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Digital @ Scale
The Playbook You Need to Transform Your Company
Anand Swaminathan and Jürgen Meffert • Wiley © 2017 • 288 pages

Management / Digital Transformation

Take-Aways
• Your business is now really two businesses: the work it does and its data.
• Companies must adapt to the digital revolution, but not all firms need to change in the same ways.
• Organizations need to assess their situations and assets to plan their shift to digital.
• Companies should appoint a chief digital officer to guide this transformation.
• Digitization changes customer behavior. People use their phones to shop. They expect fast service and
seamless transactions between the physical and electronic worlds.
• Digital organizations are customer-centric. They focus on customer experience and innovate with their
customers as partners.
• Digital organizations are agile and fluid: They get rid of hierarchies and silos.
• All companies will be competing for the same scarce digital talent, so digital organizations must have an
active plan for finding and retaining skilled workers.
• Increased security is critical for digital businesses; integrate it into your technology plans and your risk
management.
• Digital organizations move quickly, so their technology needs to support speed.

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Recommendation
McKinsey consultants Anand Swaminathan and Jürgen Meffert offer a manual for anyone embracing digital
transformation. They argue that digital technology fundamentally changes all business, and they provide
tools to help companies adapt. The sheer variety of their examples makes the authors’ case for them. They
detail how digital communication transforms even heavy industries like steel. They do cover the same
ground a few times, and their relentless energy may daunt some readers. Even so, getAbstract recommends
their insights and guidance to anyone who – ready or not – must guide a company through the digital
revolution.

Summary

The Digital Revolution

As digitization moves through all sectors of the economy, it poses three questions organizational leaders
must answer: Why does their business have to change, what do they need to change and how should they
execute these changes? To answer these questions, executives must ask one more: What form should their
“digital transformation” take?

“Leadership is needed. Only CEOs can explain to employees the need for digital
change, define the scope and direction needed, and overcome the forces of inertia in the
company.”

Any digital transformation uses some or all of a range of new digital technologies – such as electronic
sensors or 3D printing – to change a business and move it in new directions. Digitization triggers “creative
disruption.” Try to determine how fast disruption will act in your industry, on what scale and in what form.
Be aware that “speed is the hallmark of the digital world.”

“When digitizing processes, ask yourself at each touchpoint: What does the customer
expect? What does the process depend on, and where are the pain points if something
goes wrong?”

Your customers expect access to anything any time. By 2016, 83% of consumers had smartphones. Now,
they use their phones often, researching purchases any time. They expect the answers they find to be more
visual than in the past. Distinctions between B2B and B2C clients are dissolving as everyone gains access to
the same digital tech and information, and each buyer expects the same customer service. Your business is
now really two businesses: the work it does and its data. Because every firm needs “digital talent,” employers
are fighting for skilled people.

Why Change Is Necessary

Identify what changes digitization requires of your company. Established companies should feel a “sense of
urgency” about the changes they face. Because digitization builds on itself to produce rapid, fundamental
change, firms who ignore its challenges will be left behind.

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 “Industry boundaries belonged to the old economy, and the digital revolution has swept
them away.”

To spur strategic thinking, identify your primary assets, the directions you need to move in and the obstacles
to change. Start with the big questions, like how your competition responds to these challenges, what new
possibilities digital technologies offer in your industry and what “new profit pools” they generate. These
questions lead firms to reconsider digitization at the operational level, where they must focus on “business
architecture.” This should lead businesses to their foundational “organizational frameworks.”

“A CDO with reach and authority – a Steve Jobs for every company – can help to break
down the functional silos, and shape the journey toward digitization as a permanent
disruptor.”

Create a plan to lead your firm to its place in the digitized world. Use the plan to set priorities. Optimize your
current departmental operations and identify your strengths. Develop a “twin-track IT structure”: one to
keep daily operations moving, and another to go in new directions. To overcome “mental barriers” among
your organization’s leaders, the CEO must lead the way.

