Business transformations that leverage digital technologies may sit atop most CIOs' priority lists, but the reality is that digitization is far from mainstream. Industries remain less than 40% digitized on average, according to a research McKinsey & Co. released earlier this month.
McKinsey defines digitization as technologies that virtualize and automate products, services and supply chains. They may include new digital business models and marketplaces, such as online and mobile distribution. Reporting methods for digitization typically include predictive analytics, which providers can use to improve service by anticipating customer needs.
Teasing apart the digital leaders from the fast followers and laggards is not easy, as many companies remain in various stages of their digital journeys, which range from digitizing only customer touchpoints to digitizing entire business processes and creating new digital revenue streams.
But McKinsey may have stumbled upon a blueprint for success. The consultancy said that 49% of leading companies are investing in digital more than their counterparts do, compared with only five percent of the digital laggards. "Heavy digital investment is a differentiator," said McKinsey researchers Jacques Bughin, Laura LaBerge and Anette Mellbye in their report.
Digital and corporate strategy alignment is key
Another differentiator is alignment between IT and the business. McKinsey found that leading companies are more than twice as likely to align their digital and corporate strategies than other companies. "Bold, tightly integrated digital strategies will be the biggest differentiator between companies that win and companies that don’t, and the biggest payouts will go to those that initiate digital disruptions," said the McKinsey researchers.
Most CIOs joke that their transformations are never truly complete as they embrace emerging technologies, including internet of things, artificial intelligence and blockchain, but some sectors are further along than others.
Media and entertainment (62%), along with retail (55%) and high-tech (54%) tend to be ahead in their digitization efforts compared to sectors such as consumer packaged goods (31%), automotive (32%) and financial services (39%).
Industries hovering in the digital media include healthcare (51%), telecom (44%) and professional services (42%).
McKinsey also found that digitization levels vary by business operations. For example, 49% of survey respondents said customer-focused areas such as marketing and distribution are primary focuses of their digital strategies. Digital marketing takes many forms, including anything from email campaigns and social media outreach to loyalty programs and customized offers.
“That focus is sensible, given the extraordinary impact digitization has already had on customer interactions and the power of digital tools to target marketing investments precisely,” said McKinsey.
Supply chain sits at the opposite end of the spectrum, with only two percent of respondents saying that their supply chains are the focus of their digital strategies. The McKinsey researchers question whether overlooking the supply chain may lead to some course correction and resource reallocation.
Digital giveth and digital taketh away
Digitization remains a double-edged sword. As much as digital can help companies more quickly and directly engage with consumers via online, mobile and social channels, the reduction in friction opens products and services companies up to competition from startups.