Strategy

Identify digital enablers versus disruptors
In some cases, digital technologies act as enablers for a company’s core business. Optimizing back-office operations with digital technologies can improve efficiency, while leveraging digital to create new customer experiences can grow the existing business. In other cases, digital technologies act as disruptors of current business models that alter an entire sector. The effect of the confluence of smartphones, GPS, and mobile applications on the taxi industry serves as a prime example. While such digital business model innovations can cannibalize an established business model, they can also create greater and more sustainable long-term value generation. Executives need to monitor emerging digital technologies and analyze their potential applications to determine whether to apply them as enablers or disruptors.

Most relevant scenarios: Techlash to Renaissance, Fake News Devolution, and Surveillance Capitalism

Redefine the company’s value proposition
Traditional business models and value propositions will continue to become irrelevant as the emerging digital order takes shape. A comprehensive assessment of the value proposition— the fundamental value the company provides to its customers—is necessary for all companies in the emerging digital order. Executives should question the company’s ambition, its guiding principles, and the unique value it provides. For each of these questions, executives need to assess the effect of digital technologies on their businesses. Such assessments require big thinking and bold leadership for companies—and are necessary for their survival in both the current digital disorder and the future digital order.

Most relevant scenarios: all

Use scenario analysis in strategic planning
The accelerating pace of change in digital innovations and applications as well as the rising debates about the future domestic and international regulatory environment for digital will create new challenges for business planning over the medium to long term. Executives must not only respond to a dizzying array of current events surrounding digital, but also make long-term strategic plans to prepare for an increasingly uncertain future. Embracing this uncertainty that is inherent in the future digital environment is crucial for effective strategic planning. Executives should employ scenario planning or other strategic foresight methodologies to spot emerging digital trends, test resilience to potential digital developments, and prepare for divergent digital futures.

Most relevant scenarios: all

Contend with competing technology platforms and systems
As countries continue to “islandize” by localizing data and protecting domestic companies, the fragmentation of digital technology standards and systems will continue, creating operational and compliance challenges for global companies. The two dominant digital platforms today are those in the United States and China, and other countries may choose to follow one of these sets of standards rather than going their own way. Identifying the markets in which Chinese or US technology platforms are dominant can provide insights into which technological, regulatory, and privacy standards will be required moving forward. Recent moves by several countries, including the United States and Australia, to block Chinese telecommunications manufacturer Huawei from participating in domestic 5G mobile networks are perhaps the most high-profile examples of this competition.

Most relevant scenarios: Digital Crackdown and Fake News Devolution

Seek out markets with enabling environments for digital
Digital technologies are already pervasive in the world’s most innovative and efficient companies. And embracing digital will only become more important to commercial competitiveness. Companies should therefore seek to locate their operations and sales in markets that have strong enabling environments for the use of digital technologies. Considerations should include access to high-quality broadband and mobile Internet, investments in relevant human capital and a strong digital talent pipeline, and support for R&D and a culture of innovation. Companies should also seek regulatory environments that provide significant white space to experiment with new applications of digital technologies and create new digital markets for their goods and services.

Most relevant scenarios: Techlash to Renaissance and Surveillance Capitalism

Customer experience

Offer personalization whenever possible
As explored in Kearney’s Consumers@250 initiative, the consumer landscape is shifting away from a mass-market model and toward one in which personalization and individualization are highly valued. Believing “I am what I do,” these new consumers search out brands and retailers they can relate to, and they view commercial exchanges in terms of trust-based relationships. Executives understand this imperative, with almost two-thirds of respondents in a 2017 survey of US executives saying that offering more personalization is an urgent priority. In many ways, these forces give local companies, or those nimble enough to infuse authentic local elements into their products, an advantage. Digital technologies also offer companies opportunities to implement such personalization, whether by offering consumers the option to choose design elements of products ordered online, using 3D printing to customize consumer goods, or other methods.

Most relevant scenarios: Techlash to Renaissance, Fake News Devolution, and Surveillance Capitalism

Base relationships on transparency and trust
In an era in which people are bombarded with fake news and the Edelman Trust Barometer shows that public trust remains near all-time lows, trust has become a crucial differentiator for companies and brands. In the emerging digital order, an important component of building and maintaining trust will be the transparent use of customer data and respect for customer data privacy. High levels of trust will promote greater customer loyalty and business growth. An Kearney study found, for instance, that banks with higher levels of customer trust were rewarded with a higher share of customers’ total financial services business. In contrast, some of the Internet giants serve as examples of the negative publicity and regulatory scrutiny associated with the perception of opaque behavior and the loss of trust. Executives should be proactive about identifying ways their companies can be as transparent as possible with their customers and start to build more trust.

