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Author Talks: What is the key to
unlocking digital transformation?
May 23, 2023 | Interview
By Eric Lamarre , Kate Smaje , and Rodney Zemmel
McKinsey senior partners outline their new book
designed to help companies harness the power of
digital transformation.
I
n this edition of Author Talks , McKinsey Global Publishing’s Rick
Tetzeli chats with McKinsey senior partners Eric Lamarre, Kate
Smaje, and Rodney Zemmel about their new book, Rewired: The
McKinsey Guide to Outcompeting in the Age of Digital and AI (Wiley,
June 20, 2023). The authors discuss how companies can build and flex
their rewiring muscle by leveraging the power of AI, enhancing
customer experience, and driving profitability through an ever-evolving
process of transformation. An edited version of the conversation
follows.
Why did you write this book?
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Kate Smaje: I think in many ways we chose to write this book from a
point of frustration—frustration that our clients are struggling with what
it really takes to make a digital transformation work . It’s very easy in
some ways to paint a digital lick of paint over everything you do and
come up with the “whats.”
But the “how” of it is incredibly hard. So this was our way of being able
to open source the learnings that we’ve had over the past five, six years,
across hundreds of digital transformations, to really open that up to our
clients and say, “Here’s how we think we do it right.”
Eric Lamarre: The book has a bit of history because it didn’t start as a
book. By 2017, we were three or four years into a number of digital
transformations. We’re stepping back, as a team, and we’re saying, “Is
there a pattern here? Is there a recipe to the successful ones?”
We take the first 30 to 35 transformations that were mature enough at
the time. We back-engineer to ask, “What seems to be emerging as the
recipe behind the successful ones?” That internally at McKinsey was
called the playbook: playbook version 1.0, 2017.
Then every 18 months, 24 months, we would renew the playbook,
essentially take stock of all the new experiences of all our different
clients and ask to what extent does the recipe change? Is it fine-tuned?
Does it converge? That became 2.0, 3.0. What we released just before
the holidays was 4.0.
Rodney Zemmel: We really think it’s “show me the money” time in
digital. The amount of money that has been spent, and frankly wasted,
in digital and technology by many leading, extremely capable
organizations and teams over the years is large and growing. As Eric
described in the research, we believe there is a right way, a better way,
to do it. We wanted to share that.
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How does AI change a company’s digital transformation?
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Rodney Zemmel: AI is the thing everyone is talking about right now—
or, more specifically, generative AI —so large language models are the
thing that everyone is talking about. They’re amazing. They pass the
Arthur C. Clarke test of technology that’s indistinguishable from magic.
Think about it as a business enterprise, not as a consumer writing
fabulous birthday poems, but how you’re going to get value from it.
That’s actually a bit of a risk that put us back in the digital of 2018,
where there’s going to be pilot proliferation across the company, and
everybody’s trying things, and so on.
For a complicated enterprise, a company, or a big organization to get
value from digital transformations, we actually think you need to start
from a real view of where the value is and a road map around how
you’re going to capture that value for your business. You need to think
through a whole technology architecture that isn’t just the model.
There’s actually going to be quite a few, or at least a handful of, different
large language models out there. What you’re going to need is to have
your data in the cloud, to have your data structured or at least indexed
properly, to have what we call MLOps [machine learning operations], or
in this case it’ll be LMOps [learning model operations], to make sure the
models are safe and scalable across the enterprise .
You need your teams to work in a way that takes advantage of it. You
need to measure it and adopt and scale it. Guess what? Those are all
the things that we think you need to be successful in a digital
transformation.
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Eric Lamarre: Just yesterday we were with the CEO of a very large
bank here in New York. He was discussing how AI is really changing the
performance of that bank, with 300 or 400 models being operated. For
us, AI is that path to faster return on your tech investments.
Kate Smaje: When we had the debate about, “Should we talk about AI?
Should we talk about digital?” one of the other things we spent a lot of
time talking about in technology was also this notion of AI triggers or
prompts. It’s the notion of not just machine intelligence but also human
intelligence alongside it.
What I like about one of the upgrades on version 4 of our playbook is
how we’ve thought about how talent gets unlocked through this. I think
in previous digital transformations, it has been easy to focus on the
digital part. But with AI, it naturally triggers you to say, “Hang on a
minute. I’ve got to think about where the human is in the loop of this in a
much more fundamental way.” That’s different.
“In previous digital transformations, it has been
easy to focus on the digital part. But with AI, it
naturally triggers you to say, ‘Hang on a
minute. I’ve got to think about where the
human is in the loop of this in a much more
fundamental way.’”
— Kate Smaje
What motivated you to create a how-to manual?
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Eric Lamarre: We’re avid readers. We read all the books out there.
Before we started on this journey, and this was a challenge, we thought
that we were just going to write another book about digital
transformation and put it on the shelf with the other 50 books we have
on the subject.
