning operations. The only way to enable everything we’ve already talked about is to have much more advanced abilities in scaling the data a company gathers, and subsequently processing the use cases around it. I’m not talking about five or ten models, I’m talking about having thousands of different models, which can be scaled up and down dynamically and continually be updated with new data. That’s a core tech capability company leaders need to understand and determine how it can help them.

Second, and more focused in the physical world, is the advent of advanced connectivity. Businesses will need to invest in this as another core tech capability. I am thinking about IoT, 5G, and mobile private networks. The technology exists, but it’s not yet leveraged at scale. The companies that will gain an advantage will be the ones that figure out how to speed up production processes with higher bandwidth and lower latency and leverage the fact that many more devices will be connected to one another.

Third, companies should consider investing in the real IT side. The reality today is that most companies are struggling with legacy IT systems. I think the companies that will be successful will have built a fully modular IT system, leveraging either open source or standardized technologies that are open and integrated with third parties. Business leaders will also be looking for ways to harness the capabilities from the cloud network, cloud infrastructure, and hugely enhanced computing power to become faster and more dynamic.

Thomas: Finally, what would you say is the key ingredient to ensure a successful digital transformation?

Ruben: My immediate thought goes to leadership, and there are a few components to that.

First, great leadership prioritizes bold ambitions. I think leaders may, at times, underestimate the speed at which the world is changing and how companies need to adapt. Leaders are responsible for setting ambitions that don’t belong to the here and now but to the industry of two, three, or five years in the future. Consider traditional telecom companies that have branched out and partnered with entertainment organizations, or the banks that are viewed as tech companies—that’s responding to a changing world.

Second is about having the desire and ability to continually learn. The technology field changes so quickly, whatever you know now could be outdated in six months. Leaders who understand the value of continuous learning and cultivate an environment where every single person in the organization is encouraged to engage in focused learning will likely see better outcomes. Incidentally, this is relevant to an earlier point I made about attracting and retaining talent—the talent will want to work for the leaders who inspire them and recognize the same opportunities.

Third, leaders who are open and promote openness: to partner with other companies; to understand the power of different talent profiles and to change existing business models and ways of thinking will be valued.

I think if you have those three ingredients, you are on your way to being a successful digital leader.

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