This collection is the first of five edited volumes to accompany our multimedia series, airing on CNBC, focusing on the forces shaping the next normal.
A study referenced in the popular magazine Psychology Today concluded that it takes an average of 66 days for a behavior to become automatic. If that’s true, that’s good news for business leaders who have spent the past five months running their companies in ways they never could have imagined. The COVID-19 pandemic is a full-stop on business as usual and a launching pad for organizations to become virtual, digital-centric, and agile—and to do it all at lightning-fast speed.
Now, as leaders look ahead to the next year and beyond, they’re asking: How do we keep this momentum going? How do we take the best of what we’ve learned and put into practice throughout the pandemic, and make sure it’s woven into everything we do going forward? “Business leaders are saying that they’ve accomplished in 10 days what used to take them 10 months,” says Kate Smaje, a senior partner and global co-leader of McKinsey Digital. “That kind of speed is what’s unleashing a wave of innovation unlike anything we’ve ever seen.”
Kate Smaje, senior partner, McKinsey & Company“The crisis has forced every company into a massive experiment in how to be more nimble, flexible, and fast.”
That realization is coming not a moment too soon. Even before the global health crisis hit, 92 percent of company leaders surveyed by McKinsey thought that their business model would not remain viable at the rates of digitization at that time. The pandemic just put that whole scenario on steroids. The companies that are leading the way out of this crisis, the ones that will grab market share and set the tone and tempo for others, are the ones first out of the gate. “The fundamental reality is that the accelerating speed of digital means that we are increasingly living in a winner-take-all world,” Smaje says. “But simply going faster isn’t the answer. Rather, winning companies are investing in the tech, data, processes, and people to enable speed through better decisions and faster course corrections based on what they learn.”
Large incumbents who are winning the digital transformation battle get lots of things right. But McKinsey research has highlighted a few elements that really stand out:
The companies you’re going to meet here are adopting and deploying these digital strategies and approaches at warp speed. Aside from moving thousands of employees from the office, call center, and factory floor to home overnight, they’re using these technologies to rejigger supply chains, stand up entirely new e-commerce channels, and leverage AI and predictive analytics to unearth smarter and more sustainable ways to operate.
Kate Smaje, senior partner, McKinsey & CompanyI have clients saying that they’ve accomplished in 10 days what used to take them 10 months.
Most people don’t think of real estate as a particularly tech-savvy sector, but RXR Realty is proving that assumption wrong. Even before the pandemic hit, the New York City–based commercial and residential real estate developer began investing in the digital capabilities that would set it apart from competitors. “Historically, real estate has been a very transactional business,” explains Scott Rechler, CEO of RXR. “We felt that by leveraging our digital skills, we could create a unique and personalized experience for our customers similar to what they’re used to in other aspects of their lives.”
Prior to the global health crisis, RXR had established a digital lab. The company now has more than 100 data scientists, designers, and engineers across the organization working on digital initiatives. The investment in those capabilities—an app that enables move scheduling, deliveries, dog walking, and rent payments on the residential side, and real-time analytics on heating, cooling, and floor space optimization for tenants on the commercial side—allowed RXR to pivot quickly once the pandemic hit. Suddenly, physical distancing and the need for contactless interactions became paramount for RXR’s tenants.
Today, this team is working around the clock to put in place the health and safety protocols that allow tenants to feel safe as they return to the office. Its 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. Employees have their temperatures taken via thermal scanners when they enter a building, and heat maps are available online that show how full a restroom or conference room is at any given time. “The investments we made in our digital capabilities before the pandemic are why we’re able to give people peace of mind now as they begin to return to work,” Rechler says.
The exponential growth in digitization coupled with consumer dissatisfaction with traditional brick-and-mortar banking has been driving the launch of fintechs with amazing speed over the past decade. That fact wasn’t lost on investment banking giant Goldman Sachs, which launched Marcus by Goldman Sachs in 2016. Marcus, the firm’s digital consumer business is, as global head Harit Talwar likes to describe it, “a 150-year-old startup that allows people to take control of their financial lives from their phone.” Over the past four years, this digital-first business has grown deposits to $92 billion and $7 billion in lending balances through a combination of organic growth, acquisitions, and partnerships with the likes of Apple and Amazon. Marcus has millions of customers in the United States and United Kingdom.
A digital-first philosophy, Talwar says, means that decisions on new products and services happen quickly. For instance, when the pandemic hit, Marcus realized that some of its customers were going to need assistance. The team decided to allow folks to defer payments on loans and credit cards for several months, without accruing interest. “The real news is not that we did this, but that we took just 72 hours from the time we realized customers needed help to when we rolled it out,” Talwar says. “We were able to do this because of our agile digital technology model.”
For Indonesian mining company Petrosea, the stakes involved in digital transformation were nothing less than survival. Industry changes, increased regulatory requirements, and society’s pushback on mining’s environmental footprint had culminated in what President Director Hanifa Indradjaya calls “an existential threat” for the company. “We’re not the biggest player in the industry, so that left us quite vulnerable,” he says. “If we were to survive, the status quo was not an option.”
In 2018, the company embarked on a three-pronged approach that addressed diversification away from coal, digitization, and decarbonization of its operations. At its Tabang project site, located in a remote area of East Kalimantan, Indonesia, the company employed a suite of advanced technologies, including artificial intelligence (AI), smart sensors, and machine learning. The sensors enable predictive maintenance of its fleets of trucks, allowing the company to use fewer trucks and address breakdowns before they happen.
