Rewiring Organizations For A Successful Digital Transformation written by Felipe Orrego read more at Duct Tape Marketing
Marketing Podcast with Rodney Zemmel
In this episode of the Duct Tape Marketing Podcast, I interview Rodney Zemmel. He is co-leader of the McKinsey Digital Practice, a senior partner based in New York, and a member of McKinsey’s Shareholders Council, the firm’s board of directors. He serves clients across a range of industries on growth strategy, performance improvement, and value creation by harnessing the power of data and analytics, digital culture and capabilities, and modernized core technology.
He is the co-author of Rewired: the McKinsey’s Guide to Outcompeting in the Age of Digital and AI. This book shares the lessons McKinsey has learned helping companies deliver successful digital and AI transformations into a detailed “how to” manual.
Key Takeaway:
Digital transformation requires organizations to rewire their processes and operations, leveraging new technologies to achieve value. It’s important that organizations take ownership of their digital transformation as an ongoing journey and actively learn to implement changes in order to keep improving. Rodney highlights the significance of selecting the right areas for transformation that can deliver a differentiating value, plus the importance of upskilling and reskilling existing talent within digital changes.
Questions I ask Rodney Zemmel:
- [01:48] How much collaboration or maybe fighting goes on to structure a book like the McKinsey guide, that’s effectively going to represent the brand itself?
- [03:20] Do you see this book as something you can take to a client and say we’re going to walk each of the sections here?
- [04:28] Why is the title of the book “Rewired”?
- [08:56] How does somebody start addressing what is essentially a line-by-line audit of everything they’re doing?
- [12:22] Would you look at the value derived by digital technologies differently than by producing customer value or revenue?
- [14:23] Are you advising companies that they might need to get different people or new people on these digital changes?
- [16:32] Are there organizations that are significantly behind in this rewiring?
- [17:50] Is there a correlation between leadership inside of an industry by how digital it is?
- [19:02] Are you seeing people wasting a lot of time and money on AI because it’s the trendy thing of the moment?
- [20:07] How crippling is any of this without access to data inside an organization?
More About Rodney Zemmel:
- More about Rewired: the McKinsey’s Guide to Outcompeting in the Age of Digital and AI
- Get in contact with Rodney
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(01:03): Hello and welcome to another episode of the Duct Tape Marketing Podcast. This is John Jantsch. My guest today is Rodney Zemmel. He's a co-leader of the McKinsey Digital Practice, a senior partner based in New York, and a member of McKinsey's Shareholders Council. The firm's board of directors serves clients across a range of industries on growth strategy, performance improvement, and value creation by harnessing the power of data and analytics, digital culture and capabilities, and modernizing core technology. We're gonna talk about a book that he co-authored called Rewired: The McKinsey's Guide to Out Competing in the Age of Digital and AI. So Rodney, welcome to the show.
Rodney Zemmel (01:46): Thanks for having me on, John, it's a pleasure to be here.
John Jantsch (01:48): So I have to ask as an author also, but as an author who basically has only an editor to answer to, I'm wondering how, how writing a McKinsey guide like so a, a tool that's effectively going to represent the brand and be put out there as the tool that everybody uses. How much collaboration or maybe fighting goes on
Rodney Zemmel (02:11): Your podcast is only 20 minutes, right?
John Jantsch (03:19): So, so is this the, you know, junior consultant at McKinsey's, you know, book to take into a client and say, this is, you know, we're gonna walk work through, you know, each of the sections here. Obviously everybody's different, but I mean, is that how you see it?
Rodney Zemmel (03:32): I actually think this is the client's book to read, right? And for them to like understand how to do things themselves in their own organizations, and of course by all means, call us if there's a need to help. But, you know, we actually do think there's a better way to do this. And you know, we know the fact that only 30% of digital transformations are hitting the value that they're intended to hit. And we wanna see the world do better. And frankly, we we're, we're far enough down the learning curve here that I know we're putting sort of a lot of intellectual property out in the world through publishing this book and, you know, anybody that can have it and therefore, you know, do you, do you need to call us or not? We're confident that this is about sort of a learning journey for clients and people who are further down the learning curve are always gonna want to get better and better. So I feel like we've sort of published the, you know, the 2.0 version here and there's always gonna be a 3.0 and a 4.0 that people will need help on.
John Jantsch (04:25): So why rewired? I mean, I think a lot of people would say, well, you know, for the last 20 years I guess since we came on the internet, we've been wired, right? I, again, I'm tossing that up for you to smack it outta the park, but, but I think that, you know, a lot of people would think, why are we having to rewire what's different?
Rodney Zemmel (04:44): Great
John Jantsch (04:44): Question. Is it just an evolution?