“Hackathon”

Some firms hold hackathons to jump-start their digital ventures. Set employees to work identifying
weaknesses in the company and determining necessary changes. Some firms may need entirely new
business models. Others may be able to modify an existing model or to target specific changes in their value
chain. Some businesses that operate mainly on a B2B level may have a stable business model that needs only
“targeted additions.” Think about “future markets” by considering how technological innovation powers
your competition. Determine if your current business model can rise to the challenge.

Competing in the Digital Age

“Connectivity” is increasingly important. People expect to shift smoothly between the virtual and physical
worlds. Applying “advanced analytics” to personalize service, as Amazon does, assists this process. As
digitization moves through industries, the larger question is: Whose platform and standards will prevail?

“The digital age demands new skills: Companies that want to be successful in their
industries and the emerging ecosystems must get their functions and processes in shape
for the new era.”

Successful digital companies focus on customer needs, and their business architecture emphasizes the
customer. Businesses must identify the technology they need and use it to gather customer experiences.
This focus incorporates the “omnichannel” concept in which customer sales and contacts occur across all
channels. This approach started with retail, but it has spread, reaching even to heavy industry like steel.
Consider omnichannel’s challenge and opportunities in the context of your target audience’s changing
demographics. For instance, within five years millennials will be the “strongest consumer group.” They grew
up in a digital environment, spend hours online daily and use smartphones to shop.

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“Dynamic Pricing”

To understand the customer experience, organizations need data. They need to become “customer-centric”
and to apply dynamic pricing, which can follow two distinct models. One model compares prices among
competitors. The other tailors prices to individual consumers based on what they shop for and which digital
tools they use to shop. Using algorithms to adjust prices lets companies continually learn through the sales
process. Technology enables businesses to tailor messages to work well within specific communication
channels. Such corporate communications must be authentic, relevant and interactive, and should offer
continuity across channels. Monitor how customers respond to your messages, and adapt accordingly

Customized Innovation

The “digital innovation process” uses customer feedback to guide “open development.” Lego and Apple both
provide strong examples of “open innovation.” To succeed in this realm, your company’s innovation efforts
need clear goals. As you innovate, take advantage of your relationships with everyone in your value chain.

“New ecosystems are emerging, and all market players want to be at the center where
the value added is greatest, rather than at the periphery and feeding off scraps.”

The software development process demonstrates that generating “rapid improvement” is better than
allowing products to have a long “life cycle.” Think in terms of “feature-based design,” and gradually
improve your products. Get customers to co-develop products with you and incorporate their data to adapt
development “in real time.”

“The aim is simple: Companies need to offer their customers a consistent experience
across all channels and across all contact points.”

Use “virtualization” to speed product development and make training cheaper and faster. Digital tools
can increase your transparency and make product development more efficient. Digital tools can create a
“more flexible” and faster “Supply Chain 4.0.” Algorithms can calculate improved, quicker delivery routes.
Autonomous cars can use as much as 15% less fuel. With 3D printers, companies can print the parts they
need rather than waiting for manufacturing and delivery.

“The battle for young, highly qualified, tech-savvy talent – the digital natives – has
already begun.”

Digitization transforms office work. Commercially available software writes reports, and robots automate
humans’ tasks. Emerging “cognitive computing” will take in data, learn from them and solve problems. This
frees people to focus on the interpersonal and creative aspects of work.

Companies can build on their existing skills and practices, create something new, or acquire skills from the
outside, perhaps by “acqui-hiring,” in which an organization buys another firm mostly in order to acquire
its talent. Give sufficient technical capacity, companies can apply “advanced analytics” to big data. Such

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capacity also enables them to serve their customers better and to feed into the emerging power of artificial
intelligence.

Staying Secure

The digital economy is vulnerable to theft, disruption and dishonesty, so companies need increased security.
Businesses must protect themselves from cyberattacks, and develop resilience so they can recover from
such attacks. Follow the lead of banks and insurance companies, and identify which information is most
crucial. Rather than leaving security in the hands of specialists, build security into your IT architecture and
involve managers from all departments. See this resilience as an element of “risk management.” Don’t wait
passively, hoping your security withstands attacks; instead, test your systems on an ongoing basis.

