In this article, we offer a closer look at how E&C companies can realize benefits like these. hereLearn more about cookies, Opens in new After the app was developed, the team defined a new use case to push safety briefings and alerts through the app so supervisors could disseminate them to teams. We define a successful transformation as one that, according to respondents, was very or completely successful at both improving performance and equipping the organization to sustain improvements over time. Never miss an insight. Discover. Misunderstanding what “Digital Transformation” means, coupled with poor internal alignment, is often why digital efforts fail. Bringing in exciting new technology is great, but it’s … For example, a use case defined as “reduce losses from unrecoverable rework on steel-concrete connections by 10 percent by visualizing fabrication details with 3-D models” is easier to comprehend and act on than a use case defined as “provide access to 3-D models from all devices.”. According to a recent whitepaper from McKinsey’s operations practice, consultants suggest that leaders should consider going against conventional wisdom and bet on massive projects that cut across business units and functions and engage a substantial share of the workforce instead of focusing on one small project after another. Financial Services technology is currently in the midst of a profound transformation… Adjust project baselines to capture value. In more traditional industries, including pharmaceuticals and healthcare, success rates of digital transformation fall between 4-11%. Digital Transformation may be a trending topic today, but the concept of digitizing business processes, products, and services was introduced way back in the early 90s and the 2000s. The difficulties are understandable. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. © 2020 Tech Wire Asia | All Rights Reserved, McKinsey says digital transformation needs to be holistic, not piecemeal, Apple app store labels a win for data privacy culture, After Facebook, China cracks down on big tech under antitrust laws, Long live advertising? He helps small and medium enterprise owners understand what's most important to their company's growth and success. Applying these new techniques requires designers not only to learn technical skills but also to design in new ways. Yet, according to McKinsey, more than 70% of digital transformation projects fail. Our flagship business publication has been … Most E&C companies have embraced the idea of implementing digital technologies and are determined to see their efforts bear fruit. They should closely monitor the effects of each use case while it’s being tested on a pilot project to understand how much they can adjust baselines without jeopardizing subsequent projects. Citing McKinsey again, an earlier survey that also looked at digital transformation found less than one-third of … Digital transformation: The difference between success and failure. To realize the full bottom-line benefit from digital use cases, managers must adjust baselines to eliminate unproductive time and generate value. There is nothing more “core” than competency in this area. To ensure sustained success, companies must also prioritize efforts to define new products and services as well as digitize their operating models. Problems aligning communication between IT and business teams is cited as the central issue for implementation failure, with legacy integration and talent earmarked as other major bottlenecks. People create and sustain change. Digital transformation: Is a little failure okay? For those companies that didn’t fail outright, only 16% saw improvements in their performance and ability to sustain change over the long haul. Focus on fixing pain points, not installing IT solutions. Nike launched a new business unit called Nike Digital Sport in 2010 to take the lead on digital initiatives and create new technological capabilities across the company. The essence of the whitepaper is captured well in its introduction: “Improving the parts improves only those parts, without necessarily reaching the whole. Around the world, E&C companies are upgrading and replacing legacy back-office systems while also implementing new systems and software to increase engineering and field productivity. Portfolio Transformation. Why they fail “Our most fundamental lesson from the past half-dozen years is that average companies rarely have the combination of skills, mind-sets, and ongoing commitment needed to pull off a large-scale transformation,” the authors wrote. For example, real-time progress reporting from the construction site can help ensure that subcontractors raise invoices promptly and accurately. The technology changes but the culture doesn't. In more traditional industries, including pharmaceuticals and healthcare, success rates of digital transformation … In another example, an E&C company used advanced analytical techniques to analyze past tender data and identify ways of optimizing tender selection and pricing. Knowing how much downtime is created will help inform future adjustments to resource levels and schedules. E&C companies can increase the likelihood that digital technologies will make a positive