Rodney Zemmel (04:46): No. So I look, I I'll give you an example, uh, the answer to that using like generative AI, which is like the hottest conversation topic in the world right now, right? Generative AI is the coolest thing and it's deceptively easy to go pilot and go trying your business, you know, in the marketing function, in customer engagement and go do a cool pilot and get things up and running. However, it's really hard to get it working at enterprise scale and get real measurable value from it, right? So if you wanna write somebody a birthday poem or if you want to on a one-off basis send some cool customized things to a customer, it's easy to do. If you want to build a system where you can send tens of thousands of customized things to customers every day in a way that is safe, in a way that really reflects the personalization preferences of that customer in a way that doesn't let bias creep in a way that has measurable economic impact, then it's not enough just to go launch a piece of technology. You actually need to rewire your commercial function around that technology. So there's this idea that it's not about like, you know, sticking a coat of paint on it that you actually do need to go and fundamentally rewire the house to take advantage of these technologies.
John Jantsch (05:58): A and do you get the sense that all over, you know, companies
Rodney Zemmel (06:12): Absolutely. So, you know, when we did our interviews with companies, so what we tried to do is say, look who's creating value from digital transformation? And you know, there's about a quarter of companies who we think are really hitting their economic targets between 25 and 30%, depending on the kind of transformation. And we did interviews with them and then we did interviews with the ones who were missing and then with some who were somewhere in between. And one of the most common things we heard, like one of the most common failure modes was I've got more pilots than an aircraft carrier
(07:01): And a real fundamental change in the operating model. If you'll let me actually, sorry, this maybe a longer answer than you're looking for, but there's a beautiful example in the banking industry. Um, so if you use any banking app, right, the customer banking apps, the private banking apps, whatever, every bank's app is basically the same, right? Some are designed a little bit better than others, but they all have the same functionality. So we were at a round table with consumer banking CEOs and a few of them said, you know, digital is table stakes. It's something we have to invest in, but it's not, uh, competitively differentiating. We said, we don't think that's true, let's actually go look at the data. And what we did was we got the data on actually how they were doing digital. We looked outside in and did some interviews at the work practices across the different banks, and then we looked at their economics and we saw that actually again, it was about the same ratio.
(07:47): About 25% of them were actually making money. Were showing positive return on equity, were showing positive growth per, in value per customer through their digital initiatives. You could not tell that if you just looked at the customer apps, right? They were the same mm-hmm.
John Jantsch (08:32): Yeah. It's kinda like the apps were just an interface and really nothing more
Rodney Zemmel (08:36): Yeah, yeah. And the necessary, right, but not sufficient.
John Jantsch (08:39): Yeah, they were, they, they replaced tellers though
Rodney Zemmel (09:04): Yeah. So I don't think it shouldn't feel like an audit, right? So I will, I'll use generative AI as an example again, right? So I was with a company a couple of weeks ago who said they've got 75 different pilots going across their organization on Gen AI. And their question for us was how should they organize and govern those and prioritize them and resource them and so on. And you know, answer to that a little bit qui is don't do that, right? It's just right. If you're doing 75 things in this new and fast moving area, you're not gonna be able to do them well. What you actually need to do is to step back and say, where is the value really going to be in changing your business? And yes, there are easy things to do with gen ai, maybe in HR around recruitment or maybe in finance with, you know, being able to pull from different feeds across your finance systems and so on.
(09:53): But is that really gonna drive differentiating value for your business? Is that something you should spend time on? Or is that something that all the various software companies you work with, they're gonna go innovate within their own product? Instead, pick the area that's unique to you and that can really drive value. Don't pick tons of areas, pick one area. It has to be an area that's big enough to matter. And our rule of thumb is 20% of ebitda, it's not gonna drive a 20% EBITDA improvement in a particular area. It's not gonna be big enough to sustain people's attention. So pick an area unlike that and then develop the real plan around that. And it's never gonna be one use case, right? A while ago, five years ago, there was this idea of like the silver bullet use case, right? If only we could do amazing, you know, supply chain forecasting, right? We wouldn't get caught out in the chip shortages or whatever it is, but it's multiple use cases that need to sort of feed together Our, our data actually says it's 11 companies who had 11 use cases within a particular domain or adjacent domains were the ones who were more likely to sort of cut through into being in that quadrant that's creating value.
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(12:22): So, so let's talk about value then for a minute. Because some of the AI, for example, or some of the tech technology, digital technology, maybe it doesn't deliver customer value, it actually delivers convenience or efficiency inside the organization. So would you look at that as a different, would you look at that value derived in that manner differently than you would say producing customer value or revenue?
