Unlocking
success in digital transformations
Digital transformations are even more
difficult than traditional change efforts to pull off. But the results from the
most effective transformations point to five factors for success.
As digital technologies dramatically
reshape industry after industry, many companies are pursuing large-scale change
efforts to capture the benefits of these trends or simply to keep up with
competitors. In a new McKinsey Global Survey on digital transformations, more
than eight in ten respondents say their organizations have undertaken such
efforts in the past five years. Yet success in these transformations is
proving to be elusive. While our earlier research has
found that fewer than one-third of organizational transformations succeed at
improving a company’s performance and sustaining those gains, the latest
results find that the success rate of digital transformations is even lower.
The results from
respondents who do report success point to 21 best practices, all of which make
a digital transformation more likely to succeed. These characteristics fall
into five categories: leadership, capability building, empowering workers,
upgrading tools, and communication. These categories suggest where and how
companies can start to improve their chances of successfully making digital
changes to their business.
Transformations are hard, and digital ones are harder
Years of research on
transformations has shown that the success rate for these efforts is
consistently low: less than 30 percent succeed. This year’s results suggest that digital
transformations are even more difficult. Only 16 percent of respondents say
their organizations’ digital transformations have successfully improved
performance and also equipped them to sustain changes in the long term. An
additional 7 percent say that performance improved but that those improvements
were not sustained.
Even digitally savvy industries, such as high tech, media, and telecom, are struggling.
Among these industries, the success rate does not exceed 26 percent. But in
more traditional industries, such as oil and gas, automotive, infrastructure,
and pharmaceuticals, digital transformations are even more challenging: success
rates fall between 4 and 11 percent.
Success rates also vary
by company size. At organizations with fewer than 100 employees, respondents
are 2.7 times more likely to report a successful digital transformation than
are those from organizations with more than 50,000 employees.
The anatomy of digital transformations
Whether a change effort
has succeeded or not, the results point to a few shared traits of today’s
digital transformations. For one, organizations tend to look inward when making
such changes. The most commonly cited objective for digital transformations is
digitizing the organization’s operating model, cited by 68 percent of
respondents. Less than half say their objective was either launching new
products or services or interacting with external partners through digital
channels. Digital transformations also tend to be wide in scope. Eight in ten
respondents say their recent change efforts involved either multiple functions
or business units or the whole enterprise. Additionally, the adoption of
technologies plays an important role across digital transformations. On
average, respondents say their organizations are using four of 11 technologies
we asked about, with traditional web tools cited most often and used in the
vast majority of these efforts.
At the same time, the
results from successful transformations show that these organizations deploy
more technologies than others do. This might seem counterintuitive, given that
a broader suite of technologies could result in more complex execution of transformation initiatives and, therefore, more opportunities
to fail. But the organizations with successful transformations are likelier
than others to use more sophisticated technologies, such as artificial
intelligence, the Internet of Things, and advanced neural machine-learning
techniques.
The keys to success
Having these
technologies on hand is only one part of the story. The survey results indicate
how, exactly, companies should make the technology-supported changes that
differentiate successful digital transformations from the rest.
Our research points to
a set of factors that might improve the chances of a transformation succeeding.
These factors fall into five categories:
·
having the right,
digital-savvy leaders in place
·
building capabilities
for the workforce of the future
·
empowering people to work
in new ways
·
giving day-to-day tools
a digital upgrade
·
communicating
frequently via traditional and digital methods
Having the right, digital-savvy leaders in place
Change takes place at
all levels during a digital transformation, especially when it comes to talent
and capabilities. Nearly 70 percent of all respondents say their organizations’
top teams changed during the transformation—most commonly when new leaders
familiar with digital technologies joined the management team.
Indeed, adding such a
leader is one of the keys to transformation success. So is the engagement of
transformation-specific roles—namely, leaders of individual initiatives and
leaders of the program-management or transformation office who are dedicated
full time to the change effort. Another key to success is leadership
commitment. When people in key roles (both the senior leaders of the
organization and those in transformation-specific roles) are more involved in a
digital transformation than they were in past change efforts, a transformation’s
success is more likely.