To move away from coal and toward copper, nickel, gold, and lithium—the minerals that are required as electrification of developing countries continues—the company is developing a suite of AI-enabled digital technologies to find these metals faster and more efficiently. Addressing its considerable reskilling needs—the majority of Tabang’s workers have no more than a high school education—resulted in the development of a mobile app with popular gamification elements, ensuring that employees would stay engaged and complete their training. The upshot: within six months, Tabang became one of the company’s most profitable operations by reducing costs and increasing production. “Technology enabled us to innovate our business model and remain relevant,” Indradjaya says. “A digital mindset now percolates through every aspect of the company.”
Freeport-McMoRan is combining the power of AI and the institutional knowledge of its veteran engineers and metallurgists to take its operations to another level. Harry “Red” Conger, chief operating officer of the Phoenix-based company, says 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.”
Case in point: in 2018, Freeport was looking to add capacity at one of its more efficient copper mines—the sprawling complex in Bagdad, Arizona. A $200 million expansion plan, it figured, would enable the company to extract more copper from the site. But a few months later, copper prices dropped—and so, too, was the expensive expansion plan.
Quickly, the company figured out another way. Rather than a huge capital outlay, Freeport began building out an AI model that would allow it to wring more productivity out of the Bagdad site. Decades of mining data—what Conger calls “recipes”—had always dictated the mining process, including how machines and other equipment were run. Data scientists were now being brought in to challenge those long-standing processes.
“Our engineers thought that it was blasphemy that data scientists, who don’t know anything about metallurgy, were proposing that they knew how to run the plant better than they did,” Conger says. But what the AI data showed was that some of the historical recipes were limiting what Freeport was getting out of the Bagdad plant. “The AI model was telling us how much faster the equipment could be run and its maximum capacity,” he adds. By analyzing every aspect of the mining process, the AI models were showing what was possible.
The engineers and metallurgists worked hand in hand with the data scientists. Over the next few months, they began to trust more of the AI recommendations on how to optimize the Bagdad plant. Today, the mine’s processing rate is 10 percent higher than it’s ever been, Conger says, and this same agile AI model is being used at eight of the company’s other mines, including one in Peru that has five times the capacity of Bagdad. Says Conger: “I have people tell me this is the only way they want to work.”
One of the biggest transformations that’s occurred throughout the pandemic is how customers shop. Store closings pushed millions of consumers online, many for the first time. Adapting to this shift quickly and seamlessly became the order of the day for so many retailers the world over. Among them: Levi Strauss and Majid Al Futtaim Retail.
As a company that’s been around for more than 100 years, Levi Strauss knows how to pace itself. But the pandemic threw into overdrive initiatives that were planned out for later this year and beyond. Chief Financial Officer Harmit Singh says the San Francisco–based apparel company was ready. Investments in digital technologies, including AI and predictive analytics, before the pandemic hit allowed Levi’s to react quickly and decisively as consumers switched to e-commerce channels in droves.
To meet demand, the company began fulfilling online orders not just with merchandise in fulfillment centers but from its stores. Prior to the health crisis, Singh says it would have taken weeks or months to work out the logistics of such a move, but as the pandemic rolled across the country, Levi’s was able to accomplish the shift in a matter of days. It quickly launched curbside pickup at about 80 percent of its roughly 200 US-based stores. And while it launched its mobile app before the appearance of COVID-19, the company has leveraged it in creative ways to connect with consumers during the pandemic. “It was important for us to enhance our engagement and stay connected with customers who were at home,” he says.
Even before the global health crisis hit, 92 percent of company leaders surveyed by McKinsey thought that their business model would not remain viable at the rates of digitization at that time.
Last year, Levi’s began making investments in AI and data in order to get a better handle on when and how to run promotions. A campaign that ran in May throughout Europe was launched using information gleaned from an AI model and wound up driving sales that were five times higher than in 2019. “AI gives us the ability to quickly transform data and facts into action,” Singh says. “We’re using this intelligence alongside our own consumer expertise and judgment to drive better results.”
Majid Al Futtaim, the Dubai-based conglomerate that operates the Carrefour grocery chain in the Middle East, Africa, and Asia, was building its digital muscle long before COVID-19. It decided back in 2015 that it needed to be as prominent online as it is in its 315 brick-and-mortar stores across 16 countries, says Hani Weiss, CEO of Majid Al Futtaim Retail. The company was making progress, but Weiss says there was little urgency to move any faster.
Then the pandemic hit. Online grocery orders for the company exploded, and they are now 400 percent higher than what they were in 2019. “The pandemic pushed us to accelerate our digital transformation,” Weiss says. “We are implementing in the coming 18 months things we originally said we wanted to achieve in five years.”
To accommodate increased online shopping demand, the company quickly converted some physical stores to fulfillment centers. When data showed that more capacity was needed, logistics managers quickly arranged to have a 54,000-square-foot online fulfillment center tent erected and operational in five weeks. Complete with rooms for frozen and chilled food, the facility stocks more than 8,000 items and is now handling 3,000 online orders a day, making it the latest and largest of 75 fulfillment centers launched this year.
Weiss says the company expanded delivery services through initiatives such as Click and Collect, redesigned its app to make it easier for customers to use, and launched contactless payment options such as Mobile Scan and Go in its stores, which allow customers to scan items on, and pay with, their smartphones. It also launched an online marketplace with 420,000 new products from other retailers whose stores were closed during the lockdown, enabling them to continue to sell their products online.
“No matter how our customers want to shop, we can be there for them,” Weiss says. “We developed this agility through the pandemic, and I want to keep it as we go forward.”
The road ahead will certainly have challenges, these leaders acknowledge. But there’s also a tremendous amount of hope because of the doors that a digital-first strategy can open. “The companies that are winning aren’t making incremental improvements,” Smaje says. “They’re harnessing technology to reimagine how business runs and committing resources at sufficient scale to make sure the change sticks.”
Go behind the scenes and get more insights with “Kate Smaje: Why businesses must act faster than ever on digitization” from our New at McKinsey blog.