Most relevant scenarios: Techlash to Renaissance and Digital Crackdown

Improve marketing algorithms
Digital advertising is estimated to have become the largest share of global spending on advertising in 2018, surpassing television for the first time. This shift provides an opportunity for both B2B and B2C companies to better target their marketing at their intended audiences—if they can get their algorithms right. For instance, many consumers today notice when they are targeted with Internet ads for a shirt they already purchased. A much more effective approach would be to target a consumer with ads for pants that complement a purchased shirt. Companies need to collect and leverage a wide variety of data on their customers and their purchasing patterns to build appropriate algorithms. Hiring highly skilled data scientists who can develop and refine marketing algorithms as new information becomes available is also important.

Most relevant scenarios: Techlash to Renaissance, Digital Crackdown, and Surveillance Capitalism

Develop digital ecosystems of products
In an increasingly digital economy, it will be important for companies—particularly B2C companies—to create an ecosystem of reinforcing goods and services offerings for their customers. For instance, traditional big-box retailers are integrating their digital and physical stores to enable rapid in-store pickup of items ordered online. And a leading US health insurance provider has invested heavily in digital technologies to improve the level of communication with its members and offer them services to better manage their health. In designing such systems, executives need to start by determining what the customer wants and how they can use digital technologies to fill those needs. Similarly, with more consumers preferring experiences to traditional consumer goods, retailers and consumer goods firms should strive to design unique and memorable purchasing experiences. These experiences can include time-limited pop-up stores, retail transactions that are integrated with digital technology—such as the cashier-free Amazon Go stores and Walmart’s use of AR—and other differentiating shopping experiences.

Most relevant scenarios: Surveillance Capitalism

Operations

Generate, analyze, and act on data
Data is more readily available to global businesses than ever before, but a purposeful big data strategy is necessary to safeguard against drowning in a sea of untapped or mismanaged information. In some cases, it is likely that valuable data is not being collected, while in others, existing data generation is not being fully leveraged for analysis. For instance, an Kearney study has found that although many manufacturers measure analytics for their machines, few do so for their employees—but such “human factory analytics” could dramatically improve factory efficiency. Both of these potential pitfalls must be carefully calibrated to survive in today’s data-driven decision-making businesses. In supply chain and logistics, for instance, leading companies are using data to yield significant operational efficiencies—and a competitive edge—by optimizing delivery times, routes, and transportation methods.

Most relevant scenarios: Techlash to Renaissance, Digital Crackdown, and Surveillance Capitalism

Develop good data hygiene
Big data has made data hygiene crucial to effective operational management. Some degree of data disorganization is expected in a company because of personnel changes, mergers and acquisitions, and fluctuations in customer relationships, but an alarming 94 percent of businesses believe that their customer or prospect management data is inaccurate. These inaccuracies result in negative consequences for business operations, marketing, and identification of new customer leads as well as wasted expenditures for IT and finance departments. Companies should start by identifying all data currently serving their operations, assign an organizational scheme to the data, ensure consistency in tracking data throughout the business life cycle, and be diligent about culling outdated data along the way. Ensuring that legacy data management systems can be easily accessed or upgraded to the latest software is also essential.

Most relevant scenarios: Techlash to Renaissance and Digital Crackdown

Embrace bottom-up experimentation
Rather than going through top-down enterprise resource planning (ERP) processes, companies should embrace an intentionally iterative, bottom-up experimentation process for customers or employees. Such a process is an excellent opportunity to drive innovation in ways that executives may otherwise miss because they are not on the frontlines of digital technology adoption. Outcomes of bottom-up experimentation can include a wider customer reach, revenue growth, cost reduction and other efficiencies, and improved productivity. But it is important to be aware of potential blind spots, such as costly expenditures and time allocated to experimentation, over- or under-engineering a potential business solution, and not receiving adequate support from key stakeholders. A sound strategy to hedge against these blind spots is to participate in digital innovation ecosystems designed to support the full experimentation-to-innovation life cycle.

Most relevant scenarios: Techlash to Renaissance and Fake News Devolution

Create a digital ecosystem of partners
Digital ecosystems—the collection of people, organizations, hardware, services, and data connected by shared digital platforms—will soon overtake traditional physical ecosystems centered on suppliers and customers responding to conventional supply and demand market forces. Digital ecosystems enable companies to rely on partnerships with external suppliers, customers, and vendors to control their entire value chain while not actually taking responsibility for each part of it. In fact, one of the most common types of consulting engagements recently has focused on how to conduct business in a network of customers and suppliers. For instance, we have seen companies turn their legacy direct-to-customer networks into shared-use networks. Along similar lines, Ikea recently announced it is exploring an industrywide digital platform for furniture sales (subscription required). Successful companies will be those that acknowledge the significant potential revenue upside in entering digital ecosystems, embrace next-generation shared services organizations, and stay nimble in their software selections to accommodate partnerships along the way.