Other results indicate
that when companies achieve transformation success, they are more likely to
have certain digital-savvy leaders in place. Less than one-third of all
respondents say their organizations have engaged a chief digital officer (CDO)
to support their transformations. But those that do are 1.6 times more likely
than others to report a successful digital transformation.
Building capabilities for the workforce of the future
The survey results
confirm that developing talent and skills throughout the organization—a fundamental action for traditional transformations—is one of the most important factors
for success in a digital change effort. Of our 21 keys to success, three relate
to the workforce’s digital capabilities. First is redefining individuals’ roles
and responsibilities so they align with a transformation’s goals, which can
help clarify the roles and capabilities the organization needs. Respondents are
1.5 times more likely to report a successful digital transformation when this
practice is in place.
Two other keys relate
to engaging the specific roles of integrators and technology-innovation
managers, who bridge potential gaps between the traditional and digital parts
of the business. People in these roles help foster stronger internal
capabilities among colleagues. Integrators are employees who translate and
integrate new digital methods and processes into existing ways of working.
Because they typically have experience on the business side and also understand
the technical aspects and business potential of digital technologies,
integrators are well equipped to connect the traditional and digital parts of
the business. For their part, technology-innovation managers possess
specialized technical skills and lead work on a company’s digital innovations.
Beyond these three keys
for success, we found that companies with winning transformations have a better-funded and more robust approach to
talent than others do. Transformation success is more than three times likelier
when respondents say their organizations have invested the right amount
in digital talent.
Success is also more
likely when organizations scale up their workforce planning and talent
development. For example, 27 percent of respondents report successful
transformations when their companies set cross-functional or enterprise-wide
hiring goals based on specific skill needs—nearly twice the share of
respondents whose organizations do not.
During recruitment,
using a wider range of approaches also supports success. Traditional recruiting
tactics, such as public job postings and referrals from current employees, do
not have a clear effect on success, but newer or more uncommon methods do.
Success is at least twice as likely at organizations that run innovative recruiting campaigns (such as having recruits play games or find hidden
messages in source code as part of the recruiting process) or host technology
conferences or “hackathons.”
Empowering people to work in new ways
Digital transformations
require cultural and behavioral changes such as calculated risk taking,
increased collaboration, and customer centricity, as our previous research has shown. In this survey, the results suggest two primary ways
in which companies with successful transformations are empowering employees to
embrace these changes.
The first is
reinforcing new behaviors and ways of working through formal mechanisms, long
proved as an action that supports organizational change. One related key to
transformation success is establishing practices related to working in new
ways. Respondents who say their organizations established at least one new way
of working, such as continuous learning or open work environments, as part of
their change efforts are more likely than others to report successful
transformations. Another key is giving employees a say on where digitization
could and should be adopted. When employees generate their own ideas about
where digitization might support the business, respondents are 1.4 times more
likely to report success.
A second approach to
empowering workers is ensuring that people in key roles play parts in
reinforcing change. Success depends on both senior leaders and those engaged
during the transformation. One related factor is encouraging employees to
challenge old ways of working. Respondents who say their senior leaders and the
people engaged in transformation-specific roles do this are more likely than
their peers to report success (1.5 times more for senior leaders and 1.7 times
more for those in key transformation roles). Another factor for success relates
to risk taking. Success is more likely when senior leaders and leaders who are
engaged in the transformation all encourage employees to experiment with new
ideas—for example, through rapid prototyping and allowing employees to learn
from their failures. A third key to success is people in key roles ensuring
that their own units are collaborating with others when working on
transformations. When respondents say their senior leaders and those in
transformation-related roles have done so, they are 1.6 and 1.8 times,
respectively, more likely than others to report success.
