Everyone wants to go digital. The first step is to really understand what this is.

Companies today are rushing to become more digital. But what does digital mean?

For some executives, it’s about technology. For others, digital is a new way to interact with customers. And for others it is still a completely new way of doing business. None of these definitions is necessarily incorrect. But such diverse perspectives often hinder management teams because they reflect a lack of alignment and a common vision of where the business should go. This often leads to fragmented initiatives or wrong efforts that lead to missed opportunities, slow performance or false starts.

Even if executives move forward with their digital agendas, it is worth taking a break to clarify vocabulary and clarify language. Business leaders need to have a clear and common understanding of what digital means to them and, as a result, what it means to their business (for a deeper look at how companies can develop meaningful digital strategies and drive business performance). , see “Increasing the Digital Quotient” on mckinsey.com).

It is tempting to look for simple definitions, but to be meaningful and sustainable, we believe that digital should be seen less as a thing and more as a way of doing things. To make this definition more concrete, we have divided it into three attributes: creating value at the new frontiers of the business world, creating value in processes that execute a vision of customer experiences, and building fundamental capabilities that support the entire structure.

Creating value at new frontiers

Being digital requires you to be open to re-examining your entire way of doing business and understanding where the new frontiers of value are. For some companies, capturing new frontiers may be about developing completely new businesses in adjacent categories; for others, it may be about identifying and tracking new groups of values ​​in existing sectors.

Unlocking value in emerging growth sectors requires a commitment to understanding the implications of market developments and assessing how they may present opportunities or threats. The Internet of Things (IoT), for example, is beginning to open up opportunities for innovators to use unprecedented levels of data accuracy to identify flaws in existing value chains. In the automotive industry, cars connected to the outside world have expanded boundaries for self-navigation and in-car entertainment. In the logistics industry, the use of sensors, Big Data and analytics has allowed companies to improve the efficiency of their supply chain operations.

At the same time, being digital means paying close attention to how the customer journey evolves in the broadest sense. This means understanding how customer behaviors and expectations develop both inside and outside your business, as well as outside your industry, which is crucial to being ahead of trends that can deliver or destroy value.

Creating value in basic business

The next digital element is rethinking how new capabilities are used to improve the way customers are served. It is based on the obsession with understanding every step of the customer journey – regardless of the channel – and thinking about how digital capabilities can design and deliver the best possible experience in all parts of the company. For example, the supply chain is essential for the development of flexibility, efficiency and speed to efficiently deliver the right product in a way desired by the customer. At the same time, data and values ​​can focus on providing information about customers which, in turn, leads to marketing and sales decisions.

Critically, digital doesn’t just mean working to provide a unique customer experience. It is about implementing a cyclical dynamic in which processes and capabilities are constantly evolving based on customer information, continuously improving products or services. For this to happen, an interconnected set of four basic capabilities is needed:

Proactive decision making. Relevance is the currency of the digital age. This requires intelligence-based decision-making that provides personalized and customer-relevant content and experiences. Remembering customer preferences is a basic example of this capability, but it also extends to customizing and optimizing the next step in the customer’s journey. Data providers such as ClickFox, for example, combine multi-channel data into a single view of what customers are doing and what is happening as a result. In the back office, analysis and information provide near real-time information about customer needs and behaviors, which then determines the types of messages and offers to be delivered to the customer.

Contextual interactivity. This means analyzing how a consumer interacts with a brand and modifying those interactions to improve the customer experience. For example, content and experience can adapt as a customer moves from a mobile phone to a laptop or from evaluating a brand to making a purchase decision. The growing number of customer interactions generates a flow of information that allows better decisions about what customers want. And the rapid growth of wearable technology and IoT presents the latest wave of contact points that will allow companies to combine even more digital and physical experiences.

Real-time automation. To support this cyclical dynamic of communication with customers and to help them accomplish a task, extensive automation is now needed. Automating customer interactions can increase the number of self-service options that help solve problems quickly, customize communications to be more relevant, and deliver consistent customer travel, regardless of channel, time, or device. Automating the supply chain and core business processes can reduce costs, but it is also crucial to give companies more flexibility to respond to and anticipate customer demand.

Travel-focused innovation. Good customer service gives companies permission to be innovative in the way they interact and sell to them. This may include, for example, expanding the experience of existing customers in business and services that expand the customer relationship, ideally for the benefit of both parties. In turn, these innovations fuel more interactions, create more information and increase the price of the customer-brand relationship.

Building fundamental capabilities

The final element of our definition of digital is related to the technological and organizational processes that allow a company to be agile and fast. This foundation consists of two elements:

Mindsets. Being digital is about using data to make better and faster decisions, transferring decision-making to smaller teams, and developing more iterative and faster ways of doing things. Thinking this way should not be limited to a handful of functions. It should include a wide range of ways in which companies operate, including creative partnerships with external companies to expand the necessary capabilities. A digital mindset institutionalizes multifunctional collaboration, applies hierarchies, and creates environments to encourage the generation of new ideas. Incentives and measurement are developed to support such decision-making agility.

System and data architecture. Digital in the IT context is focused on creating a two-part environment that decouples old systems – which accept critical functions and run at a slower pace – from those that accept fast-moving interactions, often oriented towards customers. A key feature of digitized IT is the commitment to build networks that connect devices, objects and people. This approach is embodied in a continuous delivery model in which multifunctional IT teams automate systems and optimize processes to be able to quickly launch software applications.

Digital is about unlocking growth now. How companies might interpret or act according to this definition will vary, but a clear understanding of what is needed digitally allows business leaders to develop a common vision of how it can be used to capture value.

Karel Dörner is a director in the McKinsey office in Munich, and David Edelman is a director in the Boston office.

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