You would likely be hard pressed to find a business in any industry in the U.S. today that isn’t focused on digital transformation in one way or another. But while those at the cutting edge are continually pushing the boundaries of what digital technology can offer, many others struggle just to keep up with the relentless pace of innovation that we are experiencing today. The result? Estimates that the U.S. economy as a whole is achieving less than 20 percent of its full digital potential (see study below). More than that though, while some sectors, companies, and individuals are putting themselves in a position to reap the benefits that digitization can offer, those who are not hitting the mark when it comes to their digital transformation potential are losing competitive ground as a result.
That is the conclusion of a study carried out by McKinsey Global Institute, which suggests that when it comes to the use of technology, it’s no longer about “haves” and “have nots.” Instead, the great divide lies between the “haves” and the “have mores.” Digital America: A Tale of the Haves and Have-Mores is, according to the report authors, the first major attempt to measure the digitization of businesses across the United States. The result is the MGI Industry Digitization Index, which provides a comprehensive view on the where and the how of digital progress across different sectors of the U.S. economy.
Digital Winners and Losers
The analysis, which examined 27 indicators across the categories of digital assets, usage, and workers, produced some not entirely unexpected results when it came to the best digital performers (those in the tech space, for example). The most important results of this study is in identifying which sectors are taking a beating, from a digital transformation perspective, and just how much ground they have to make up to take full advantage of the opportunities digital offers.
- The most digitally advanced industry sectors, as mentioned above, were found to be in ICT, media, finance, and professional services—no surprises there, especially for the early-adopting technology sector, which more often than not acts as a digital pathfinder.
- Many industries are in the early stages of digitization with plenty of room for growth. The utilities sector was cited as a good example of an industry that could be at the forefront of future digital expansion.
- Some sectors are highly digitized at one end of the scale (health care for example in diagnostics and treatments), but have a large workforce that uses only basic—or sometimes no—digital technology, ultimately slowing the overall pace of digital adoption.
- Industries that are both local and labor-intensive (construction, leisure, hospitality) tend to have low digital usage, especially in their customer transactions.
- Government, while having the greatest share of GDP and the highest share of employment, rated poorly across all three digitization categories. This shouldn’t come as a great surprise given the bureaucratic, regulated, and non-competitive environment in which our administrators all too often operate.
According to the study, factors that shape the adoption of digital solutions include the size and complexity of the business, length of supply chain, level of education and specialism among the workforce, and the prospect of increased competition that events such as deregulation bring. And two key findings illustrate the powerful monetary returns that those who embrace digital transformation can reap, and outline pretty clearly how badly the U.S economy as a whole is suffering due to these low adoption rates.
- The most effectively digitized companies are seeing disproportionate growth in productivity and profit margins.
- Overall the U.S economy is estimated to be reaching just 18 percent of its digital potential.
Its Not What You Have, Its What You Do With It
A breakdown of the three digital categories I talked about above highlights that while having the right technology assets is clearly important, of much more importance is how those tech assets are used, and the level of employee digital engagement.
Digital assets. While the roll out of updated IT equipment has been an ongoing process for many years, the study suggests that more companies are now introducing digital technology in a much more purposeful way than previously. The focus is also shifting away from long-term capital investments to more flexible options. Hence the rapid growth in cloud based applications that we’ve seen in recent years.
Digital Usage. It’s when you look at the way that the technology is used that you start to see digital leaders emerging. The study found that more digitally advanced folks are much more likely to be introducing software into areas like back office operations and customer relationship management processes. And that just makes sense. E-commerce platforms, digital payment systems, digital marketing, and social technologies are much favored by these early adopting digital leaders. The study suggests—and it only makes sense—that these types of usage-related innovations are likely to have profound implications on business models and economics across the value chain in the coming years.
Digital Workers. It is in this third category, however, that the authors of the study see the greatest opportunity for digital converts, and where the gaps between the “haves” and the “have mores” are at their greatest. The study found that digital engagement of the workforce is inconsistent. While good progress is being made in some areas, digital technology hasn’t yet found its way into many of the everyday tasks carried out by the American workforce. As a consequence, many organizations are missing out on opportunities for innovation, efficiencies, and better customer experiences (all things that also result in more money!) that digital technology can offer.
The digital adoption gap, and the size of the opportunity for the laggards is enormous, with the study estimating 13 times more digital engagement in leading sectors than the rest of the economy. The study authors suggest a more holistic approach is urgently needed in many sectors, which can identify and fill the digital gaps across all three categories.
Digitization, Disruption, and Opportunity
Digital technology has the potential to offer significant benefits to consumers and opportunities to the businesses and organizations that serve them. It also has the ability to disrupt, giving the agile innovators, including small businesses and start-ups, opportunities to challenge established markets in new and previously unimagined ways. In essence it might be fair to speculate that the requirement for stability and long-term planning is being replaced by a need for a more flexible, nimble approach in many areas of the economy, whatever the size of the organization.
One thing is for sure. The digital revolution that we are experiencing is going to redefine the nature of many industries and require a whole new skill set for many in the workforce. Previously well-established industry boundaries are already being blurred. Just think about it—Google is developing cars, BMW is reported to be moving into the ride sharing market to counter the Uber effect on its business, and eBay is moving into ecommerce in a different way than ever before, hoping to nab a piece of Amazon’s marketshare. Many industry sectors face being turned on their heads with competition coming from unexpected areas—from competitors both large and well resourced, as well as small and agile.
Opting out is no longer an option. Becoming a “have” when it comes to digital is the bare minimum requirement. I was at an Oracle event a few weeks ago and the CMO of Clorox was talking about digital transformation with a huge CPG company. He said that it’s scary as hell, and an incredible amount of work, but that when it comes to survival in today’s marketplace, and the ability to compete, there’s no option but to jump in and make it happen. Obviously, becoming a “have more” is the way ahead—whether your company is a B2B or B2C one—it’s not only the future, it’s the today or your business. What do you think? Where are you and your company on the digital transformation front?
You can download the full report and executive summary at Digital America: A Tale of the Haves and the Have-Mores. You can also find out more about how digitization is affecting the U.S economy by watching this accompanying short video from McKinsey.
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Shelly Kramer is a Principal Analyst and Founding Partner at Futurum Research. A serial entrepreneur with a technology centric focus, she has worked alongside some of the world’s largest brands to embrace disruption and spur innovation, understand and address the realities of the connected customer, and help navigate the process of digital transformation. She brings 20 years' experience as a brand strategist to her work at Futurum, and has deep experience helping global companies with marketing challenges, GTM strategies, messaging development, and driving strategy and digital transformation for B2B brands across multiple verticals. Shelly's coverage areas include Collaboration/CX/SaaS, platforms, ESG, and Cybersecurity, as well as topics and trends related to the Future of Work, the transformation of the workplace and how people and technology are driving that transformation. A transplanted New Yorker, she has learned to love life in the Midwest, and has firsthand experience that some of the most innovative minds and most successful companies in the world also happen to live in “flyover country.”