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Strategy at the speed of digital

To succeed in the digital age, companies need to significantly raise their metabolic rate

In this episode of the Inside the Strategy Room podcast, we share McKinsey research on how fast and boldly companies need to move to win in the digital era, and describe some common pitfalls in digital strategy and ways to avoid them. This is an edited transcript. For more conversations on the strategy issues that matter, subscribe to the series on Apple Podcasts or on Google Play.

39:45 Audio ” Strategy at the speed of digital” in https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/

Podcast transcript

Sean Brown: From McKinsey’s Strategy and Corporate Finance Practice, I’m Sean Brown. Welcome to Inside the Strategy Room. In this episode we discuss how digital leaders execute strategic moves with a speed and power that far exceeds those of their peers. I’m joined by co-authors of a recent McKinsey Quarterly article, “The drumbeat of digital: How winning teams play.” Tanguy Catlin is a senior partner in our Boston office who focuses on digital strategy and insurance clients. Laura LaBerge, based in Stamford, Connecticut, is a member of our digital strategy team. It’s my pleasure to welcome you both.

Laura, let me start with you. You and Tanguy previously wrote about pitfalls that cause digital strategies to fail. How does this new research expand on that?

Laura LaBerge: We started by looking into what is really known about disruption. It isn’t new—it’s been happening for centuries. Prior to digital, incumbents typically experienced a survival rate of less than 20 percent during extreme disruptions. So, we asked more than 2,000 organizations how well prepared they felt to navigate the current change, and 92 percent did not feel their current business model would be economically viable as digitization progressed. Tanguy and I wanted to understand why digital is so hard. We looked at organizations attempting large digital transformations and surveyed thousands of companies implementing digital change at various scales and with various degrees of success.

[…]

Sean Brown: Given this winner-takes-all scenario, how should an incumbent invest in digital? It seems to imply that you have to go big or go home.

Tanguy Catlin: You’re exactly right. Companies need to move faster and be bolder. Bolder might mean repositioning yourself on the chess board, and that involves M&A—both acquisitions and divestitures. And it’s a game of musical chairs, so you need to make sure there are still chairs for you and move faster toward your objective.

Laura LaBerge: Not only do you have to move faster but move first. Even five years ago, being a fast follower versus being first mover—there were differences between those strategic postures, but the outcomes were not drastically different. Now, being a first mover or extremely fast follower is starting to have significant economic benefits. Part of the reason is the rate at which organizations can learn with digital. In the past, it was often six months after a product launch that you would do the postmortem to understand what was working and what wasn’t. Now you can have three-day iterations. This causes is a rapid divergence. The first mover, rather than being on version 2.0 when someone offers a me-too product, is on version 40. This, combined with network effects, gives first movers a huge advantage. If you are first to lock in strategic partnerships, in many cases, just from a scale perspective, you win.

[…]

Sean Brown: What implications does your research have for midsize companies that may not have the resources to pursue large-scale M&A to acquire digital capabilities?

Laura LaBerge: Actually, a large percentage of the companies we surveyed were midsize organizations. Obviously, they are not doing M&A on the same scale as some huge incumbents, but we also saw that when M&A isn’t an option, partnerships are. You can partner in more strategic ways to gain digital capabilities.

Tanguy Catlin: The emergence of ecosystems creates many opportunities, just as eBay created a marketplace that all of a sudden allowed small and midsize enterprises a way out of competing on marketing to get exposure to customers. You don’t need to be the architect—the eBay—of the ecosystem and still find a marketplace that allows you to reach millions of customers.

About the authors: Sean Brown is McKinsey’s global director of communications for strategy and corporate finance and is based in the Boston office, where Tanguy Catlin is a senior partner; Laura LaBerge is a senior expert in the Stamford office.

More: www.mckinsey.com/business-functions/

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Understanding the leader’s ‘identity mindtrap’: Personal growth for the C-suite

Millions of years of evolution have shaped our brains, with nature selecting for many adaptive and energy-saving, if imperfect, shortcuts. Some are easy to spot—for example, how we systematically fall for optical illusions and how our loss-aversion reflex biases our choices. Other ancient shortcuts trip us up in subtler, more personal ways.

A CEO named Hans experienced this firsthand as he debriefed his executive team on what he’d learned at his leadership retreat. Hans gestured to a printout—a feedback report drawn from a combination of psychometric tests and 360-degree feedback. He told the team that the report found him intelligent, passionate, and purpose led. However, he added, he was also seen as too controlling, prone to quick judgments, and mostly certain of the rightness of his own opinions.