We read them all. Many of them are good. But they treat the topic
partially. They’ll focus on strategy, or they’ll focus on a specific aspect
within an industry. They tend to actually not go very far in terms of the
how-to, the implementation.
They’ll tell you, “Talent is important.” But then how do I specifically
recruit a data engineer? What are the steps? What are the tests that I
should be giving that data engineer? That level of practicality was
missing. We tried to attack the problem with something that would be
holistic, cover all the right angles, and be specific enough that you
could actually say after having read it, “That’s what I’m going to do
Monday morning,” then integrate it.
Integration, which is what happens in chapter one, is aligned with what
happens in chapter 25 and with what happens in chapter 35. That
integration across one language, one common thought, is actually fairly
important when you are in charge of architecting the transformation or
rewiring of a company.
Kate Smaje: I think as well, because our teams tell us that the “how” is
hard, what we’ve really done here is to take the playbook that our teams
—hundreds of teams every single week—are using across McKinsey
when they’re helping our clients to figure this out and really just opened
that up to everybody else.
So it’s not the theory. It’s the practicality of what it really takes to move
the needle. What does it really take to be a leader, and not a laggard, in
this space? How do you make sure you’re not one of the vast majority
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that stalls in their transformation in some way, shape, or form? Or if you
have stalled, what’s the unlock, what’s the pivot that’s going to get you
out of that?
Rodney Zemmel: When we were thinking, “Should we do this?” we
actually referred to another McKinsey book.
There’s a book called Valuation by one of our colleagues, Tim Koller,
that is really the textbook on how to value a company. You might read it
once when you’re a junior consultant or a banker or a CFO. But it’s on
your shelf, and it’s a reference guide.
When you’re working on a hard valuation problem, you go to it. You say,
“Here’s how you do it.” That’s what we want this book to be. Hopefully
you’ll pull it down from the shelf often. It lays out the method. But we
know that actually there is a real learning curve to applying the method.
So we’re also hoping that by publishing the book, we’re not making
ourselves obsolete. But I guess we’ll see.
Why is digital and AI transformation a career-long commitment?
Video
Kate Smaje: We’ve talked about this a lot between the three of us. One
of the things that actually annoys me about the term digital
transformation is it has this connotation that at some point, I am done.
I tick the box. We all pat each other on the back. And off we go to
whatever is next. I don’t think you’re ever done with digital
transformation. For me, it’s to try and get across this notion that this is a
journey; it’s a muscle that you’re constantly building, you’re constantly
honing, to get better.
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We want to set that as a mindset almost at the start of the book so that
folks think that this is not, “OK, I go through every part of this book, and
I am done.” It’s more, “I’m going to go through every part of this book.
I’m going to learn how I’m going to keep evolving as a company over
time.” I think when you look at some of the best transformers out there,
they are transforming. They’re never done.
Eric Lamarre: The learning journey at the beginning is fundamental.
That’s probably at least my golden rule. You don’t start anything other
than take your top team and go and learn for three, four, five months.
What does that mean, go and learn?
Go visit other companies that have done this, that are further down their
journey. Now read the book together. Start to create a common
language from this book or whatever method you want to use, but
creation of a common language. What’s a data engineer? What’s a
technology stack? What do you mean by data architecture ?
What does it mean when you say track the value? How do we do that
for digital solutions? Start to create a common language so that all the
team players play the same sport. Then know where to focus the effort,
because often what we’ve found in the first generations of these, and
that was one of our first lessons in playbook version 1.0, is people were
implementing use cases.
One use case never does the job. It is a family of many that needs to be
strong together to actually create meaningful impact and change
experiences. So back to: What are you doing the first three, four, five
months? You learn by visiting others. You create a common language.
You decide where you’re going to focus the effort for maximum impact.
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“One use case never does the job. It is a family of
many that needs to be strong together to
actually create meaningful impact and change
experiences.”
— Eric Lamarre
Rodney Zemmel: Eighty-nine percent of companies are already doing
something that they call a digital transformation. By the way, I don’t
even know who the 11 percent are. I guess they don’t talk to us.
But that’s not the hard part. People get the joke. The hard part is that
they need to actually be rewired—rewired for digital and AI. The
difference between the companies that’ve tasked CIOs [chief
information officers], or rebranded CIOs as CDIOs [chief digital
information officers], and then tasked them with driving this, versus the
companies that are really rewiring, is huge.
When we talk about companies doing this for the people, doing this for
the rest of their life span, this is the future of business and the future of
society. It’s the world going from you having a CIO on your team—and
this is the task of the CIO, maybe joined up with a business leader—to
technology is fully embedded in business.
Business leaders need to be technology leaders.
How do you know if business is ready to be digital not just do
digital?
