McKinsey: The road to recovery is paved with data
A wave of innovation in digital technology has been unleashed by the global pandemic, reports McKinsey & Company.
While COVID-19 has launched the greatest behaviour change in a lifetime, business leaders are saying they have accomplished in 10 days what used to take them 10 months.
“That kind of speed is what’s unleashing a wave of innovation unlike anything we’ve ever seen,” said Kate Smaje, Senior Partner and Global Co-Leader, McKinsey Digital.
Although the pandemic is a full-stop on business as usual, it has become a launch pad for organisations to become virtual, digital-centric and agile according to the new report from consultants McKinsey & Company.
“This great digital migration has forced every company into a massive experiment in how to be more nimble, flexible and fast. For many organisations they have been pleasantly surprised by how quickly they have moved to digital, said Smaje.
The acceleration of digitisation: How six companies are leveraging technology and data to transform themselves, is an in-depth report from McKinsey & Company which highlights that the road to recovery is paved with data.
Five points stood out for companies who are winning the digital transformation:
- Digital speed. Leading companies just operate faster, from reviewing strategies to allocating resources.
- Ready to reinvent. Business-as-usual is a dangerous posture. Leading businesses are investing in upgrading the core of their business as they are in innovation, often by harnessing technology.
- All in. These companies are not just making decisions faster; the decisions themselves are bolder. From major acquisitions (leaders spend three times more than their peers) and capital bets (leaders spend two times what their peers do).
- Data-driven decisions. “The road to recovery is paved with data,” Smaje says. High-performers are three times more likely to say their data and analytics initiatives have contributed at least 20% to EBIT (from 2016–19).
- Customer followers. Being “customer centric” (in addition to operational and IT improvements) can generate economic gains ranging from 20% to 50% of the cost base.
But now business leaders are asking: How do we bottle the stuff that worked? Even before the crisis, 92% of leaders felt that their business model would not remain viable through the current rates of digitalisation.
“But now everything has just sped up. Banks like Goldman Sachs, with 150 years of legacy, are acting fast to define new personal digital ecosystems,” said Smaje.
Power of reinvention
Harit Talwar, Global Head of Marcus by Goldman Sachs said the pandemic strongly reaffirmed their business model of digital combined with a strong balance sheet. Marcus is Goldman Sachs consumer business, an online bank with “a mission to empower millions of consumers to take control over their financial lives”.
“The pandemic has helped us emerge competitively stronger by focusing on customers, employees and our communities, said Talwar.
“During the pandemic we launched our mobile app and we expanded our range of products and services with Apple and we launched a brand-new partnership with Amazon for seller financing. I think the most important thing for companies to strive for in the next normal which is all round acceleration of digitalisation is the mindset,” he said.
According to Smaje we are now living in a “winner takes all world” with one or two top companies in each sector that are winning. The big lesson coming through all of this is the metabolic rate of business has significantly increased.
“Leading companies do not just make bolder decisions they make them much faster,” commented Smaje. This includes three factors:
- Allocating talent
- Investing capital
- Unlocking new operations
Freeport-McMoRan used data and analytics in new and inventing ways – combining the power of Artificial Intelligence (AI) and institutional knowledge.
Harry “Red” Conger, chief operating officer of the Phoenix-based company, said: “Our engineers thought that it was blasphemy that data scientists were proposing that they knew how to run the plant better than they did. But the AI model was telling us how much faster the equipment could run at.”
Real-time data is allowing Freeport to lower operating costs, stand more resilient in tough economic climates (and when commodity prices are falling) and make faster decisions. “A learn-fast culture means we put things into action,” he says. “We don’t sit around thinking about it.”
Speed of digital
RXR Realty, a commercial and residential real estate developer in New York, began investing in digital capabilities even before the pandemic hit.
RXR’s new platform, RxWell, includes a new mobile app that provides information about air quality and occupancy levels of a building, cleaning status, food delivery options and shift times for worker arrivals.
Scott Rechler, CEO of RXR. “We felt that by leveraging our digital skills, we could create a unique and personalised experience for our customers similar to what they’re used to in other aspects of their lives.”
Follow the customer mindset
One of the biggest transformations that occurred throughout the pandemic is how customers shop. Store closings pushed millions of consumers online, many for the first time.
Majid Al Futtaim Retail, a Dubai-based conglomerate that operates the Carrefour chain in the Middle East, Africa and Asia saw online grocery orders explore to 400% higher than in 2019.
“The pandemic pushed us to accelerate our digital transformation. We are implementing in the coming 18 months things we originally said we wanted to achieve in five years,” said Hani Weiss, CEO of Majid Al Futtaim Retail.
When data showed that more capacity was needed, logistics managers quickly arranged to have a 54,000-square-foot online fulfilment centre tent put up and operational in five weeks. Complete with rooms for frozen and chilled food, the facility is now handling 3,000 online orders a day, making it the latest and largest of 75 fulfilment centres launched this year.
“The road to recovery is paved with data, those companies that can harness it best will set the pace,” concluded Smaje.
M&A activity key lever for future tech sector growth
Despite the continuing uncertainty of the pandemic, the tech sector has witnessed soaring dealmaking activity over the past year, rocketing in the second half of 2020, with the last quarter of 2020 a record one for M&A activity, and momentum continuing into 2021.
Dealmaking in tech sector soars in past year
And the latest figures bear this out with the number of technology M&A deals totalling US$208.44bn globally in Q1 2021, according to GlobalData. While the US holds top spot both in volume of deals (1034) and total value (US$140.61bn), Europe ranked next with 649 deals (US$44.49bn) with the UK continuing its reign as Europe’s biggest M&A market with 204 deals.
In particular, megadeals – those valued at US$5bn or more – soared in 2020 representing 59% of all global technology sector deal value in 2020, up from 47% in 2019, according to the latest edition of the EY Technology Global Capital Confidence Barometer.
This tech sector trend towards megadeals is backed up by EY’s CCB data, with 16% of tech sector respondents planning to pursue transformative deals valued at US$5bn or more in the near-term.
While technology deal activity “all but stopped at the beginning of 2020 after fluctuating between historic highs and lows, companies pivoted quickly and tech M&A exploded in the second half of the year”, says Barak Ravid, EY Global TMT Leader for Strategy and Transactions.
M&A activity level for tech sector growth
Looking ahead to the future, technology executives are optimistic, with nearly half (47%) expecting profitability to fully rebound this year, according to CCB data, compared to 23% across all sectors, and with more than half (51%) planning to pursue M&A in the next year in order to sustain growth.
According to Ravid, M&A activity is increasingly becoming a key lever for growth as businesses look to recover.
“To position themselves for future revenue growth, tech companies are now adjusting their M&A strategy to focus more on a target’s business resilience, digital technology alignment and to gain market share through consolidation,” says Ravid.
However, with an increasingly competitive deal market and ongoing geopolitical tensions, the majority of tech execs expect to see more competition in the bidding process for assets over the next year, primarily from private capital.