As digitization penetrates more fully, it will dampen revenue and profit growth for some, particularly the bottom quartile of companies while the top quartile captures disproportionate gains, according to McKinsey Research. 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.
Industries are digitalizing all around us and surprisingly still have a long way to go to full digitalization. Only those companies willing to take bold initiative will survive to thrive after digital transformation. The Gartner IT Glossary defines digitalization as “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business”.
The degree of digitalization within industries ranged from a low of 31% for consumer packaged goods to a high of 60% for media and entertainment
The recent study released by McKinsey & Company discloses that digitalization has penetrated on average only 38% across all the key industries. The study discloses some bad news for business—on the way to full digitalization, the streamlined competition developed through full digitalization is likely to depress revenue and profit growth across all industries by an estimated 10 to 12%.
But here’s the good news—there will be winners. Companies developing winning strategies will thrive and compensate for any negative impact of industry-wide digitalization.
The winners will be those who take bold action to execute a digitalization strategy. Results of McKinsey & Company industry research indicate these companies will be three times more likely to generate profit growth than their counterparts. Losers will be the laggards who fail to digitalize fully. Their businesses will stagnate and possibly die.
The McKinsey report presents the results of a multi-dimensional study of the impact of further digitalization on economic performance along five key dimensions: products and services, marketing and distribution channels, business processes, supply chains, and new entrants at an ecosystem level. Researchers surveyed companies in the following industries: consumer packaged goods, automotive and assembly, financial services, professional services, telecom, travel, transport, and logistics, healthcare systems and services, high tech, retail, and media and entertainment. The degree of digitalization within the industries ranged from a low of 31% for consumer packaged goods to a high of 60% for media and entertainment.
Findings from the research point to how companies can thrive during and after the digitalization process. Results of the study identify critical differentiators between winners and losers.
- Are willing to make necessary changes to align a digital strategy to the corporate strategy
- Attend to ROI on digital investments. Bold leaders look at each dimension to determine where investments will have the most Most companies have focused their efforts on marketing and distribution, certainly a critical area. However, a business may be overlooking opportunities to reap benefits from investments in other dimensions, such as supply chains, the area of least investment in most companies.
- Have a homogenous corporate culture that enables more focused and rapid response to industry changes.
- Are market watchers and are quick to develop and execute a strategy to imitate winning tech start-ups.
Those companies that will make the greatest gains will take two bold actions:
- Boldly go where others do not—be the first to invest in overlooked dimensions to make the big profits; and
- Invest adequately across multiple dimensions.
The Mckinsey research makes the case for how bold businesses will win through digital reinvention.