Hans jammed the papers back into his folder. “So you can see,” he noted with a somewhat rueful smile, “these assessments have shown me the ways I am difficult to work with. I have become aware of the reasons behind some of these challenges, and I want you to know that I am grateful to you for putting up with them.” He paused momentarily before adding, “I am delighted to say that with this new information, it will be easier for all of us as you are able to stretch your styles to work within my complications for the good of the work we all care so deeply about.” Hans smiled graciously at the team and moved to the next agenda item.

If Hans’s reaction strikes you as defensive, or perhaps just unthinking, then you’d be partly right. As we will see, it was a deeply human reaction. From our work with Hans, we know him to be a respected, intelligent, and generally well-liked CEO. In that moment, however, he was unconsciously protecting his ego and identity, as all of us do when we feel them come under threat. Hans held a view of himself as a tough, confident, and decisive—if rough-around-the-edges—leader. He knew what it took to get things done. He also didn’t believe that changing himself was possible. Instead of wasting time trying, he wanted to get back to business.

As Hans would come to learn, however, this fixed projection of his identity and his visceral defense of it were unconscious shortcuts that can point leaders in exactly the wrong direction when we face ambiguity. We call it the “identity mindtrap” and have seen it trip up executives all by itself or in combination with other shortcuts. In this article, we describe how the identity mindtrap can blind us to valuable personal-growth opportunities and how a more expansive view, grounded in the principles of adult development, can help us recognize our potential and improve the odds of seizing it. The results not only are personally beneficial—helping us lead with more ease and empathy and improving our ability to deal with complexity—but can also help our teams and organizations thrive in an uncertain, rapidly changing world.

Three questions to help you grow

Interviews, written assessments, and other instruments can help orient us on the map of our development. Self-awareness is the torchlight for walking through this terrain. Over years or decades, we can see and understand the patterns and large shifts described in this article, but we live them in a series of tiny moves. In these moments, things we were once blind to become assumptions we can see and make decisions about. We can help prompt this form of developmental self-awareness by asking ourselves three vital questions:

1. Why do I believe what I believe? We often confuse our beliefs with the truth and rarely question how we came to hold them. To break this pattern, stop looking for evidence to support your beliefs and instead try looking for their sources. Did a belief come from an external authority in a socialized way? Did you write it yourself, basing it on your principles or values? As you examine your system of beliefs, you can begin to shift your attachment to your current form of mind. For example, you might find that your belief that “loyalty is paramount” was inherited from your father in a socialized way because loyalty mattered most to him.

2. How could I be wrong? This question isn’t meant to help you make your beliefs bulletproof but rather to open them up so that you recognize other ways of seeing the world that might be helpful to you—and might be as true as your own vision. For example, if you question your socialized view of loyalty, you might see how loyalty to an outside cause can blind you or others and generate mistakes that eventually hurt the cause. The discomfort you feel at this process (“I can’t be wrong!”) means you’re on the right track. Keep going; this practice creates psychological flexibility and opens us up to new possibilities. When used in the right way, this question is a high-energy packet of developmental goodness.

3. Who do I want to be next? This question is a beacon in the distance for all of us. We often consider what we want to do next or what we want our next career move to be, but we rarely consider who we will be next. Will we be less reactive? Will we have a bigger view? Will we be less oriented to our achievements? If we have a sense of this new person we are growing into, it will be easier to spot—and avoid—the identity mindtrap and continue to walk through our development path with grace.


Our world is changing faster than our biology can adapt. Mindtraps that once helped minimize distractions from ancient challenges are unhelpful in addressing modern ones. Fortunately, our minds can evolve faster than our genomes and can be intentionally developed through practice. Our reflex to protect our egos never leaves us, but as we ask ourselves different questions, we can discover—and follow—a development path that enriches us as human beings and ultimately benefits our teams, organizations, and even the world.

And not a moment too soon. Some of the organizational, environmental, and geopolitical issues before us represent the biggest and most complex challenges human beings have ever faced. By avoiding the mindtraps, and participating more fully in our own evolution, we can generate the collaboration and new ideas needed to solve these challenges.

About the author(s)

Jennifer Garvey Berger is the CEO of Cultivating Leadership; her latest book is Unlocking Leadership Mindtraps: How to Thrive in Complexity (Stanford University Press, 2019). Zafer Gedeon Achi is a partner at Cultivating Leadership and a director emeritus at McKinsey.

More: https://www.mckinsey.com/

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2019: Office market trends in Poland

Record value of investment transactions and demand for space proves excellent shape of the office segment in our country

In 2019, we could observe further intense development of the office market in Poland. The most dynamic development of the office real estate segment is visible in Warsaw, which has outperformed regional markets in terms of demand. Walter Herz analysts predict that this year will close with the best-ever result in terms of the amount of space leased on the capital market. This year, we have already seen record lease transactions in Warsaw. mBank has leased 45.6 thousand sq m of office space in Mennica Legacy Tower, whereas Orange Polska renewed its lease of nearly 45 thousand sq m. of offices in Miasteczko Orange.