Rodney Zemmel (12:48): So again, we've seen a shift here, right? So when we looked at our sort of digital transformation surveys of three, four years ago, cost was 70% of the focus, right? Um, and that's because it was the most measurable part and because a lot of the early customer journeys were very tractable to cost. Like how can we, you know, get people out of branches, right? And into the app. How can we get people instead of making phone calls to using the website, right? And you can very easily look at, you know, sort of per employee productivity and manage that cost down what we're seeing now, it's not, that's gone away, right? That's still there, but there's been a flip, I would say it's now 70-30 growth to cost and even things that initially look like cost. So again, I'll talk gen AI cuz it's the flavor of the moment, right?
(13:34): Gen AI is gonna be a great way of saving cost in customer contact centers, but it's even better at creating unbelievably strong customer engagement, right? I mean there's this amazing survey from the UK where people who were using a gen AI chat bot, instead of talking to a real physician, they could tell it was a chat bot, right? So the original test was can you tell whether it's a robot or a human? And they could tell it was a robot, however they found it more engaging and more empathetic, right? Than the real doctor, right? So if you think about what that means for a customer center, yes you'll be able to save some costs, but more importantly you'll be able to create a level of engagement that's gonna drive cross sell, that's gonna drive growth, that's gonna drive new product ideas in a much better way than what you're doing today. So we're really seeing a shift to people using it for growth.
John Jantsch (14:22): Would you, are you seeing or are you advising companies that they might actually need to get different people or new people on the bus?
Rodney Zemmel (14:32): I'll give you a yes, but right. So there was this giant trend, you know, five to eight years ago around go to Silicon Valley or you know, go to London or you know, New York and you know, sort of hire the cool kids from digital natives to come to your company. And that turned out to be a great way to change the dress code
(15:29): We work with a company in, in Baghdad that's Baghdad, Arizona, not the other Baghdad
John Jantsch (15:57): Yeah. And I've seen a lot of initial research that is suggesting, again, AI is actually allowing people with maybe less experience to do more complicated work. And so I think there is part of that, that they're using the tools to, up to your term upscale, uh, some of the workers. But I think it's also allowing people, you know, call center example, you know, they have access to real time answers and you know, they're, even though they're less skilled. So I think that's, it's a combination of those things probably.
Rodney Zemmel (16:24): That's right. Provided you do it with the senior management layer as well. Right? So any upskilling needs to be about the frontline and the senior people.
John Jantsch (16:32): Are you finding that there are organizations that we maybe wouldn't guess this to be true, that are just significantly behind in, in this, uh, rewiring?
Rodney Zemmel (16:42): You know, there's a chart, I can't remember if we put the chart in the book or not, actually I think we didn't. But we have a survey that we call dq or Digital Quotient survey. And it's basically a, a questionnaire you can rent to see how digital a company is. When we first started doing this, there were very nice patterns by industry, right? You'd see like high was all the way at one end and you know, public sector was all the way at the other end. Retail was somewhere in the middle. And you know, energy was also, you know, off to the slow end. What we see now is first all industries have moved, but second of all, the variation within industry is actually bigger than the variation between industries. Mm-hmm. So, you know, the energy company that has really embraced digital is as digital as the average high tech company. And the consumer goods company that's been on laggard in embracing digital is as behind as, you know, the public sector or, or you know, or healthcare services company. So the spread has gone much, much wider. In addition to that, there's a learning curve, right? It takes a while to get going, but then once people are going, you see them getting better and better on the digital quo.
John Jantsch (17:49): And are you also, is there a correlation with leadership inside of an industry by how you digital it is?
Rodney Zemmel (17:53): Great question. So one of the things we asked in the survey where we were passing the companies into sort of the digital leaders, the digital average and the digital magnets was how many people on your executive team are digitally savvy? Mm. And when I first saw the data from that, I actually thought the team was giving me a chart with like the dummy data. Like this was like the chart to fill in once we have the real data. Cuz the correlation was sort of perfect, but it turns out that was the real data. And if you have an executive team that might have, I don't know, a dozen members on it, if you've got seven or more people who are digitally savvy, your chance of ending up in the high performing segment are really high, like 80%. And if you've got one or two people who are digitally savvy in that group, your chance of being in the high performing segment are less than 20%. So the thing it most clearly correlates with is actually the savvy, the tech savviness of your leadership. Now of course there's correlation and causation there and you can debate the order and so on. Yeah, yeah. But it's still very clear that, you know, it's hard to be a digital leader if you're just, if you know, if every conversation someone's looking to the CDIO or the CMO, right? It needs to be the team.
