Bain & Co: Leading a Digical℠  transformation

InsightaaS: Bain & Company is one of the world’s leading management consulting firms, employed by senior executives at major corporations to help them to “make better decisions, convert those decisions to actions, and deliver the sustainable success they desire.” Even by those high standards, this post stands out. In it, Bain takes a step back from the mass of analysis that is being produced on digitization of existing business processes, and instead focuses on the “digical” world – the connections between digital and physical activities that respond in the highest-value ways to customer needs and business opportunities. According to the authors, “Every industry will undergo some degree of Digical transformation. Virtually every company will have to respond. The threat is great, but so is the opportunity: A strategy that fuses the best of both digital and physical worlds is likely to generate the greatest value for the foreseeable future.”

The post provides a very rich resource for senior management in virtually every business. It includes an industry assessment showing current and projected degrees of Digical disruption by industry, and uses retail as an example of how these trends are playing out. It highlights the lack of management expertise available to address “Digical innovations,” lampooning leaders who believe that “everything will be OK as long as they keep doing a good job in their traditional business.” And it provides a roadmap of sorts, defining “beginners,” “intermediates” and “experts,” and indicating the steps necessary to advance from one level to the next.

The basis of the segmentation and advice is described in this methodology overview: “We recently reviewed the experience of some 300 companies engaged in Digical initiatives. Our sample covered a full range of industries, from those that won’t soon see much digital-physical transformation, such as construction, to those that have already been dramatically (and traumatically) transformed, such as media. We examined companies at every stage of evolution within these industries, and we carried out longitudinal studies of their transitions over time to understand the changes and conditions that led to positive and negative results. We also reviewed the relevant literature and conducted interviews with executives in leading organizations.” With this depth of perspective, it is little wonder that Bain’s conclusions are used to shape the thoughts of senior managers around the world.

The digital revolutions we have experienced in the last few decades are nothing short of miraculous. In fact, the changes have been so dramatic that some have predicted the demise of physical commerce entirely. “The retail guys are going to go out of business, and e-commerce will become the place everyone buys,” declared Netscape cofounder and venture capitalist Marc Andreessen. Author Brett King argues that branch banks are headed the way of book and record stores: “By 2016, the average user of banking services will be using digital services 300 times for every physical interaction with their bank.” One can imagine similar arguments about entertainment (who needs movie theaters or concerts?), about routine medical services (the doctor diagnoses your condition through remote sensing and sends the prescription to your e-pharmacy), and even about the production and distribution of goods (“dark” factories and warehouses, staffed entirely by robots).

And yet, straight-line extrapolations of digital dominance miss some important insights. We humans are physical and social beings. We like to go out, to interact in person with other people, to touch and handle and make things. Besides, any straight-line extrapolation assumes that changes in the business ecosystem will continue predictably in the direction of the current curve, when in fact rapid evolution creates unexpected opportunities and new competitive dynamics. Look at movie theaters: People have been predicting their demise for nearly 70 years. In principle, we could easily watch all of our movies at home, streamed digitally to a big-screen TV. In practice, theater owners and others in the business have devised a variety of attractions–better seating, innovative projection and sound technologies, full-service theater-restaurants– to lure us off our couches. US theater attendance has declined a little over the last decade, but it is still nearly three times as large as attendance at all theme parks and major sporting events combined. Profitable theaters will almost certainly coexist with more home viewing in the foreseeable future. You can’t watch an IMAX in your living room or on your mobile device (yet).

The truth is that both the digital world and the physical one are indispensable parts of life and of business. The real transformation taking place today isn’t the replacement of the one by the other, it’s the marriage of the two into combinations that create wholly new sources of value. This is a phenomenon we at Bain call DigicalSM, and it is likely to reshape not only the way people live, but the way companies operate…

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