Clear changes in all of the largest office centers in Poland can also be seen in the demand structure, where the share of pre-let contracts is increasing. In regional cities, pre-let already covers a third of the leased space. In Warsaw, most offices under construction are already secured by contracts.

Bartłomiej Zagrodnik, Managing Partner at Walter Herz notes that today we are dealing with very high tenant activity on the office market, from both private and public sectors. – Constant demand for offices, not only in large cities, but also in smaller urban centers, in turn, encourages developers to act, rapidly launching other, often spectacular projects. In addition, they are also motivated to initiate new investments by large interest in commercial real estate from various capital markets, including those that so far have been less active in Poland – informs Bartłomiej Zagrodnik.

Walter Herz’s Managing Partner emphasizes that the economic growth seen in the country, an ever wider range of investment products, including primarily AAA class facilities and high demand from tenants foster investments in Poland, as evidenced by the minimum vacancy rate in the office segment. – Not only the Warsaw market is enjoying the investors’ interest, but also regional markets, with this year’s record-high level of investment transactions in the office sector. Cracow, Wrocław and the Tri-City achieve the best results in this respect. This proves good shape of the office segment in Poland – says Bartłomiej Zagrodnik.

Poland is perceived as a stable and mature economy, hence large international funds are increasingly willing to invest with us. Participation in investment transactions increases primarily due to the Asian capital, especially from South Korea. Walter Herz data shows that the value of investment transactions on regional office markets outside Warsaw has already exceeded EUR 1 billion this year, which is the best result in history. In all of Poland, the total sum of transactions involving office buildings after three quarters of this year, exceeds the amount of the entire last year’s volume.

According to Walter Herz, 1.7 million sq m. of office space is currently under construction on the office market in Poland. Among the implemented investments there are also those that impress with their enormity. The largest complex under construction is Warsaw’s Varso, which will offer 110 thousand sq m. of office space. Commissioning of several spectacular office towers in Warsaw, including Mennica Legacy Tower, Widok Towers, The Warsaw HUB and Skyliner is scheduled in the upcoming weeks.

Large facilities that are to offer offices at the highest world level are under construction in the largest business centers in the country. Mixed-use projects, which are often based on the revitalization of historical industrial buildings, are appearing more and more often among them. Mixed-use facilities, such as Warsaw investments Elektrownia Powiśle, The Warsaw HUB, Fabryka Norbina, Browary Warszawskie and Koneser, as well as Łódź-based Fuzja and Monopolis are very popular among tenants. Therefore, according to Bartłomiej Zagrodnik, the upcoming weeks will be a period of intense development of mixed-use investments, which today very often bring about the reconstruction of large fragments of cities, and some of them are under conservation protection.

The coming months will also bring verification of the instant office and co-working space market, which has recently significantly increased its resources in Poland, primarily in Warsaw. Opening several new locations of flexible spaces, including in the Warsaw Hub, Central Point, Varso, Mennica Legcy Tower, Fabryka Norblin and Monopolis complexes, will reveal the real demand for this type of space, which will determine the pace of development of this segment in our country.

Developers have recently put more emphasis on increasingly advanced technological and ecological solutions. Lately, we have been able to observe a number of changes in this area on the office market. Arrangement of new facilities goes towards increasing energy efficiency and reducing the negative impact of buildings on the environment.

Office buildings are becoming, not only more and more comfortable, but also economical. The solutions used in them allow to obtain a good result under multi-criteria certification, in the process of assessing energy efficiency, water management efficiency, the quality of the building’s internal environment, waste reduction and the use of recycling, as well as the quality of materials used for building facilities. Currently available technologies allow creating zero-energy buildings, that is facilities with zero energy consumption and zero carbon dioxide emission. The most modern complexes are striving to confirm their standard with WELL certificate.

The most prestigious buildings are testing systems supporting users in organizing their everyday work. It is possible thanks to smartphone applications that allow customizing light, temperature, humidity in the rooms, booking a conference room, parking space or other services.

About Walter Herz

Walter Herz company is a leading Polish entity which has been operating in the commercial real estate sector across the country. For seven years, the company has been providing comprehensive and strategic investment consulting services for tenants, investors and real estate owners. It provides extensive support for both public and private sector. Walter Herz experts assist clients in finding and leasing space, and give advice when it comes to investment and hotel projects.

In addition to its headquarters in Warsaw, the company has branches in Cracow and Gdansk. Walter Herz has created Tenant Academy, first project in the country, supporting and educating commercial real estate tenants across Poland, with on site courses held in the largest cities in the country. In order to ensure the highest ethical level of services provided, the agency introduced the Code of Good Practice.

