Our New Future

Astudy referenced in the popular magazine Psychology Today concluded that it takes an average of 66 days for a behavior to become automatic. If that’s true, that’s good news for business leaders who have spent the past five months running their companies in ways they never could have imagined. The COVID-19 pandemic is a full-stop on business as usual and a launching pad for organizations to become virtual, digital-centric and agile — and to do it all at lightning-fast speed. Now, as leaders look ahead to the next year and beyond, they’re asking: How do we keep this momentum going? How do we take the best of what we’ve learned and put into practice throughout the pandemic, and make sure it’s woven into everything we do going forward? “Business leaders are saying that they’ve accomplished in 10 days what used to take them 10 months,” says Kate Smaje, a senior partner and global co-leader of McKinsey Digital. “That kind of speed is what’s unleashing a wave of innovation unlike anything we’ve ever seen.” “Business leaders are saying that they’ve accomplished in 10 days what used to take them 10 months. That kind of speed is what’s unleashing a wave of innovation unlike anything we’ve ever seen.” Kate Smaje Senior Partner and Global Co-Leader, That realization is coming not a moment too soon. Even before the global health crisis hit, 92 percent of company leaders surveyed by McKinsey thought that their business model would not remain viable at the rates of digitization at that time. The pandemic just put that whole scenario on steroids. The companies that are leading the way out of this crisis, the ones that will grab market share and set the tone and tempo for others, are the ones first out of the gate. “The fundamental reality is that the accelerating speed of digital means that we are increasingly living in a winner-take-all world,” Smaje says. “But simply going faster isn’t the answer. Rather, winning companies are investing in the tech, data, processes and people to enable speed through better decisions and faster course corrections based on what they learn.” Large incumbents who are winning the digital transformation battle get lots of things right. But McKinsey research has highlighted a few elements that really stand out: • Digital speed. Leading companies just operate faster, from reviewing strategies to allocating resources. For example, they reallocate talent and capital four times more quickly than their peers. • Ready to reinvent. While businesses need to maintain the profitable elements of their business, business-as-usual is a dangerous posture. Leading businesses are investing as much in upgrading the core of their business as they are in innovation, often by harnessing technology. • All in. These companies aren’t just making decisions faster; the decisions themselves are bolder. Two of the most important areas where this kind of commitment shines through are major acquisitions (leaders spend three times more than their peers) and capital bets (leaders spend two times what their peers do). • Data-driven decisions. “The road to recovery is paved with data,” Smaje says. Data is providing the fuel to power better and faster decisions. High-performing organizations are three times more likely than others to say their data and analytics initiatives have contributed at least 20 percent to EBIT (from 2016–19). • Customer followers. Being “customer centric” is well established. But competing pressures and priorities mean that the customer can often be sidelined. Top companies that sustain a comprehensive focus on the customer (in addition to operational and IT improvements) can generate economic gains ranging from 20 percent to 50 percent of the cost base. Even before the global health crisis hit, 92 percent of company leaders surveyed by McKinsey thought that their business model would not remain viable at the rates of digitization at that time. The companies you’re going to meet here are adopting and deploying these digital strategies and approaches at warp speed. Aside from moving thousands of employees from the office, call center and factory floor to home overnight, they’re using these technologies to rejigger supply chains, stand-up entirely new e-commerce channels and leverage AI and predictive analytics to unearth smarter and more sustainable ways to The Next Normal https://www.mckinsey.com/ The Acceleration of Digitization: How six companies are leveraging technology and data to transform themselves Astudy referenced in the popular magazine Psychology Today concluded that it takes an average of 66 days for a behavior to become automatic. If that’s true, that’s good news for business leaders who have spent the past five months running their companies in ways they never could have imagined. The COVID-19 pandemic is a full-stop on business as usual and a launching pad for organizations to become virtual, digital-centric and agile — and to do it all at lightning-fast speed. Now, as leaders look ahead to the next year and beyond, they’re asking: How do we keep this momentum going? How do we take the best of what we’ve learned and put into practice throughout the pandemic, and make sure it’s woven into everything we do going forward? “Business leaders are saying that they’ve accomplished in 10 days what used to take them 10 months,” says Kate Smaje, a senior partner and global co-leader of McKinsey Digital. “That kind of speed is what’s unleashing a wave of innovation unlike anything we’ve ever seen.” “ Business leaders are saying that they’ve accomplished in 10 days what used to take them 10 months. That kind of speed is what’s unleashing a wave of innovation unlike anything we’ve ever seen.” Kate Smaje Senior Partner and Global Co-Leader, McKinsey Digital That realization is coming not a moment too soon. Even before the global health crisis hit, 92 percent of company leaders surveyed by McKinsey thought that their business model would not remain viable at the rates of digitization at that time. The pandemic just put that whole scenario on steroids. The companies that are leading the way out of this crisis, the ones that will grab market share and set the tone and tempo for others, are the ones first out of the gate. “The fundamental reality is that the accelerating speed of digital means that we are increasingly living in a winner-take-all world,” Smaje says. “But simply going faster isn’t the answer. Rather, winning companies are investing in the tech, data, processes and people to enable speed through better decisions and faster course corrections based on what they learn.” Large incumbents who are winning the digital transformation battle get lots of things right. But McKinsey research has highlighted a few elements that really stand out: • Digital speed. Leading companies just operate faster, from reviewing strategies to allocating resources. For example, they reallocate talent and capital four times more quickly than their peers. • Ready to reinvent. While businesses need to maintain the profitable elements of their business, business-as-usual is a dangerous posture. Leading businesses are investing as much in upgrading the core of their business as they are in innovation, often by harnessing technology. • All in. These