difference by first identifying operational changes that will improve performance, then defining digital use cases that will enable those operational changes. Please click "Accept" to help us improve its usefulness with additional cookies. by . There are reasons for this, but companies can overcome them. A few had succeeded in the pilot phase, but the company had struggled to apply those solutions at scale. The statistics related to digital transformation are disappointing. For E&C companies that have struggled to do more than experiment with tech solutions, the time to redouble their efforts is now. The typical construction project involves a multitude of independent subcontractors and suppliers, which have little incentive to embrace new methods during the brief periods when they are on the job. The majority of companies adopt a digital transformation strategy for digitalizing their existing business ecosystem for competing in the increasingly innovative and disruptive world. Unleash their potential. In a recent study, McKinsey found success rates of transformation efforts to be staggeringly low. Ultimately, the message is that organizations need to re-think their digital transformation strategy. For more on cross-industry challenges, see Jacques Bughin, Tanguy Catlin, Martin Hirt, and Paul Willmott, “, Overcoming pandemic fatigue: How to reenergize organizations for the long run, What’s next for remote work: An analysis of 2,000 tasks, 800 jobs, and nine countries, Reinventing construction through a productivity revolution. What is more, E&C companies that scale up their digital transformations before their rivals do stand to reap the most gains: McKinsey research on digital competition shows that companies that are first to make bold moves, or quickly follow the leads of those that do, create advantages that slower-acting companies find it difficult to overcome. The McKinsey Senior Partner also finds that many organizations aspire to complete great digital transformation projects without the right skills — which ultimately leads to failure. The record of studies on digital transformation indicate a high failure rate, with a notable 2013 McKinsey study finding that 70% fail. Digital transformation Insurance digital transformation myths vs. reality: McKinsey By Sanjay Kaniyar , Krish Krishnakanthan July 13, 2020, 1:01 p.m. EDT Years of research on transformations has shown that the success rate for these efforts is consistently low: less than 30 percent succeed. For more on cross-industry challenges, see Jacques Bughin, Tanguy Catlin, Martin Hirt, and Paul Willmott, “Why digital strategies fail,” January 2018; “Unlocking success in digital transformations,” October 2018; “How the implementation of organizational change is evolving,” February 2018; and “Can IT rise to the digital challenge?,” October 2018. Flip the odds. It requires foundational investments in skills, projects, infrastructure, and, often, in cleaning up IT systems. We'll email you when new articles are published on this topic. 73% of business transformations fail. view of element volumes, which In a recent study, McKinsey found success rates of transformation efforts to be staggeringly low. Leveraging technology and changing an organization’s mindset, … This tech-first approach can lead to digital “organ rejection,” whereby a solution fails to deliver visible benefits, and the workforce, noticing this, does not adopt it. obtain savings. Overall, projects hit delays and ran over budget as frequently as before, and productivity had barely budged upward. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. The McKinsey survey found that the COVID-19 pandemic has significantly accelerated the pace of adoption of digital transformation technologies, as well as other speeding up other business … For example, there is little to gain from compressing the time taken to survey a site if excavators are not in place for employees to start earthworks as soon as the survey is complete. While McKinsey, Accenture and Cap Gemini can sometimes help, … The authors wish to thank Shankar Chandrasekaran and Garo Hovnanian for their contributions to this article. McKinsey Quarterly. McKinsey outlines four digital transformation archetypes (the labels are CFO’s): 1. In our 2016 survey, the rate of success was 20 percent; in 2014, 26 percent; a… We know many E&C companies that cherry-pick digital use cases that apply to just one activity or trade. Managers can capture the benefits of increased productivity in several ways: compressing on-site schedules, reducing noncritical resources, and even restricting overtime. Most digital strategies don’t reflect how digital is changing economic fundamentals, industry dynamics, or what it means to compete. Surveys show that digital transformation projects have a high failure rate — and although leaders continue to pursue the agenda in order to retain market share, maybe there is a better way? Because the industry itself is undergoing a paradigm shift, businesses need to rethink the way they operate. According to a new study from Genpact, more than two thirds of digital transformation projects entered into fail to meet expectations. For IT leaders, the result of each initiative can either be a career