Iwona Wiśniewska-Lopez

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Cybersecurity: Linchpin of the digital enterprise

Two consistent and related themes in enterprise technology have emerged in recent years, both involving rapid and dramatic change. One is the rise of the digital enterprise across sectors and internationally. The second is the need for IT to react quickly and develop innovations aggressively to meet the enterprise’s digital aspirations. Exhibit 1 presents a “digitization index”—the results of research on the progress of enterprise digitization within companies, encompassing sectors, assets, and operations.

As IT organizations seek to digitize, however, many face significant cybersecurity challenges. At company after company, fundamental tensions arise between the business’s need to digitize and the cybersecurity team’s responsibility to protect the organization, its employees, and its customers within existing cyber operating models and practices.

If cybersecurity teams are to avoid becoming barriers to digitization and instead become its enablers, they must transform their capabilities along three dimensions. They must improve risk management, applying quantitative risk analytics. They must build cybersecurity directly into businesses’ value chains. And they must support the next generation of enterprise-technology platforms, which include innovations like agile development, robotics, and cloud-based operating models.

Cybersecurity’s role in digitization

Every aspect of the digital enterprise has important cybersecurity implications. Here are just a few examples. As companies seek to create more digital customer experiences, they need to determine how to align their teams that manage fraud prevention, security, and product development so they can design controls, such as authentication, and create experiences that are both convenient and secure. As companies adopt massive data analytics, they must determine how to identify risks created by data sets that integrate many types of incredibly sensitive customer information. They must also incorporate security controls into analytics solutions that may not use a formal software-development methodology. As companies apply robotic process automation (RPA), they must manage bot credentials effectively and make sure that “boundary cases”—cases with unexpected or unusual factors, or inputs that are outside normal limits—do not introduce security risks.

About the author(s)

James Kaplan is a partner in McKinsey’s New York office, Wolf Richter is a partner in the Berlin office, and David Ware is an associate partner in the Washington, DC, office.

More: www.mckinsey.com

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Five routes to more innovative problem solving

Rob McEwen had a problem. The chairman and chief executive officer of Canadian mining group Goldcorp knew that its Red Lake site could be a money-spinner—a mine nearby was thriving—but no one could figure out where to find high-grade ore. The terrain was inaccessible, operating costs were high, and the unionized staff had already gone on strike. In short, McEwen was lumbered with a gold mine that wasn’t a gold mine.

Then inspiration struck. Attending a conference about recent developments in IT, McEwen was smitten with the open-source revolution. Bucking fierce internal resistance, he created the Goldcorp Challenge: the company put Red Lake’s closely guarded topographic data online and offered $575,000 in prize money to anyone who could identify rich drill sites. To the astonishment of players in the mining sector, upward of 1,400 technical experts based in 50-plus countries took up the problem. The result? Two Australian teams, working together, found locations that have made Red Lake one of the world’s richest gold mines. “From a remote site, the winners were able to analyze a database and generate targets without ever visiting the property,” McEwen said. “It’s clear that this is part of the future.”

McEwen intuitively understood the value of taking a number of different approaches simultaneously to solving difficult problems. A decade later, we find that this mind-set is ever more critical: business leaders are operating in an era when forces such as technological change and the historic rebalancing of global economic activity from developed to emerging markets have made the problems increasingly complex, the tempo faster, the markets more volatile, and the stakes higher. The number of variables at play can be enormous, and free-flowing information encourages competition, placing an ever-greater premium on developing innovative, unique solutions.

This article presents an approach for doing just that. How? By using what we call flexible objects for generating novel solutions, or flexons, which provide a way of shaping difficult problems to reveal innovative solutions that would otherwise remain hidden. This approach can be useful in a wide range of situations and at any level of analysis, from individuals to groups to organizations to industries. To be sure, this is not a silver bullet for solving any problem whatever. But it is a fresh mechanism for representing ambiguous, complex problems in a structured way to generate better and more innovative solutions.

The flexons approach

Networks flexon

Evolutionary flexon

Decision-agent flexon

System-dynamics flexon

Information-processing flexon

Putting flexons to work

Flexons help turn chaos into order by representing ambiguous situations and predicaments as well-defined, analyzable problems of prediction and optimization. They allow us to move up and down between different levels of detail to consider situations in all their complexity. And, perhaps most important, flexons allow us to bring diversity inside the head of the problem solver, offering more opportunities to discover counterintuitive insights, innovative options, and unexpected sources of competitive advantage.

About the author(s)

Olivier Leclerc is a principal in McKinsey’s Southern California office. Mihnea Moldoveanu is associate dean of the full-time MBA program at the University of Toronto’s Rotman School of Management, where he directs the Desautels Centre for Integrative Thinking.

More: www.mckinsey.com