companies aren’t just making decisions faster; the decisions themselves are bolder. Two of the most important areas where this kind of commitment shines through are major acquisitions (leaders spend three times more than their peers) and capital bets (leaders spend two times what their peers do). • Data-driven decisions. “The road to recovery is paved with data,” Smaje says. Data is providing the fuel to power better and faster decisions. High-performing organizations are three times more likely than others to say their data and analytics initiatives have contributed at least 20 percent to EBIT (from 2016–19). • Customer followers. Being “customer centric” is well established. But competing pressures and priorities mean that the customer can often be sidelined. Top companies that sustain a comprehensive focus on the customer (in addition to operational and IT improvements) can generate economic gains ranging from 20 percent to 50 percent of the cost base. Even before the global health crisis hit, 92 percent of company leaders surveyed by McKinsey thought that their business model would not remain viable at the rates of digitization at that time. The companies you’re going to meet here are adopting and deploying these digital strategies and approaches at warp speed. Aside from moving thousands of employees from the office, call center and factory floor to home overnight, they’re using these technologies to rejigger supply chains, stand-up entirely new e-commerce channels and leverage AI and predictive analytics to unearth smarter and more sustainable ways to operate. Speed of digital Most people don’t think of real estate as a particularly tech-savvy sector, but RXR Realty is proving that assumption wrong. Even before the pandemic hit, the New York City-based commercial and residential real estate developer began investing in the digital capabilities that would set it apart from competitors. “Historically, real estate has been a very transactional business,” explains Scott Rechler, CEO of RXR. “We felt that by leveraging our digital skills, we could create a unique and personalized experience for our customers similar to what they’re used to in other aspects of their lives.” Prior to the global health crisis, RXR had established a digital lab. The company now has more than 100 data scientists, designers and engineers across the organization working on digital initiatives. The investment in those capabilities — an app that enables move scheduling, deliveries, dog walking and rent payments on the residential side, and real-time analytics on heating, cooling and floor space optimization for tenants on the commercial side —allowed RXR to pivot quickly once the pandemic hit. Suddenly, physical distancing and the need for contactless interactions became paramount for RXR’s tenants. Today, this team is working around the clock to put in place the health and safety protocols that allow tenants to feel safe as they return to the office. Its platform — RxWell — includes a new mobile app that provides information about air quality and occupancy levels of a building, cleaning status, food delivery options and shift times for worker arrivals. Employees have their temperatures taken via thermal scanners when they enter a building, and heat maps are available online that show how full a restroom or conference room is at any given time. “The investments we made in our digital capabilities before the pandemic are why we’re able to give people peace of mind now as they begin to return to work,” Rechler says. RXR’s new platform, RxWell, includes a new mobile app that provides information about air quality and occupancy levels of a building, cleaning status, food delivery options and shift times for worker arrivals. Reinventing yourself The exponential growth in digitization coupled with consumer dissatisfaction with traditional brick-and-mortar banking has been driving the launch of fintechs with amazing speed over the past decade. That fact wasn’t lost on investment banking giant Goldman Sachs, which launched Marcus by Goldman Sachs in 2016. Marcus, the firm’s digital consumer business is, as global head Harit Talwar likes to describe it, “a 150-year-old startup that allows people to take control of their financial lives from their phone.” Over the past four years, this digital-first business has grown deposits to $92 billion and $7 billion in lending balances through a combination of organic growth, acquisitions and partnerships with the likes of Apple and Amazon. Marcus has millions of customers in the U.S. and U.K. A digital-first philosophy, Talwar says, means that decisions on new products and services happen quickly. For instance, when the pandemic hit, Marcus realized that some of its customers were going to need assistance. The team decided to allow folks to defer payments on loans and credit cards for several months, without accruing interest. “The real news is not that we did this, but that we took just 72 hours from the time we realized customers needed help to when we rolled it out,” Talwar says. “We were able to do this because of our agile digital technology model.” “ The real news is not that we did this, but that we took just 72 hours from the time we realized customers needed help to when we rolled it out. We were able to do this because of our agile digital technology model.” Harit Talwar Global Head of Marcus by Goldman Sachs All in For Indonesian mining company Petrosea, the stakes involved in digital transformation were nothing less than survival. Industry changes, increased regulatory requirements and society’s pushback on mining’s environmental footprint had culminated into what President Director Hanifa Indradjaya calls “an existential threat” for the company. “We’re not the biggest player in the industry, so that left us quite vulnerable,” he says. “If we were to survive, the status quo was not an option.” In 2018, the company embarked on a three-pronged approach that addressed diversification away from coal, digitization and de-carbonization of its operations. At its Tabang project site, located in a remote area of East Kalimantan, Indonesia, the company employed a suite of advanced technologies, including AI, smart sensors and machine learning. The sensors enable predictive maintenance of its fleets of trucks, allowing the company to use fewer trucks and address breakdowns before they happen.  To move away from coal and toward copper, nickel, gold and lithium — the minerals that are required as electrification of developing countries continues — the company is developing a suite of AI-enabled digital technologies to find these metals faster and more efficiently. Addressing its considerable re-skilling needs — the majority of Tabang’s workers have no more than a high school education — resulted in the development of a mobile app with popular gamification elements, ensuring that employees would stay engaged and complete their training. The upshot: Within six months, Tabang became one of the company’s most profitable operations by reducing costs and increasing production. “Technology enabled us to innovate our business model and remain relevant,” Indradjaya says. “A digital mindset now percolates through every aspect of the company.” McKinsey Digital