John Jantsch (19:01): Yeah. So are you also seeing people wasting a lot of time and money on we gotta do that AI thing
Rodney Zemmel (19:10): You know, I, that's sort of why we wrote the book. I mean, it's, this is being done. There's so much swirl, right? It sort of gives the field almost a bad name, right? There's so many people who are running around, you know, saying they're agile or, you know, launching the demonstration projects or talking about things in their annual report or in investor days that don't actually follow all the way through. It's just massive wasted effort. I mean, you know, if you'd have bought stock in the world, digital transformation in 2015, right? You'd be very wealthy now just based on word usage. This is why we're sort of arguing for this more organized and less wasteful approach. And you know, while I'm excited about gen ai, I think part of the worry with Gen AI is there's a little bit of a risk that it sends us, like back to 2018 in digital transformation where it's just so easy to fire up these pilots. But if you don't actually rewire the house, then you're not gonna get the value from it.
John Jantsch (20:06): How, um, crippling is any of this without access to, uh, data inside an organization?
Rodney Zemmel (20:16): So there is no question that all these trains ride on rails of data, right? You need the data. So, but maybe like, maybe just a couple of surprises to us, or maybe they're not surprises, but things that we learned did the research, first of all, it isn't just about your own data, right? That there's almost no company who's been super successful here just relying on their own, you know, amazing trove of proprietary data. It's actually about how you put your own data and the world's data together in interesting and safe ways. That's thing one. Think two is while data is critical, having the most modern systems in the world is not critical. And I think one of the big unlocks in digital transformation has been moving away from an excessive focus on core technology modernization and into a focus on solving back from where the value is.
(21:09): So we've worked with companies who've had the data, I mean literally in filing cabinets, right? Not even digitized, right? And by being very selective with what are you trying to do? Therefore, what data do you need? Now that data, the data you need, you know, does need to be in the cloud, right? But you can build very efficient now sort of cloud, you know, we explained in the book sort of cloud like data extraction layers, just focus around what you need and the old fashioned approach that says, first let's build this like giant data lake with everything in it. Right? Then let's splash around in the lake for a while and see what comes out. Right. Ends up being quite wasteful.
John Jantsch (21:45): Yeah. I mean that's part of the challenge with data is there's so much of it and we can measure everything. And like you said, most of it doesn't matter, probably
Rodney Zemmel (21:53): But we would say in data, start back from where you think the value is. Think as much about the world's data as your own data, and then think about quality over quantity. And then don't get concerned about legacy systems. There's almost always a workaround, right? To allow you to decou on looking at the data from, you know, pinging your system every time. Yeah.
John Jantsch (22:14): So final question. Uh, do you see Rewired making any, some fun summer beach reads, uh, list, uh, this year
Rodney Zemmel (22:23):
John Jantsch (22:28): The other problem is it's a bit of a beast. So it, it was way down that bag.
Rodney Zemmel (22:32): You know, I just flew across the country with a few copies of it in my backpack and I certainly, uh, got, got some, uh, some exercise from it. Look, I think that it, it, it, it is definitely written to be dipped into, right? It is the manual to say, okay, let's talk about technology. Right? Let's go to chapter four on technology rather than the straight end-to-end read. But, uh, you know, I hope people, if people enjoy reading it nearly as much as we enjoyed writing it, then we'll have succeeded.
John Jantsch (22:57): Awesome. Well, Rodney, I appreciate you taking a few moments to stop by, uh, the Duct Tape Marketing podcast. You wanna invite people where they might connect with you or obviously get a copy of the book.
Rodney Zemmel (23:07): Sure. I mean, all the info's on, mckinsey.com or you can, uh, reach me directly on, uh, rodney_zemmel@mckinsey.com. And, uh, I hope you liked the book.
John Jantsch (23:17): Awesome. Well, again, I appreciate you taking a few moments to stop by and hopefully we'll run into you one of these days, uh, soon out there on the road.
Rodney Zemmel (23:25): Fantastic. And John, you can read more about the book on, I think it's mckinsey.co/rewired, but I'll, I'll correct that URL if I'm giving you the wrong URL
John Jantsch (23:33): Background. Okay. And we'll have that in the show notes as well. All right.
Rodney Zemmel (23:36): Okay. Thank you.
John Jantsch (23:38): Hey, and one final thing before you go. You know how I talk about marketing strategy strategy before tactics? Well, sometimes it can be hard to understand where you stand in that, what needs to be done with regard to creating a marketing strategy. So we created a free tool for you. It's called the Marketing Strategy Assessment. You can find it@marketingassessment.co, not.com. Co. Check out our free marketing assessment and learn where you are with your strategy today. That's just marketing assessment.co. I'd love to chat with you about the results that you get.
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