Giving day-to-day tools a digital upgrade
For organizations to
empower employees to work in new ways, the survey findings show how, and by how
much, digitizing tools and processes can support success. We asked respondents
about seven structural changes their organizations had made since the
transformations began. Three of these changes—each of which involves making the
use of digital tools a new organizational norm—emerged as keys to success.
The first key is
adopting digital tools to make information more accessible across the
organization, which more than doubles the likelihood of a successful
transformation. The second is implementing digital self-serve technologies for
employees, business partners, or both groups to use; transformation success is
twice as likely when organizations do so. A third key, focused on technology in
company operations, is organizations modifying their standard operating
procedures to include new technologies. Beyond these factors, an increase in
data-based decision making and in the visible use of interactive tools can also
more than double the likelihood of a transformation’s success.
Communicating frequently via traditional and digital
methods
As we have seen in
traditional change efforts, clear communication is critical during a digital
transformation. More specifically, one key to success is communicating a change story, which helps employees understand where the
organization is headed, why it is changing, and why the changes are important.
At organizations that follow this practice, a successful transformation is more
than three times more likely. A second key is senior leaders fostering a sense
of urgency for making the transformation’s changes within their units, a
practice where good communication is central. Other results suggest that when
communicating change stories, successful organizations tend to relay a richer
story than others do. The elements with the greatest influence on success are
clear targets for organizations’ key performance indicators and clear
communication of the transformation’s timeline.
We also found that
using remote and digital communications to convey the transformation’s vision
does a much better job of supporting success than in-person or traditional
channels. When senior managers and initiative leaders use new digital channels
to reach employees remotely, the rate of success is three times greater.
Looking ahead
While respondents say
that many digital transformations fall short in improving performance and
equipping companies to sustain changes, lessons can be learned from those who
report success. The survey results suggest steps companies can take to increase
their chances of success during a transformation:
·
Reimagine
your workplace. The results show
that success requires both digital-savvy leaders and a workforce with the
capabilities to make a digital transformation’s changes happen, which other
McKinsey research also confirms. The workforce implications of
digitization, automation, and other technological trends are significant, and
companies will need to invest in and hire for radically different skills and
capabilities. Whether or not an organization has already begun a digital
transformation, it is important for all companies to think critically about the
ways in which digitization could affect their businesses, in the near and
longer term, and the skills they will need to keep up. One critical step is for
organizations to develop clear workforce strategies to help determine the digital
skills and capabilities that they currently have—and will need—to meet their
future goals.
·
Upgrade
the organization’s “hard wiring.” As digital requires new ways of working as well as
changes to the organization’s overall culture, employees must be empowered to
work differently and keep up with the faster pace of business. The
implementation of digital tools and upgrading of processes, along with the
development of a nimbler operating model—that is, the hard wiring of the
organization—will support these changes. Of course, leaders have important
roles to play, too, by letting go of old practices (command-and-control
supervision, for example). Since not all leaders will have the experience to
support or enact such changes, dedicated leadership-development programs could
help leaders and employees alike to make the necessary shifts in mind-sets and
behaviors.
·
Change
the ways you communicate. Good communication has
always been a key success factor in traditional change efforts, and it is just
as important in a digital transformation. In a digital context, companies must
get more creative in the channels they are using to enable the new, quicker
ways of working and the speedier mind-set and behavior changes that a digital
transformation requires. One change is to move away from traditional channels
that support only one-way communication (company-wide emails, for example) and
toward more interactive platforms (such as internal social media) that enable
open dialogues across the organization. Another key to better communication is
developing more concise—and even tailored—messages for people in the
organization, rather than lengthier communications.
https://www.mckinsey.com/business-functions/organization/our-insights/unlocking-success-in-digital-transformations?cid=other-eml-alt-mip-mck-1811&hlkid=9a51c71cfe274507bcd9b95a215e3d2b&hctky=1627601&hdpid=6657bb5b-54ff-4819-bc7f-cb2029b2c8af
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