Most relevant scenarios: Surveillance Capitalism

Risk management and compliance

aware of new responsibilities and liabilities
Many companies are aware of their liability for data, including intellectual property, customer data, and financial information, in the event of a cyber breach that compromises such data. But there are many other emerging responsibilities and liabilities for companies in the digital economy. A company that uses an open-source algorithm in its hiring process, for example, is likely to be legally liable if that algorithm is biased against a particular sub-set of applicants. Liability is less clear if an autonomous vehicle kills a worker at a mining site. In this case, either the mining company, the vehicle manufacturer, or the company that created the faulty algorithm could be found responsible. Executives need to be aware of such potential liabilities and take the necessary steps where possible to protect their companies. Contract language may be able limit the amount and types of damage for which the company is responsible. And greater investment in liability insurance may also be prudent in a fast-changing digital environment.

Most relevant scenarios: Techlash to Renaissance and Digital Crackdown

Improve cybersecurity strategy
Cyberattacks continue to increase in frequency and sophistication, yet many companies have yet to fully develop and implement a comprehensive cybersecurity strategy. Our 2018 survey of global executives found that companies with such a plan in place have disproportionate success in quickly identifying and resolving cyber breaches—and in avoiding them entirely. The benefits of implementing such a strategy are wide-ranging, affecting employees, customers, and the company’s bottom line. And as digital technologies become more essential to business operations, the potential damage from a cyberattack will increase in kind. Cybersecurity should therefore be an integral part of any company’s digital transformation. In developing their strategies, companies should consider opportunities for cooperation with industry consortia and public–private sector partnerships to share best practices. Companies should also consider investing in cyber insurance as a last line of defense to protect against such risks.

Most relevant scenarios: all

Manage digital risk exposure
As more business is conducted online and vital data is digitized, all companies face some degree of digital risk exposure. A thorough internal audit of each company’s risk is needed. Fake news attacks against a company are one example of emerging digital risks. Executives should take measures to prevent their brand from being the target of a fake news attack and craft digital marketing strategies accordingly. And in an age of escalating social activism and a turbo-charged information environment—when a tweet or video can go viral to millions of viewers around the world in a matter of hours—executives should prepare contingency plans for widespread social mobilization against their companies or brands on digital platforms. More broadly, by assessing how the organization and its employees are using digital technologies— everything from the cloud to IoT devices—executives can strengthen risk management practices where needed. Finally, clear communication and transparency across the organization, combined with strategic agility, are essential to risk mitigation plans.

Most relevant scenarios: all

Monitor emerging data privacy and localization regulations
Companies must deal with a data governance regulatory environment that is complicated by a growing array of privacy regulations and data localization requirements. To comply with existing and monitor emerging ones, research on best practices suggests that companies should centralize their compliance teams, conduct more frequent compliance audits, and invest in corporate training programs. Appointing a chief compliance officer dedicated to staying current on global developments in this area could help many companies to ensure there is a clear chain of responsibility for complying with emerging data privacy rules, data localization requirements, and other digital regulations. A data protection officer (which is a requirement under the EU’s GDPR for organizations with more than 250 employees) may also be prudent. Companies should consider national or supranational frameworks, such as the Privacy Shield and the Asia Pacific Economic Cooperation (APEC) Cross-Border Privacy Rules System, which offer the opportunity to voluntarily self-certify and commit to compliance in exchange for cost and efficiency benefits down the line in markets where privacy regulations are heavily enforced. Global companies should also consider getting involved in international efforts to create rules that foster open cross-border data flows, such as the recently launched WTO talks on cross-border electronic commerce.

Most relevant scenarios: Techlash to Renaissance and Digital Crackdown

Employees and culture

Embed digital in the company culture
Companies that successfully embed understanding and the use of digital technologies into their cultures will be best positioned to succeed over the long term. In addition to offering continuous digital learning opportunities for employees at all levels of the organization, executives should clearly define and embrace the cultural characteristics that promote end-to-end digital transformation. This stance includes constant thought about the improvements digital could provide for business processes, incentives for innovation and risk-taking, and emphasis on the upsides of digital for the company’s workforce (particularly aging workers). In many cases, this work will require a fundamental shift in a company’s DNA. While such a dramatic cultural change management process will likely prove challenging, it will be necessary to succeed in the emerging digital order.

Most relevant scenarios: all

Prepare the existing workforce
Companies must assess the digital skills in their workforce and then make strategic investments in training and upskilling to provide employees with the capabilities necessary to remain productive in the emerging digital order. Importantly, this process will involve helping employees deviate from the methods of work with which they are familiar. In many cases, a dramatic culture shift within the company will be necessary so employees feel comfortable experimenting with new processes and responsibilities enabled by digital technologies. At the same time, training the workforce on cybersecurity risks and good cyber hygiene is vital. And all digital training programs need to be regularly evaluated, updated, and re-administered to the workforce so employees stay current on emerging technologies.