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Rodney Zemmel: One of the other things from our survey last year is
we looked at just how many members of a C-suite, of the CEO’s direct
reports, are tech savvy. When I first saw the data on tech savviness and
the likelihood of the success of a digital transformation , I thought the
team was giving us the dummy chart with the data not filled in yet.
But it was the real data. It’s an incredible correlation: if you’ve got three,
five, or seven members of your C-suite who are tech savvy, your
chances of succeeding, of ending up in the top quartile of economic
performance, are just much higher than if you’ve got one or two tech-
savvy members of your team. It’s business. That’s why it’s going to be
the journey that continues.
Kate Smaje: That’s actually one of my favorite kind of checks early on
in a digital transformation. You’re with a leadership team. You ask a very
innocuous question like, “Oh, how’s this digital thing?” You ask about an
initiative or proof of concept, or whatever, that they’re doing: “How’s
that going?”
You watch. If everybody in the room turns around and looks at the chief
digital officer or chief data officer or CIO, you know something is
fundamentally wrong. They haven’t rewired, because what should
actually happen is anyone in that room should be ready to say
something like, “Actually, here’s how I think it’s really affecting my P&L
in this part of the business.”
Rodney Zemmel: I was at a conference on the West Coast late last
year. We were having a discussion on doing digital versus being digital.
We were having a discussion around: What is a digital culture? It was
one of those fluffy discussions, as culture discussions can often
become.
I was challenged to say, “Give me one sentence that tells the difference
between a digital culture and an old IT culture.” After some back and
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forth, we actually got it down to one word. It’s a little bit like your you-
know-who looks at whom in the room test.
That one word was “requirements.” If you’ve got a company where the IT
team or any of the business teams are running around talking about
requirements—“we need a requirements document; we’re gathering
requirements; we’re setting requirements; did the project meet its
requirements?”—that’s an old IT culture.
You are managing projects. You’re getting input for those projects.
You’re delivering. It’s vendorized. Instead, you need a business leader
and a technology leader together. Or maybe that becomes one person,
a business leader who’s tech savvy, or a tech leader who’s business
savvy. Those people together need to own a problem and a solution to a
problem on an ongoing basis. They need to own a digital product or an
AI product, rather than go back and forth about requirements
documents with each other.
What is the most important part of a digital and AI transformation?
Video
Rodney Zemmel: We’ve all seen successes; we’ve all seen failures. If
you’re not focused on where the money is and how you’re going to
reimagine the business to really create value , rather than just take a
bunch of processes and do them better or launch some little thing, the
rest doesn’t matter. You can have the best people in the world on your
technology teams, and you can have the best technologists in your
business teams. But if you’re not really lasered in on, “Here’s how we’re
going to, as a business, make more money by doing new things,” then
the rest doesn’t matter. But you need both. So I would say necessary,
but not sufficient.
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“You can have the best people in the world on
your technology teams, and you can have the
best technologists in your business teams. But
if you’re not really lasered in on, ‘Here’s how
we’re going to, as a business, make more money
by doing new things,’ then the rest doesn’t
matter.”
— Rodney Zemmel
Kate Smaje: I’m going to try and trump you both in that even if you
know where the value is, and even if you have that top team alignment
around it, none of that matters unless you actually have a way of
delivering it. For me, the miss often is that everybody spends so much
time on the what: “What is it we’re going to do, and have I got the best
technology in place to be able to do it?”
They miss the fact that somebody ultimately has to use that technology.
Ultimately, somebody’s job or function or whatever needs to change as
a result of that technology. I like the wrapper that you put around it,
because otherwise, it stops—stops short.
Eric Lamarre: Those are two very good answers.
Kate Smaje: But …
Eric Lamarre: But a decade ago, I worked with a bank for three years
on the start of their digital transformation. I helped them, along with
other McKinsey colleagues, on many, many fronts—many fronts that
would be covered by the book today and others.
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When I look back on what the most important piece of work I have done
with that team is, it was the initial trip to Silicon Valley with the CEO and
the C-suite, spending two or three days visiting companies, learning a
new language, and aligning on the art of the possible.
We’re a bank; we will be able to develop software like this. It’s not
rocket science. You can build the confidence. That first trip was so
successful. One month later, they were making a second one. A few
months after that, the board was on the plane to do the same trip.
When I look back on what I did with that company, I feel that moment
was a crystallizing moment where ambitions went up, confidence went
up. Alignment on what we needed to do to be more like a tech company
and embed that technology mindset inside our bank was important.
Watch the full interview
Video
Eric Lamarre, Kate Smaje, and Rodney Zemmel on the key
to unlocking digital transformation
ABOUT THE AUTHOR(S)
Eric Lamarre is a senior partner in McKinsey’s Boston office, Kate
Smaje is a senior partner in the London office, and Rodney Zemmel is a
senior partner in the New York office. Rick Tetzeli is an executive editor
of McKinsey Global Publishing and is based in the New York office.
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