Six building blocks for creating a

high-performing digital enterprise

Driek Desmet, Ewan Duncan, Jay Scanlan, and Marc Singer

Digitization affects almost everything in today’s

organizations, which makes capturing its benefits
uniquely complex. Here are the most important aspects
that winning companies consider.

26 Six building blocks for creating a high-performing digital enterprise How to succeed in a digital transformation
Few companies need to be sold on the benefits of digitization. McKinsey research shows
that companies have lofty ambitions: they expect digital initiatives to deliver annual
growth and cost efficiencies of 5 to 10 percent or more in the next three to five years.1
Yet despite the often-substantial investments companies have made in digital initiatives,
few see that kind of growth.

That’s because getting the engine in place to digitize at scale is uniquely complex. Since
digital touches so many parts of an organization, any large digital program requires
unprecedented coordination of people, processes, and technologies. A strategy to
increase revenue from high-value customer segments, for example, requires analytics-
based insights into which purchasing journeys generate the most value, a clear vision and
plan for how to capture that value, and technologies and tools to digitize interactions with
customers. New capabilities and teams are also needed to manage and coordinate the
delivery of those journeys across the organization.2

Of course, adapting over time has always been essential to corporate success. Yet while
the average corporate life span has been falling for more than half a century—Standard
& Poor’s data show it was 61 years in 1958, 25 years in 1980, and just 18 years in 2011—
digitization is placing unprecedented pressure on organizations to evolve. At the present
rate, 75 percent of S&P 500 incumbents will be gone by 2027.3 That means managing
your transition to a digitally driven business model isn’t just critical to beating competitors;
it’s crucial to survival.

Six building blocks

In our experience, companies that have successfully transitioned to become high-

performing digital enterprises are able to orchestrate six building blocks: strategy
and innovation, the customer decision journey, process automation, organization,
technology, and data and analytics (exhibit). Now, not every digital initiative requires each
building block to be developed and used to the same degree. Some blocks will also serve
as more natural starting points, depending on a company’s circumstances—for instance,
a company whose IT constraints make it hard to deliver a cutting-edge customer
experience will naturally want to focus on the technology and process elements first.
But we’ve found that this framework provides executives with a coherent structure for
thinking through and managing large-scale digital programs.

Strategy and innovation

Digital strategy is intrinsic to business strategy today. In fact, 90 percent of digital leaders
(versus 60 percent of all leaders) have fully integrated digital into their strategic-planning
process. The best digital strategies don’t rely on past analyses, but instead start fresh
and carve out a vision based on where they believe value is likely to shift over the next

1
Tanguy Catlin, Jay Scanlan, and Paul Willmott, “Raising your Digital Quotient,” McKinsey Quarterly, June 2015, mckinsey
.com.
2
For an in-depth examination of how companies can develop meaningful digital strategies and harness technology to drive
performance, see Catlin, Scanlan, and Willmott, “Raising your Digital Quotient.”
3
Marla Capozzi, Vanessa Chan, Marc de Jong, and Erik A. Roth, “Meeting the innovation imperative: How large defenders can
go on the attack,” McKinsey on Marketing & Sales, July 2014, mckinseyonmarketingandsales.com.

McKinsey Digital 27
 Exhibit

Leading enterprises
use six building
blocks to develop
digital capabilities

three to five years (see sidebar, “Staking out your strategic position”). They assess at a
granular level where value is likely to be disrupted within their own business and market,
and they isolate where and how they will compete. Effective digital strategies prioritize
a handful of interventions where the business can exploit significant opportunities (and
divest or reduce exposure in markets where value is declining), then craft a digitally
enabled business model around them. That could mean creating a new way for
customers to purchase a product, moving into new businesses, or exploiting competitive
advantages such as proprietary data in new ways.

