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Your should priorities for competing in an era of digital globalization

Globalization, once measured largely by trade in goods and cross-border finance, is now converging with digitization. Enormous streams of data and information are transmitted every minute—circulating ideas and innovations around the world via email, social media, e-commerce, video, and more. As these sprawling digital networks connect everything, everyplace, and everyone, companies must rethink what it means to be global. Our latest research quantifies the economic impact of this shift and suggests five critical areas of focus for executives and top teams.

The new trade in bits

To measure the economic impact of digital globalization, we built an econometric model based on the inflows and outflows of goods, services, finance, people, and data for 97 countries around the world.1We found that over a decade, such flows have increased current global GDP by roughly 10 percent over what it would have been in a world without them. This added value reached $7.8 trillion in 2014 alone. Data flows directly accounted for $2.2 trillion, or nearly one-third, of this effect—more than foreign direct investment. In their indirect role enabling other types of cross-border exchanges, they added $2.8 trillion to the world economy.2These combined effects of data flows on GDP

A truly omnichannel

sector after sector, companies are asking how they can adapt to the digital world—how they can build more digital capabilities, create more digital offerings, and even become “digital first” organizations.

But for institutions that have served customers for decades in person and over the phone, digital too often falls short. After the debut of a new app, for example, a jump in sales may not be as big as expected, while hoped-for operational efficiencies—such as a reduction in expensive call-center and in-store customer-support requests—hardly materialize.

Executives naturally wonder why: aren’t customers demanding digital? Without question, they are. But not to the exclusion of other channels, which remain critically important.

For example, as much attention (and fear) as Amazon may generate among traditional retailers, as of early 2016 about 92 percent of retail sales in the United States—the company’s home and largest market—were still taking place in person. Furthermore, our analysis of market research confirms that many customers (including large majorities in some markets and industries) want to move freely from channel to channel in an omnichannel experience. Accordingly, the digital end-to-end offerings and internal capabilities that companies are building are important not only in themselves

How to make digital strategy

The nature of competition in property and casualty (P&C) insurance is shifting as new entrants, changing consumer behaviors, and technological innovations threaten to disrupt established business models. Though the traditional insurance business model has proved remarkably resilient, digital has the power to reshape this industry as it has many others. Innovations from mobile banking to video and audio streaming to e-books have upended value chains and redistributed value pools in industries as diverse as financial services, travel, film, music, and publishing. As new opportunities emerge, those insurers that evolve fast enough to keep up with them will gain enormous value; the laggards will fall further behind. To succeed in this new landscape, insurers need to take a structured approach to digital strategy, capabilities, culture, talent, organization, and their transformation road map.

Though the P&C insurance business has long been insulated against disruption thanks to regulation, product complexity, in-force books, intermediated distribution networks, and large capital requirements, this is changing. Sources of disruption are emerging across the value chain to reshape:

Change your board to the digital age

Many directors are feeling outmatched by the ferocity of changing technology, emerging risks, and new competitors. Here are four ways to get boards in the game.

“Software is eating the world,” veteran digital entrepreneur Marc Andreessen quipped a few years back. Today’s boards are getting the message. They have seen how leading digital players are threatening incumbents, and among the directors we work with, roughly one in three say that their business model will be disrupted in the next five years.

In a 2015 McKinsey survey, though, only 17 percent of directors said their boards were sponsoring digital initiatives, and in earlier McKinsey research, just 16 percent said they fully understood how the industry dynamics of their companies were changing.1In our experience, common responses from boards to the shifting environment include hiring a digital director or chief digital officer, making pilgrimages to Silicon Valley, and launching subcommittees on digital.

Valuable as such moves can be, they often are insufficient to bridge the literacy gap facing boards—which has real consequences. There’s a new class of problems, where seasoned directors’ experiences managing and monetizing traditional assets just doesn’t translate. It is a daunting task to keep

Big data will revolutionize the global

The way digital technologies are reshaping the relationship between consumers and brands has been hotly debated over the past few years, with much discussion of the reshaping of consumer decision journeys, the advent of multichannel marketing and sales, and the impact of smartphones and the mobile Internet on customer behavior. Yet an even bigger opportunity has been largely overlooked. By taking advantage of big data and advanced analytics at every link in the value chain from field to fork, food companies can harness digital’s enormous potential for sustainable value creation. Digital can help them use resources in a more environmentally responsible manner, improve their sourcing decisions, and implement circular-economy solutions in the food chain.

Huge untapped potential

So far, most of the excitement about digital’s potential in the consumer-packaged-goods industry has centered on marketing and sales. But for food producers, the opportunities begin higher upstream and end lower downstream. At the upstream end, the agricultural practices followed by dairy farmers, cacao and coffee producers, wheat and barley producers, cattle farmers, and so on result in enormous variations in commodity costs in an industry where raw materials represent easily 60 percent of the cost of goods sold

Imagining construction’s for digital future

The construction industry is ripe for disruption. Large projects across asset classes typically take 20 percent longer to finish than scheduled and are up to 80 percent over budget  Construction productivity has actually declined in some markets since the 1990s ; financial returns for contractors are often relatively low and volatile.