maker…or a career breaker. So the key point is – more than 70% large “change programs” fail. However, companies can focus too much on IT, pursuing improvements to systems and software as ends in themselves. NOBODY said digital transformation will be easy. Implement digital use cases that promote collaboration. The success of a transformation will depend greatly on how well a company institutes the new ways of working that technologies enable. The second is overly ambitious project scopes. allowed it to standardize specifications McKinsey reports that less than 30% of companies enjoy true digital transformation success, and only 16% realize improved performance and sustainable changes. This summary is provided as part of our Dialogue on Digital Transformation series.. In effecting such changes, engineering and construction executives must recognize that digital transformation is about more than adopting tech solutions. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. McKinsey says digital transformation needs to be holistic, not piecemeal. Digital Transformation articles by McKinsey is probably one of the most informative libraries on the internet, so we took the liberty to summarize everything important into one single blog. And because the whole doesn’t change, the improvement in the parts themselves isn’t likely to last.”. It is not for the fainthearted, but CEOs are heading in the right direction if they grasp the fundamental importance of heavyweight management commitment, are willing to make significant investments, and set clear, ambitious targets. But despite good intentions and determined efforts to embed digital technologies in operations, E&C companies rank among some of the least digitized businesses. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. The supplier monitored defect reports in the CDE, then ran root-cause analyses with its factory team to diagnose and reduce defects. Our experience shows that adopting the five practices described in this article improves the odds that a digital transformation will yield tangible benefits. Most transformations fail. Please try again later. On average, digital offerings have leapfrogged seven years of progress in a matter of months. This unplanned rework increased labor costs and caused delays. Here’s how to remedy this very common dilemma. and aggregate purchase orders to consolidating cost and schedule data from multiple projects and business units to increase the accuracy of bids for future tenders, thereby increasing the margin, gaining an enterprise-wide view of resources to optimize resource loading and respond quickly when project demands change, creating central repositories for designs at the element, package, and project levels so those designs can be repurposed on future projects. They aren’t alone. On the other hand, where organizations face geographical or technical complexity or see an intensive need to develop capabilities, an iterative approach may be followed using short sprints lasting two-weeks each and a simultaneous thematic deep-dive that lasts up to 12 weeks. Misunderstanding what “Digital Transformation” means, coupled with poor internal alignment, is often why digital efforts fail. For example, one contractor developed an app to allow supervisors to sign completion certificates digitally. Digital transformation (DX) encompasses how organizations employ technology to re-imagine and re-invent their processes and offerings to achieve a competitive advantage across the business. For example, generative design tools, which automatically propose a range of design options in accordance with user-defined specifications, can radically reduce the time it takes to develop designs. The reported failure rate of large-scale change programs has hovered around 70 per cent over many years, according to McKinsey. Reskill and restructure engineering teams. Our flagship business publication … However, ultimately the phrase “you get what you pay for” holds true, and only firms willing to truly commit to the investment needed will be able to pull off a digital transformation. Earlier this year, the global strategy consulting giant surveyed around 900 C-suite executives and senior managers at businesses around the world, aiming to track digital transformation … Learn about Hence, cross-functional transformation projects that get different parts of the business involved, impact both the top and the bottom line, and involve more of the workforce tend to have a big impact overall. The first is poor communication between IT and the rest of the business. After spending five years and countless sums on trialing new software platforms and ways of working, the executive team at a large contractor was nearly ready to call an end to its digital-transformation program. This approach requires close collaboration among the organizations working on the project as well as clear communication about the project plan, especially with new workers who are accustomed to a slower pace of execution. A failed digital transformation doesn’t spell the ultimate end of a company, but it can be incredibly costly in lost money, resources, time and credibility. Many of the E&C executives we speak to say their companies have seen some productivity