Digital Strategy: The Future Is Now

Paul Willmott is a Director at the McKinsey London Office.

Transcript

Companies need to make several key decisions around how they’re going to address digital. [1] The first one is “are they in the right businesses to start with?”

It’s true that companies have been using technology for many decades. But a few things have changed. First of all, customer expectations are very, very different now. We know that around 80 percent of purchases are researched online before a customer goes into a store. Indeed, many customers now prefer to complete the purchase online. Even in groceries, over 10 percent of customers in the UK now will shop online and actually make the purchase.  In banking—in this country, in the UK—it’s over 30 percent.

[2] The second thing that’s changed is that the cost of delivering high-end IT solutions is reducing all the time. Historically, it would have been very expensive, and a lengthy process, to deliver a highly functional technology solution that customers would want to use. That’s no longer the case—it can sometimes be done now in just weeks or months.

Digital is fundamentally shifting the competitive landscape in many sectors. It allows new entrants to come from unexpected places. We’re seeing banks get into the travel business in some countries. We’re seeing travel agents get into the insurance business. We’re seeing retailers go into the media business. So your competitor set is not what it used to be.

One thing that digital allows is what I call “plug and play dynamics”—meaning that companies can attack specific areas of the value chain rather than having to own the whole thing. This is because digital allows different services to be stitched together more quickly and cheaply.

Reference: Digital Strategy.

Software and technology firms may push you as the CEO toward systemic and process solutions, which are of course more involved, costly and risky.  It doesn't mean that you ought to wholly accept or dismiss such sales efforts, but it does mean that (a) you are clear on what you're trying to accomplish for your business and (b) you have line of sight on your whole value chain, especially as it relates to your aims.  Then "plug and play dynamics" makes sense as a means to titrate involvement, control costs, and manage risks.