While the construction sector has been slow to adopt process and technology innovations, there is also a continuing challenge when it comes to fixing the basics. Project planning, for example, remains uncoordinated between the office and the field and is often done on paper. Contracts do not include incentives for risk sharing and innovation; performance management is inadequate, and supply-chain practices are still unsophisticated. The industry has not yet embraced new digital technologies that need up-front investment, even if the long-term benefits are significant (Exhibit 3). R&D spending in construction runs well behind that of other industries: less than 1 percent of revenues, versus 3.5 to 4.5 percent for the auto and aerospace sectors. This is also true for spending on information technology, which accounts for less than 1 percent of revenues for construction, even though a number of new software solutions have been developed for

What is The evolution of social technologies

nce the dawn of the social-technology era, executives have recognized the potential of blogs, wikis, and social networks to strengthen lines of company communication and collaboration, and to invigorate knowledge sharing. Many leaders have understood that by harnessing the creativity and capabilities of internal and external stakeholders, they can boost organizational effectiveness and potentially improve strategic direction setting. But they have also found that spreading the use of these new technologies across the organization requires time to overcome cultural resistance and to absorb the lessons of early successes and failures. Social technologies, after all, raise new sensitivities, seeking to breach organizational walls and instill more collaborative mind-sets.

Stay current on your favorite topics

McKinsey’s long-running research into enterprise use of social technologies provides a unique vantage point for examining the nature and pace of this evolution. Surveys of more than 2,700 global executives over each of the last ten years have probed technology diffusion within organizations and the patterns of technology adoption.1

Our review of survey data spanning the years 2005 to 2015 suggests three distinct, progressively more sophisticated phases of usage. Companies in our sample began with trial-and-error applications—for example, using social platforms such

The cause of tech start ups are staying private

Will the tech unicorn go the way of the dodo? It depends on a number of factors. In this episode of the McKinsey Podcast, McKinsey partners David Cogman and Kara Sprague talk with McKinsey’s Simon London about why dozens of billion-dollar technology start-ups in Silicon Valley and elsewhere are choosing not to go public—and whether the unicorn phenomenon is cyclical or here to stay. An edited transcript of their conversation follows.

Podcast transcript

Simon London: Welcome to this episode of the McKinsey Podcast. I’m Simon London, an editor with McKinsey Publishing. Today we’re going to be talking about unicorns, the new breed of companies valued at a billion dollars or more, but which remain in private hands. The first unicorn didn’t appear until 2009. But today, there are more than 100 worldwide.

Anatomy of a unicorn: Why tech start-ups are staying private

To discuss the issues, I’m joined today by Kara Sprague, a McKinsey partner based in San Francisco, and also by David Cogman, a partner based in Hong Kong. Kara and David, thanks for joining today.

Simon London: Perhaps we should start by defining our

Data enablement for the common good

By virtue of their sheer size, visibility, and economic clout, national, state or provincial, and local governments are central to any societal transformation effort, in particular a digital transformation. Governments at all levels, which account for 30 to 50 percent of most countries’ GDP, exert profound influence not only by executing their own digital transformations but also by catalyzing digital transformations in other societal sectors

The tremendous impact that digital services have had on governments and society has been the subject of extensive research that has documented the rapid, extensive adoption of public-sector digital services around the globe. We believe that the coming data revolution will be even more deeply transformational and that data enablement will produce a radical shift in the public sector’s quality of service, empowering governments to deliver better constituent service, better policy outcomes, and more-productive operations.

The data revolution enables governments to radically improve quality of service

Government data initiatives are fueling a movement toward evidence-based policy making. Data enablement gives governments the tool they need to be more efficient, effective, and transparent while enabling a significant change in public-policy performance management across the entire spectrum of government activities. As Exhibit

Digital disruptors on need

Digital disruption isn’t just for hip start-ups. Incumbents can not only compete but actually lead radical industry change if they pay attention to the way their business model is shifting and act boldly in response. In this episode of the McKinsey Podcast, McKinsey partner Chris Bradley and senior partner Angus Dawson talk to Cam MacKellar about the life cycle of digital disruption, what it means for incumbents, and how executives should react. An edited transcript of their conversation follows.

How incumbents become digital disruptors

Both Angus and Chris have recently published articles on digital strategy for McKinsey Quarterly. Chris, along with his colleague Clayton O’Toole, coauthored an article published in May called “An incumbent’s guide to digital disruption.” The article looks at how companies can avoid becoming victims of digital disruption by recognizing crucial thresholds and acting in time. Angus and Chris, thank you very much for spending time with us today.

Cam MacKellar: Chris, it’s clear that the champions of disruption are more often attackers than incumbents. Why is that? And why is it so difficult for incumbents to respond rapidly to disruption?