gains from digitization but little impact on the bottom line because the savings from added productivity don’t make up for the cost of implementing new software and systems. The social and economic upheaval of the last year has shown the value of digital transformation in business. McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Design. … Companies can also change contracts and incentives to share benefits and risks appropriately across the value chain. E&C companies with internal design functions should equip themselves with new technical skills—for example, by hiring developers to build standard libraries of design elements and automate certain parts of the design process. In digitally savvy industries (high tech, media, and telecom), the success rate is less than 26%. In one McKinsey survey, just 16 percent of respondents said their organizations’ digital transformations had delivered sustainable performance improvements. The result is a proliferation of subscale, often competing tools within a single company. But if E&C companies put compelling incentives in place, then cross-cutting use cases can unlock significant value despite the industry’s fragmentation. Whatever the findings are from these efforts, project managers should document them so future projects can replicate effective methods of adjusting baselines. Why Digital … For example, organizations with high transformation competency looking at projects with low complexity in the environment or ecosystem should take a “big bang” approach to implementation and look at a project duration of 24 to 32 weeks. We use cookies essential for this site to function well. tab. Here is a summary of some of their most important advice around this topic: Digital transformation … This article focuses on the latter type of change. Scenarios such as this remain all too common in the engineering and construction (E&C) sector, which is one of the world’s least digitized. For established companies, the pressure to digitize business models and products has reached new intensity.McKinsey research shows that the best-performing decile of digitized incumbents earns as much as 80 percent of the digital revenues generated in their industries.Ascending to that elite group is far from easy. ~70% of digital transformation projects fail according to Mckinsey. McKinsey reports that less than 30% of companies enjoy true digital transformation success, and only 16% realize improved performance and sustainable changes. Yet 70% of digital transformation initiatives fail, according to McKinsey research. Historically, site workers hadn’t sent feedback to a supplier on all defects in the elements that the supplier was making. When we assessed construction companies that successfully implemented digital technologies and ways of working, we found that, despite differing conditions, their transformations had five practices in common, from which other E&C companies embarking on similar transformations may learn: For a digital transformation to be successful, executives and managers must start with a clear definition of how digital will create value for the business (see sidebar, “Defining digital transformation in engineering and construction”). Defects persisted, so workers needed either to fix defective products or to wait for replacements. Projects vary greatly, so E&C companies often struggle to develop tools and methods they can apply repeatedly. ... today’s competitor may turn out to be a partner or “frenemy.” Failure to grasp this means that you will miss opportunities and underplay threats. But these factors don’t explain entirely why digital transformation in the E&C industry is so hard. Yet we are also seeing an increasing number of E&C companies overcome these challenges to transform projects or even business divisions digitally. Common challenges include unclear definitions of what digital means, an indistinct idea about what the transformation should accomplish, and poor integration of digital tools with business processes. Digital upends old models. collaboration with select social media and trusted analytics partners But if the labor force isn’t streamlined or reassigned to other activities, then workers will end up waiting during the time they would have spent on rework, and the costs will still accrue. When planning the approach to the multiyear digital transformation journey, break the project into short-term projects and goals that can deliver measurable results aligned with the vision and strategic intent. “Reinventing construction through a productivity revolution,” McKinsey Global Institute, February 2017. The think tank believes that organizations must assess their own transformation competency and environmental complexity before making a decision. More commonly, individual teams and business units will develop their own digital solutions, without coordinating with others. Connect projects to unlock impact across the enterprise. Digital technologies have introduced profound changes to engineering design. 