Dr. Jürgen Meffert is a Senior Partner in the McKinsey Düsseldorf office. He is both the Director of Digital McKinsey in the area of B2B, and founder of McKinsey's initiative for SME growth companies. He advises several leading global firms in the telecommunications, high-tech, and media industries, and has overseen extensive transformation programs in various fields, from growth and innovation strategies, marketing, and sales through to processes and organization.

Anand Swaminathan is a Senior Partner in the McKinsey San Francisco office. He is a leader at the intersection of Digital McKinsey and McKinsey New Ventures and focuses on helping organizations across industries leverage technology and digital capabilities to evolve their operating models, transform their businesses to effectively serve their customers, and scale operations efficiently. For over 20 years he has focused on serving clients in the financial services, technology, retail, and industrial sectors. In 2015 Anand was named to Fortune magazine's 40 under 40 most influential young people in business.

Preamble: Thinking Digital ix

1 Digital Is Changing Our World, Quickly and Irreversibly 1

1.1 What Is a Digital Transformation? 1

1.2 Established Market Definitions Don't Apply Anymore 7

1.3 The Pace of Change Is Increasing Exponentially 11

1.4 Those Who Turn a Blind Eye to Digital Risk Failure and Extinction 13

2 Digitization Requires Fundamental Renewal: Digital@Scale 15

2.1 Why? Things Are Going Well, So Why Do We Need to Change? 16

2.2 What? What Does Digitization Mean for My Company, and What Priorities Are Derived? 20

2.3 How? How Do I Manage the Tasks Resulting from a Digital Transformation? 22

2.4 Cargo Cults Don't Work 23

3 Why? The Clock Is Ticking 26

3.1 Creating a Sense of Urgency: How Urgent Is Digitization? 27

3.2 Determining the Kind of Change Required 33

3.3 Identifying Relevant Assets 37

3.4 Determining the Aspiration Level for the Transformation 40

Conclusion: Bring on the New Ecosystems 41

4 What? Doing the Right Things Intelligently 42

4.1 Always Online, Gladly Electric, Often on Autopilot: Mobility in the Digital Age 45
Aamer Baig and Gianluca Camplone on the future of motoring.

4.2 Digital Commerce: One Channel Is No Longer Enough-Today's Mobile Customer Blithely Switches between the Real and Virtual Worlds 53
Kelly Ungerman on the future of retail.

4.3 Who Still Needs Banks? Fintechs Threaten the Established Business Model 60
Somesh Khanna, Vik Sohoni, and Michael Bender on the digital future of the finance industry.

4.4 Digital Health: The First Innovation in Health Care That Can Reduce Costs in the Long Term 66
Sri Velamoor and Basel Kayyali on the rocky road to the digitization of health care.

4.5 Connected Buildings 72
Hugo Sarrazin, Kabir Ahuja, and Mark Patel on the buildings and smart homes of tomorrow.

4.6 The Digital Revolution Has Reached Electricity Utilities 82
Adrian Booth, Mark Patel, and Naveen Sastry on the strategy of utilities in response to the digital intruders in their core markets.

4.7 Telecom Giants under Pressure: Who Will Be at the Heart of the Emerging Communications Ecosystems? 87
Brendan Gaffey on the distribution battle between hardware manufacturers, content providers, and telecom companies.

4.8 Digital Logistics: The Drone Always Rings Twice 93
David Frank on driverless trucks, fully connected containers, and small drones that deliver packages to our homes.

4.9 E-Government: Public Administration Goes Online 99
Martin Lundqvist on the digitization of public administration, and what citizens can expect.

Conclusion: Opportunities in the Emerging Ecosystems 104

5 What? Developing Business Architecture 105

5.1 Omnichannel: A Presence across All Channels 106
Lareina Yee and Martin Harrysson describe how companies leverage all sales and communication channels to the maximum.

5.2 Dynamic Pricing: Up-to-the-Minute Prices 112
Ramji Sundararajan on dynamic pricing, and why two people can pay vastly differing sums for the same product, from the same provider.

5.3 Digital Marketing: Tailored Messages across All Channels 117
Brian Gregg on why content is king in digital marketing, and how companies can master the discipline.

5.4 Digital Product Development and Open Innovation: Rethinking Product Development 122
Michael Uhl and Belkis Vasquez-McCall on how digitization is changing development processes in all industries.

5.5 Product Design: Learning from Software Development 127
Florian Weig on how the philosophy of software development is infecting every industry, and what engineers can learn from big data.

5.6 Faster, More Flexible, More Efficient: Supply Chain 4.0 133
Enno de Boer and Sumit Dutta on how digitization is changing every point in the supply chain.

5.7 Digital Lean: The Digitization of Production 140
Varun Marya and Gianluca Camplone on the five fundamentals of digital production.

5.8 Digitization in the Office: Bots Take the Reins 146
Alexander Edlich on the automation of administration.

Conclusion: Digitization Is Changing Every Function in the Company 151

6 What? Strengthening the Foundation 152

6.1 Two-Speed IT: Accelerating the Pace for the Digital Age 153
Naufal Khan on the new challenges for IT, and how companies from the analog age can meet them.

6.2 Big Data and Advanced Analytics 157
Holger Hürtgen on the path to better, data-driven decisions.

6.3 Cyber Security: The Art of the Secure Digital Economy 163
James Kaplan on the seven steps toward effective safeguards against hacking.

6.4 Embedded Software: Machines and Equipment Go Digital 168
Mark Patel on the five guiding principles that can help traditional hardware manufacturers develop a software strategy.

6.5 The Chief Digital Officer: A Steve Jobs for Every Company 172
Steve Van Kuiken discusses the art of the digital transformation with CDOs.

6.6 The Digital Organization: All Power to the Multifunctional Teams 176
Julie Goran on autonomous teams, agile sprints, and product owners.

6.7 Talent Management: Everyone Wants Digital Natives 181
Hugo Sarrazin and Satty Bhens on the upheavals in the labor market and the strategies deployed in the battle for scarce talent.

6.8 Partner Management: Stronger Together 185
Anand Swaminathan on the art of managing a collaborative network.

7 How? Decisive, Holistic, and Rapid Implementation 190

7.1 Creating a Plan 194

7.2 Think Big: Digitizing the Entire Enterprise 195

7.3 Surprise! It's about the Customer 199

7.4 Breaking Up Functional Silos 203

8 How? Ramping Up the Digital Company 210

8.1 Switching to the Digital Operating System 211

8.2 Anchoring the Culture Change 216

8.3 Steering Change 219

8.4 Encouraging Leadership at All Levels 222

9 How? Scaling Forcefully 226

9.1 It's about the Whole 227

9.2 How to Turn IT into a Weapon 228

9.3 Collaborating Closely with Start-Ups 231

9.4 Speed as a Guiding Principle 233

9.5 Rapid Scaling: Digitizing the Entire Enterprise 234

Conclusion: The Digital World Demands a New Way of Thinking 240

10 Are We in Good Shape for the Transformation? 242

About the Authors 251

Special Thanks 261

Index 262