Chris Bradley:

Tips for Strategy under uncertainty on your business

At the heart of the traditional approach to strategy lies the assumption that executives, by applying a set of powerful analytic tools, can predict the future of any business accurately enough to choose a clear strategic direction for it. The process often involves underestimating uncertainty in order to lay out a vision of future events sufficiently precise to be captured in a discounted-cash-flow (DCF) analysis. When the future is truly uncertain, this approach is at best marginally helpful and at worst downright dangerous: underestimating uncertainty can lead to strategies that neither defend a company against the threats nor take advantage of the opportunities that higher levels of uncertainty provide. Another danger lies at the other extreme: if managers can’t find a strategy that works under traditional analysis, they may abandon the analytical rigor of their planning process altogether and base their decisions on gut instinct.

Making systematically sound strategic decisions under uncertainty requires an approach that avoids this dangerous binary view. Rarely do managers know absolutely nothing of strategic importance, even in the most uncertain environments. What follows is a framework for determining the level of uncertainty surrounding strategic decisions and for tailoring strategy to that uncertainty.

How to Unbundling your corporation

The computer industry was dominated by huge, vertically integrated companies such as IBM, Burroughs, and Digital Equipment. With their vast advantages of scale and huge installed base of users, these companies seemed to be unassailable. Yet just ten years later, power in the industry had shifted: the behemoths were struggling to survive while an army of smaller, highly specialized companies was thriving. What happened?

The industry’s transformation can be traced back to 1978, when a then-tiny company, Apple Computer, launched the Apple II personal computer. The Apple II’s open architecture unlocked the computer business, creating opportunities for many new companies that specialized in producing specific hardware and software components. Immediately, the advantages of the generalist—size, reputation, integration—began to wither. The new advantages—creativity, speed, flexibility—belonged to the specialist.

The story of the computer industry illustrates the crucial role that interaction costs play in shaping industries and companies. These costs represent the money and time expended whenever people and companies exchange goods, services, or ideas.1The exchanges can occur within a company, among companies, or between a company and a customer, and they can take many everyday forms, including management meetings, conferences, phone conversations, sales calls, reports, and memos.

What’s the cause of acceleration factor

When we plotted the results, we found that only 13 percent of the teams demonstrated superior ability to accelerate (all four stakeholder groups rated the team above the threshold). Some 29 percent showed some ability to accelerate (three groups rated the team above it). Of the remaining teams, 31 percent were described as coasting, 19 percent as lagging, and 8 percent as derailing (none of the stakeholder groups rated the team above the performance threshold). Of the 16 factors we studied, we found the widest differences between the highest and lowest performers in five areas. Here, we discuss those differences and make suggestions to close the gap:

1. The team is willing to fail fast. Accelerating teams try new ideas and emphasize speed over perfection. They embrace risk, but mitigate it by finding out quickly what works and what doesn’t. Poorer-performing teams are slow to adapt and tend to avoid risk, sacrificing innovation for safety

Some remedies: When confronting a difficult decision, teams should conduct a premortem about what could go wrong and why. Teams should also formalize the sharing of what they learned from mistakes so it becomes collective knowledge, enabling faster action. Teams can also

How to improve your digital leaders

So, if your job title doesn’t include the words information, technology, ordigital, how do you stay current? And how do you ensure your organization isn’t falling behind? Consulting digitally literate kids, grandkids, or Millennial staff for help, as many chief executives tell us they do, won’t cut it. Here are three easy ways to begin boosting your digital acumen:

1. Get hands-on with new technology. Firsthand experience is a great way to better understand how your organization can apply technology to improve processes, better engage with customers, or create new lines of business.Personal exploration with emerging technologies not only adds to your knowledge base, it also puts you in the shoes of customers and employees. This forces you to think about the human experience, which is often ignored as companies think primarily about the strategic or technological implications of their digital projects.

So go ahead: Play Pokémon Go with your kids. Download an AI assistant app. Take a VR walk-through of your kitchen remodeling project at the home improvement store. Or tinker with Internet of Things devices for your home like smart locks or automation hubs. What you learn in the process may surprise you.

2.

Legal Perspective On Wellness Programs

To provide companies with some legal perspective, the authors of a new studyanalyzed several recent ADA-related court challenges to corporate wellness programs filed by the Equal Employment Opportunity Commission (EEOC). For example, Orion Energy Systems offered to pay its employees’ health insurance premiums if they signed up for its wellness program — which required participants to get blood tests and divulge their medical history — but charged them the full premium if they declined. One employee who refused to participate was fired two months later. This caused an EEOC attorney to contend that the voluntary wellness program wasn’t exactly voluntary and that it violated the law because “having to choose between responding to medical exams and inquiries — which are not job-related — in a wellness program, on the one hand, or being fired, on the other hand, is no choice at all.” The case is still pending as of August 2016.

Flambeau Inc., a plastics manufacturer, was also challenged by the EEOC over its wellness program, which required employees to complete biometric testing and fill out health-risk surveys; if they did not, they would lose their medical insurance. However, a judge ruled in the company’s favor,