28 Six building blocks for creating a high-performing digital enterprise How to succeed in a digital transformation
 For example, one large retailer actively reviewed its portfolio and decided to divest its
consumer-electronics business when it saw margins eroding. It then invested in an online
retailer when it realized the strong growth trajectory of e-commerce in the sector. When
GE identified a strategic goal it needed to work toward—making deeper connections
with decision makers—it designed a company-wide social graph that tapped customer
connections and relationships across its 300,000-strong employee base. That enormous
internal network gave salespeople and account managers a significant leg up in forging
new connections and provided marketing with a return that was about 350 times its
investment.4

A digital strategy also increasingly blurs the boundaries between strategy and execution.
In fact, 60 percent of digital leaders run strategy by experimentation through limited
releases and prototyping, for example.

Sidebar While the digital maturity of a sector • Digital strivers use the advantages of
or company has a large impact on an digital to compete in existing markets
Staking out your organization’s approach, strategies tend and even disrupt their own models—
strategic position to fall into the following five categories: for example, they apply digital tools to
compete at lower prices across more
• Evolvers take actions to defend and channels and at scale.
exploit their current advantages and
effective business models. • Pure-play digital disrupters enter new
markets and redefine how to compete
• Market matchers tap existing assets through price, experience, or product.
to evolve their operating model and
consumer relationships, focusing on • Ecosystem shapers set the standards
building capabilities to move quickly that define the competitive ecosystem
into new markets when they’ve been and shape entire value chains.
identified.

Customer decision journey

Our research shows that organizations able to understand and skillfully act on complete
customer journeys can reap enormous rewards: increasing customer satisfaction by up
to 20 percent and revenue growth by 10 to 15 percent, and lowering the cost to serve by
15 to 20 percent.5 Understanding those decision journeys and the fundamentally different
ways that customers behave—from evaluating products to bonding with brands—is
becoming the cornerstone for successful businesses.6 That ability is likely to become an

4
John Dix, “How GE uses social tools to support its digital strategies,” Network World, May 21, 2014, networkworld.com.
5
Harald Fanderl and Jesko Perrey, “Best of both worlds: Customer experience for more revenues and lower costs,” McKinsey
on Marketing & Sales, April 2014, mckinseyonmarketingandsales.com.
6
To learn more about customer decision journeys, see David Court, Dave Elzinga, Susan Mulder, and Ole Jørgen Vetvik, “The
Consumer Decision Journey,” McKinsey Quarterly, June 2009, mckinsey.com; and David C. Edelman, “Branding in the digital
age,” Harvard Business Review, December 2010, Volume 88, Number 12, pp. 62–9, hbr.org.

McKinsey Digital 29
 increasingly important differentiator, since nearly 50 percent of all business-to-business
purchases will be made on digital platforms by the end of 2015,7 and $2 trillion in retail
sales will be influenced by digital by 2016.8

With so much data available, companies can become much more precise in their
outreach to customers. By combining deep data analysis and ethnographic research,
digital leaders can identify high-value microsegments, such as new mothers with full-time
jobs who primarily shop online. Understanding how these customers make decisions—
how they shop, for example, or what influences them—allows digital leaders to tailor their
approaches. One major bank unlocked more than $300 million in profitability by tapping
into underutilized customer data and delivering targeted marketing messages at various
points in the purchase-decision process. The bank used the data to inform changes in
marketing campaigns.9

Process automation
Business-process automation can result in massive competitive advantage because
initial investments, when well implemented, can scale quickly without substantial
additional costs. Over time, cost performance can improve by as much as 90 percent
as the automation effort scales across formerly siloed functions, reducing redundant
processes. New business models, in fact, are emerging as companies that create
revenue from sales of physical assets evolve into service businesses that focus on data
as an asset.

Digitizing processes has less to do with technology and more with how companies
approach development. While there is often the assumption that process automation
is a large project focused on a major platform, digital leaders in fact drive value quickly
by focusing on a series of small but important solutions that target high-value customer
journeys and expectations (for example, real-time availability and personalized treatment).
This is more than just automating an existing process. Becoming digital often requires
reinventing the entire business process to cut out steps altogether or reduce the number
of documents required.

