Digital: We’ve Only Just Begun


“Digitization has barely started, and so has the accompanying upheaval”

Jacques Bughin, Mckinsey

That’s a scary thought – but accurate. That thought comes from a recent Mckinsey Insights post titled: Think digital is a big deal? You ain’t seen nothing yet. Thanks to Heidi Schwende for sharing this article.

Their research finds that digital technologies and processes have penetrated only about 35% of an average industry, which says that a third of the products and operations that could be digitized have been. Yet this is more than thinking about digitizing the other 65% – it’s a moving target. The phrase “You ain’t seen nothing yet” captures that well. As the innovation accelerators that I describe in my Anchor Visual accelerate, digital is merely the foundation. A reimagined world is built on that foundation – and without it, organizations cannot participate in Reimagination. Here are other key insights from the Mckinsey post:

The impact of digitization has been dramatic: Globally, digital disruption is shaving 45% off incumbent company revenue growth and 35% off their earnings before interest and taxes (EBIT). As digitization accelerates, the hit to revenues and profits of digital laggards will grow significantly, even as the digital leaders capture disproportionate gains. Digital newcomers using disruptive models to penetrate existing industries own about 17% of total revenue worldwide

To date, incumbent companies have rarely ventured to disrupt their own markets: only 9% have adopted this approach. Rather, incumbents’ digital strategies have focused primarily on digital distribution and marketing, with almost half investing in this area. In focusing on digital back in 2014, I envisioned a digital journey that was focused on building the foundation. McKinsey’s findings support the notion that companies are still in the early days of the digital journey. This visual from 2014 tracks the journey from foundational to reimagined.The Digital Journey

Currently, media and high tech are the most digitally advanced of the 10 major sectors they studied, while automotive and consumer packaged goods (CPG) are the least digitized. That list includes: CPG, Financial Services, Automotive, Professional Services, Telecom, Travel, Transport, and Logistics, Healthcare, High Tech, Retail, and Media and Entertainment.

As digitization gets closer to full industry penetration, the impact grows significantly, roughly doubling the average hit to both revenues and profits from current average levels. We may be approaching a major tipping point, where the entrants start to lead the digital race. What’s more, the further digitization has advanced within an industry, the bigger the role the entrants play. In media, for example, digital newcomers now hold 54% of digital revenues, while in CPG they only hold 41%

The McKinsey post concludes with some guidance, including the assessment that economic pressure exerted by digitization will increase with time, making it increasingly urgent for businesses to act. They conclude that in time, all companies, no matter what their industry or how well they’re performing will be affected. Their research shows that those that have made the least progress on their digital journeys will suffer the most.


“You can see the computer age everywhere but in the productivity statistics.”

   – Nobel Prize–winning economist Robert Solow

That quote from a different McKinsey post speaks to the productivity lag that exists when adopting new innovation. In that post titled Fueling the next 20 percent productivity rise, the author states that neither business nor society can afford a 30-year wait for significantly better productivity. It took over thirty years (and the next generation of leaders) to realize productivity gains from electricity. Thirty years after businesses started using mainframes, productivity gains were nowhere to be found (leading to the quote above).

The author rightfully states that we need gains on the order of 20 percent or more much sooner. I discussed this next generation productivity phenomenon at length in a recent post. This visual captures the key messages from that post.

Productivity

Indeed, we’ve only just begun.

2 thoughts on “Digital: We’ve Only Just Begun

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