Most relevant scenarios: Digital Crackdown, Fake News Devolution, and Surveillance Capitalism

Nurture the talent pipeline
Employers are already facing a significant skills gap, particularly for positions that require specialized digital skills. By identifying and nurturing a talent pipeline with digital skills, companies can ensure they are better equipped with the employees they need as digital continues to play a more important role in business operations. Companies should consider partnering with local educational institutions to improve the quality of their applicant pool and reduce training and turnover costs. Taking active steps to nurture prospective talent through early communication and engagement could also make a difference between landing a prospect and losing them to the competition. Digital tools can support this process, as recruitment, customer relationship management (CRM), and marketing software now allows companies to efficiently and effectively develop and build relationships with talent prospects.

Most relevant scenarios: Techlash to Renaissance and Fake News Devolution

Uphold digital ethics
Companies will increasingly be expected to adhere to digital ethics to earn the trust of their stakeholders. Protecting personal data and upholding privacy standards is one aspect of digital ethics. Companies should consider collaborating with others in their industry to develop a common ethical code with respect to data. This code would enable companies to build and maintain the necessary trust with customers, partners, and employees. Executives also need to think through the ethical implications of their digital initiatives. For instance, what are the ethical implications of using AI? And do customers deserve to know whether they are talking to a chatbot or a human? More broadly, companies need to be aware of the social impact of their digital activities. Consumers, employees, communities, and investors now have greater access to information about company actions thanks to the Internet and social media—and they are more motivated to reward or punish companies based on companies’ alignment with their values. It will therefore be increasingly important for companies to be good corporate citizens in the digital domain.

Most relevant scenarios: Techlash to Renaissance and Digital Crackdown

Taking the Next Steps in the Digital Transformation Journey

The digital revolution continues to transform the world, and more attention is being directed at understanding digital’s implications across a broad range of social, economic, and political indicators. In part as a result of this focus, there is intensifying regulatory activity for digital technologies as governments around the world are introducing an array of new rules for the digital economy. As international agreement on how to regulate digital remains elusive, however, companies are having to manage a more complex set of conflicting rules in significant markets. Further complicating the current digital environment is the escalating global competition—primarily between China and the United States—to lead the development and application of emerging digital technologies. This competition threatens to put companies in the crosshairs of geopolitics and raises the risk that competing technological standards will fragment the global digital economy into smaller “islandized” segments.

The rate of change among these forces varies across markets, industries, and consumer segments. As a result, the exact shape that the future digital order will take remains unclear. Across all four scenarios, though, two things are clear about the future digital order. The first is that digital technologies will continue to proliferate and will play a more central role in the 21st-century economy. The second is that we are on the cusp of radical change in the operation of the digital economy. Companies across all industries must therefore act now to both manage the volatility and uncertainty associated with digital disorder and simultaneously prepare for the digital order that will emerge.

Encouragingly, we are starting to see some executives question how various aspects of digital disorder will affect their business. A global financial services company, for instance, is analyzing the potential effect of data localization requirements on their costs and operations. And a telecommunications firm is exploring the impact of geopolitical risks arising from the escalating national competition in digital technologies on its access to key markets. Such efforts are certainly steps in the right direction, but all companies need to embark on an end-to-end assessment of the opportunities and risks associated with digital technologies.

Companies’ digital transformations should be carried out across the SCORE framework— strategy, customer experience, operations, risk management and compliance, and employees and culture. Of course, different aspects of SCORE will be more relevant in some potential future digital environments than others. Executives should therefore monitor how digital disorder is evolving to determine the best course of action. Any future scenario for the digital order, though, will require an end-to-end digital transformation across the SCORE framework— capitalizing on the opportunities that digital provides while managing the risks it generates. And time is of the essence. The companies that adapt more quickly to the future digital order will enjoy a competitive edge in the years to come.

The authors are indebted to Stephanie Hollinger, Elena McGovern, and Terence Toland for their assistance in producing this report.

The authors also wish to thank their many Kearney colleagues for their contributions to this report, including Sameer Anand, Ramyani Basu, Wade Bjubrey, Sumit Chadha, Suketu Gandhi, Eric Gervet, John Gomes, Ajay Gupta, Todd Huseby, Bharat Kapoor, Alanna Klassen Jamjoum, Sandeep Kumar Biswas, Alex Liu, Rudolph Lohmeyer, Greg Portell, Michael Roemer, Sebastian Schoemann, Arjun Sethi, Cary Shiao, Ben Smith, and Vidisha Suman.