Automating processes at speed requires small teams employing agile development

techniques to continuously build out elements of the product as prototypes, then
testing and adapting them based on feedback, often within days or weeks. When well
executed, digitizing processes can unlock significant value by compressing timelines and
eliminating duplication or inefficiencies.

Yet digitizing is as much about customer satisfaction as efficiency. A leading energy

player, for example, reduced by 40 percent churn among customers who moved houses
by making service renewal a simple two-click process accessible from the company’s

7
Oskar Lingqvist, Candace Lun Plotkin, and Jennifer Stanley, “Do you really understand how your business customers buy?,”
McKinsey Quarterly, February 2015, mckinsey.com.
8
Sucharita Mulpuru et al., US cross-channel retail forecast, 2011 to 2016, Forrester Research, July 2012, forrester.com.
9
Edwin van Bommel, David Edelman, and Kelly Ungerman, “Digitizing the consumer decision journey,” June 2014, mckinsey
.com.

30 Six building blocks for creating a high-performing digital enterprise How to succeed in a digital transformation
website. Similarly, a bank cut its cost per new mortgage by 70 percent and shortened
preapproval times from several days to just one minute by digitizing its mortgage-
application and decision processes.10

Organization
Companies know that rigid, slow-moving models no longer cut it. The challenge is to
move toward a structure that is agile, flexible, and increasingly collaborative while keeping
the rest of the business running smoothly. Successful incumbents become agile by
simplifying. They let structure follow strategy and align the organization around their
customer objectives with a focus on fast, project-based structures owned by working
groups comprising different sets of expertise, from research to marketing to finance.

While companies often obsess about the “boxes and lines” of organizational structure, it’s
more important—and significantly more difficult—to focus on processes and capabilities.
Having a clear view of what we call a company’s Digital Quotient is a critical first step to
pinpoint digital strengths and weaknesses and highlight those management practices
that can bolster financial performance.11 Some 65 percent of digital leaders have a culture
that isn’t afraid of risks, for example, and have a high tolerance for bold initiatives.

Many companies have set up incubators or centers of excellence during the early stages
of a digital transformation to cultivate capabilities. To be successful, however, these
capabilities need to be integrated into the main business. AT&T opened three AT&T
Foundry innovation centers, in Dallas, Silicon Valley, and Tel Aviv, to serve as mobile-app
and software incubators. Today, projects at these centers are completed three times
faster than elsewhere within the company. And having tested that innovation model
externally through its incubator, AT&T established a technology innovation council and
a crowdsourcing engine to infuse best practices and innovation across the rest of the
organization.12

Other companies, such as Nike, transform organically from within. The company has long
recognized the need to have focused resources for digital initiatives, and it established
a direct-to-consumer division that oversees both in-store and online activities. That
function then created a dedicated e-commerce group with its own leadership structure,
which has worked to deepen and expand its digital expertise, drive greater commerce
for Nike online, and connect across the Nike organization to create market-beating
consumer experiences, from the SNKRS app to the Nike+ community, which has tens
of millions of users. Those efforts have paid off with double-digit e-commerce revenue
growth rates and annual web sales topping $1 billion in summer 2015.

Regardless of what model a company chooses, the adage “what gets measured gets
managed” still holds true. The most successful digital companies are zealous about

10
Shahar Markovitch and Paul Willmott, “Accelerating the digitization of business processes,” McKinsey on Business
Technology, May 2014, mckinsey.com.
11
For an in-depth examination of what Digital Quotient entails and how it can help drive performance, see Catlin, Scanlan, and
Willmott, “Raising your Digital Quotient.”
12
Ben Paynter, “How ‘Toggle’ worked its way through AT&T’s innovation pipeline and into cell phones,” Fast Company, July 2,
2012, fastcompany.com.

McKinsey Digital 31
 metrics that focus on the customer journey, such as customer lifetime value, omnichannel
behavior, and share of influence across stages of the decision journey.