95% of digital transformation projects fail to achieve their aims according to Bain’s survey highlighted above The … Jan Koeleman is a partner in McKinsey’s Amsterdam office, Maria João Ribeirinho is a partner in the Lisbon and Madrid We call these sprints or phases. Please use UP and DOWN arrow keys to review autocomplete results. We often see E&C companies deploy cutting-edge technology tools before they have figured out whether and how those tools can improve their operations. Since the whitepaper was created by the think tank’s operations practice, there’s a greater emphasis on helping business leaders understand the scope of such projects in that specific area. McKinsey Quarterly. After spending five years and countless sums on trialing new software platforms and ways of working, the executive team at a large contractor was nearly ready to call an end to its digital-transformation program. Teams need not take a leap of faith when adjusting baselines. 3 ways social media is monetizing today, Solid-state batteries could speed up the roll-out of EVs, AVs, Asian business well placed to drive post-crisis comeback with data, 5G. Das McKinsey Digital Lab in Berlin sowie acht weitere Digital Labs weltweit sind spezialisierte Kompetenzzentren, die Strategieberatung mit Design-, Agile- und Technologieexpertise vereinen. To counter the challenges described above, E&C companies must be thoughtful in the ways they approach their digital transformations. Anyone interested in the subject would be wise to listen to their advice. Even for digital-first industries like high-tech, media and telecom, only 26% saw success. Published on October 19, 2016 October 19, 2016 • 156 Likes • 20 Comments 2 Source: Shutterstock. These failed transformations show common missteps, but the companies behind them prove that failure isn’t the end of the road and that successful digital transformation is possible. Digital Transformation Is About People. The following characteristics of the construction industry make digital transformation particularly challenging: These characteristics of the E&C industry make it harder for companies to develop digital solutions that they can apply to multiple projects. This will often be after it has scaled the project-level use cases developed in the first pilots and stabilized them across the business. This way of working will create capacity for designers to focus on more intellectually challenging problems, such as reviewing and refining generative designs, for which engineering brainpower is irreplaceable. As technology leaders, we have a tremendous challenge before us. To set a digital transformation on the right course a company must place it at the core of its agenda, and understand the magnitude of that undertaking. The digital transformation market is expected to grow at a CAGR (compound annual growth rate) of 23% from 2019 to $3.3 trillion by 2025. Previously, the company had sourced similar products from different suppliers. Such a change requires that designers adopt a new mindset, using their experience to validate model results and to look for opportunities for standardization and repetition. Gernot Strube is a senior partner in the Munich office. But the biggest failure factor is NOT what you think! And construction work often takes place in remote, harsh environments that are not well suited to hardware and software developed for the office. As the world becomes more digital and more volatile, survival itself becomes less certain. Concentrating on business processes must not stop after the first wave of use cases. The resulting improvement, a 12 percent reduction in rework hours at the contractor’s job site, demonstrated the benefit of smoothing communication between these previously disconnected organizations. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. 1 Not all digital… The creation of use cases is an ongoing effort, and new opportunities for improvement often emerge once first-wave use cases are in place. Nike launched a new business unit called Nike … Why Digital Transformations Fail The Two Big Reasons That Digital Transformations Fail Results from a study of 1,350 companies. The creation of use cases is an ongoing effort, and new opportunities for improvement often emerge once first-wave use cases are in place. Subscribed to {PRACTICE_NAME} email alerts. GE They should also start to adopt digital ways of working, shifting from a traditional, linear design process to a more agile approach that consists of faster iteration in short test-and-refine loops. Reinvent your business. David Foote from Foote Partners gets it exactly right: “Clearly the … tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. 1. Research by the McKinsey Global Institute indicates that digital transformation can result in productivity gains of 14 to 15 percent and cost reductions of 4 to 6 percent. Broadly, a digital transformation involves two types of change: business-model innovation, whereby companies introduce digitally enabled products and services, and operational improvement, whereby companies apply advanced technologies and ways of working to enhance the development and delivery of projects. But developing narrowly targeted use cases usually means that E&C companies miss out on a valuable opportunity: stemming the large efficiency losses that can occur because information isn’t transmitted effectively during handoffs between trades and functions. 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