With the pace of change in the world accelerating around us, it can be hard to remember that the digital revolution is still in its early days. Massive changes have come about since the packet-switch network and the microprocessor were invented, nearly 50 years ago. A look at the rising rate of discovery in fundamental R&D and in practical engineering leaves little doubt that more upheaval is on the way.
For incumbent companies, the stakes continue to rise. From 1965 to 2012, the “topple rate,” at which they lose their leadership positions, increased by almost 40 percent1 as digital technology ramped up competition, disrupted industries, and forced businesses to clarify their strategies, develop new capabilities, and transform their cultures. Yet the opportunity is also plain. 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.
To gain a more precise understanding of the digitization challenge facing business today, McKinsey has been conducting an in-depth diagnostic survey of 150 companies around the world. By evaluating 18 practices related to digital strategy, capabilities, and culture, we have developed a single, simple metric for the digital maturity of a company—what might be called its Digital Quotient, or DQ. This survey reveals a wide range of digital performance in today’s big corporations (exhibit).
McKinsey’s examination of the digital performance of major corporations points to four lessons in which we have increasing confidence:
- First, incumbents must think carefully about the strategy available to them. The number of companies that can operate as pure-play disrupters at global scale—such as Spotify, Square, and Uber—are few in number. Rarer still are the ecosystem shapers that set de facto standards and gain command of the universal control points created by hyperscaling digital platforms. Ninety-five to 99 percent of incumbent companies must choose a different path, not by “doing digital” on the margin of their established businesses but by wholeheartedly committing themselves to a clear strategy.
- Second, success depends on the ability to invest in relevant digital capabilities that are well aligned with strategy—and to do so at scale. The right capabilities help you keep pace with your customers as digitization transforms the way they research and consider products and services, interact, and make purchases on the digital consumer decision journey.
- Third, while technical capabilities—such as big data analytics, digital content management, and search-engine optimization—are crucial, a strong and adaptive culture can help make up for a lack of them.
- Fourth, companies need to align their organizational structures, talent development, funding mechanisms, and key performance indicators (KPIs) with the digital strategy they’ve chosen.
Collectively, these lessons represent a high-level road map for the executive teams of established companies seeking to keep pace in the digital age. Much else is required, of course.2 But in our experience, without the right road map and the management mind-set needed to follow it, there’s a real danger of traveling in the wrong direction, traveling too slowly in the right one, or not moving forward at all. We hope this article will help leaders steer organizations effectively as they make the transition to becoming more fully digital enterprises.