Technology
Most incumbents have been through waves of IT transformation in the past and
understand that overhauling legacy architecture is a multiyear process. Yet today’s
fluid marketplace requires technology that can drive innovation, automation, and
personalization much more quickly. So, the best are moving to a two-speed IT model that
enables rapid development of customer-facing programs while evolving core systems
designed for stability and high-quality data management more slowly.

This typically means that high-speed IT teams are charged with rapidly iterating software,
releasing updates in beta, fixing kinks and bugs in near-real time, then rereleasing. Their
goal is to continually fuel an accelerated development infrastructure that can support
near-instant cross-channel deployment and real-time decision making.

One European bank, for instance, created a new team that used concurrent-design
techniques (in which multiple development tasks are completed in parallel) to create a
prototype of an account-registration process, while using existing technology where it
could. By testing this process with real customers in a live environment, the team was
able to make constant refinements until it succeeded in cutting the process down to 5
steps from the original 15. In under five minutes, customers can now use a mobile device
to open an account, as opposed to waiting in a bank branch and filling out paperwork.13

New developments in DevOps (the integration of technical development and operations)

and continuous delivery (the automation of testing, deployment, and infrastructure
processes) have introduced capabilities that radically increase speed to market and lower
costs. An international travel company used these approaches to reduce time to market
by moving to the cloud, fully automating its testing, and rolling out a one-click deployment
process.

Data and analytics

Companies that make extensive use of customer analytics see a 126 percent profit
improvement over competitors.14 Companies that see that kind of return are adept at
deciding which data to use (both inside and outside the organization), focusing the
analytics on delivering on goals with clear and useful insights, and having the right
capabilities and processes in place act on them. That requires people with the right kinds
of skills—particularly “translators” who can articulate business goals and use cases with
respect to analytics requirements and turn data output into business insights.

13
Juan Garcia Avedillo, Duarte Begonha, and Andrea Peyracchia, “Two ways to modernize IT systems for the digital era,”
August 2015, mckinsey.com.
14
Alec Bokman, Lars Fiedler, Jesko Perrey, and Andrew Pickersgill, “Five facts: How customer analytics boosts corporate
performance,” July 2014, McKinsey on Marketing & Sales, mckinseyonmarketingand sales.com.

32 Six building blocks for creating a high-performing digital enterprise How to succeed in a digital transformation
With the Internet of Things and new technology developments, analytics are opening new
doors for growth. Analysts have predicted that the installed base for Internet of Things
devices will grow from around 10 billion connected devices today to as many as 30 billion
devices by 2020.15 Real-time monitoring and visualization, for example, are fundamentally
changing the relationship of insurers and the insured. Telematics are being used in auto
insurance to monitor driving habits in real time; this resulted in a 30 percent reduction in
claims at one UK insurance company, which reported that customers had developed
better driving habits.16 Similarly, data monitors on UPS trucks are used to help configure
the most efficient ways to load a truck and send alerts when a part needs a repair, before
it breaks.17

While each of these building blocks is important, the real value is in being able to integrate
them and manage the cross-business contingencies and dependencies of a large-scale
digital initiative (for best practices for all six, see our “From good to great” infographic).
The digital revolution has given birth to an interconnected world that binds customers,
employees, managers, and systems together in a network of unprecedented complexity
and opportunity. Making sense of those connections and building value requires a new
interdisciplinary model of work that is redefining how companies succeed today.

Driek Desmet is a director in McKinsey’s Singapore office, Ewan Duncan is a director

in the Seattle office, Jay Scanlan is a principal in the London office, and Marc Singer is a
director in the San Francisco office.

15
Harald Bauer, Mark Patel, and Jan Veira, “The Internet of Things: Sizing up the opportunity,” December, 2014, mckinsey.com.
16
Richard Clarke and Ari Libarikian, “Unleashing the value of advanced analytics in insurance,” August 2015, mckinsey.com.
17
Jacob Goldstein, “To increase productivity, UPS monitors drivers’ every move,” NPR, April 17, 2014, npr.org.

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