Chief Digital Officer 

Organizations need people with the right skills to guide digitization. Digital companies may already have
these people, but older firms may need a targeted hiring campaign. Evaluate possible acquisitions and create
the culture and “conditions that digital talent expects,” like collaboration, a restructured reward system and
integrated communication. Companies need a new executive position, the chief digital officer (CDO). The
CDO oversees the digitization process, disrupting existing silos and developing processes for developing new
talent internally.

“Digital Organizations”

Digital organizations are agile. They eschew a rigid hierarchy and continually evolve to meet challenges.
They are highly interactive, and use ongoing “cross-functional teams” to develop new products. Employees
regularly take on new responsibilities. These companies value digital talent, and seek to attract and retain
it. This might mean using “predictive analytics” to identify which employees are considering leaving and
stepping in to resolve the situation.

“The term digital natives doesn’t necessarily apply only to people, but can also refer to
companies that were born digital.”

Smart digital organizations don’t limit their focus to their own formal boundaries. They form partnerships
with the best companies, creating networks for mutual benefit. This happens in part because digital
technology dissolves older markets: Construction and medicine used to be distinct, but may find themselves
sharing technology, software or data. Despite intense competition in the digital world, collaboration is
growing increasingly attractive.

“Advanced analytics and machine learning are playing an ever-greater role in

development departments, generating a level of data transparency never seen before.”

As companies digitize, they need a plan for transformation. Start by recognizing some core principles. Digital
organizations and their managers function differently from older organizations. They follow a path of “test,
fail, learn, profit.”

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In stage one, create a plan for digitizing the entire company, dissolving silos and shifting focus to the
customer. This plan must be “holistic” and should address all aspects of your business. Identify your
priorities based on “value contribution.” Stage two is implementation. Firms with previously developed two-
tiered IT systems shift to the faster, fully digital model, usually by expanding their tech team. Make sure
“critical processes” operate at maximum efficiency. Identify and fix weaker aspects of your business.

“By the end of the transformation process, digitization will have touched and changed
every aspect of the business.”

Move through your entire customer interaction, reviewing each touchpoint to determine what customers
expect and what happens when things go wrong. As you develop new products, identify a “minimum viable
product” – the least-developed form you can functionally bring to market. Improve this product according
to market response. Annual business plans are too slow for the digital market, so navigate “by milestones.”
Set and monitor specific “measurable targets.” This means establishing key performance indicators (KPIs)
for all company functions, continually monitoring business activity to determine performance and adjusting
accordingly.

A “New Digital Business Unit”

As the company develops, shape a new digital business unit. The new digital organization will be more
fluid and collaborative. Teams will have more responsibility. Managers will function as coaches. Base
budgets around products, and develop them according to product success. Create a “digital competence
center” to serve your business units, helping them identify the technology they need and coaching them on
implementation.

“Test, fail, learn, profit: the digital company operates very differently from its analog
predecessors.”

As your organization integrates new technology, it may need to change its culture to become a more flexible
workplace that adapts to the needs of the digital world. Workers should have a sense of ownership over
their projects, feel empowered to act, and gain strength from workplace teams and structures. Managers
should lead interactively and by example. The CDO should be part of a steering committee that guides this
transformation. Develop a unified communication plan, including social media.

Implementing Digitization

The final stage is implementing digitization for the entire organization. This involves plunging “into the
unknown.” To guide this journey, set milestones for the entire process, as you did for individual projects.
Borrow the “build-operate-transfer” model from the auto industry, in which suppliers install and operate
machinery in their plants.

“The digital revolution is here, and no industry is immune from its impact.”

The specific form of your digitization varies by organization. Some digital companies outsource parts of
their digital work. Learn from other firms that are already digital. Study high-profile companies like Google,

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or form partnerships with start-ups. Collaborating with new businesses can add energy to older firms and
provide new ideas.

About the Authors

Anand Swaminathan is a senior partner at the McKinsey San Francisco office. Jürgen Meffert is a
senior partner at the McKinsey Dusseldorf office.

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