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Article - McKinsey Quarterly - February 2018
Accelerating the diffusion of technology-enabled business practices
By Tera Allas and Vivian Hunt
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New research highlights some of the most important actions available to executives.
McKinsey research has long demonstrated the wide gap between productivity levels in different countries. Research in 2015, for example, suggested that if the degree of productivity dispersion among the bottom 75 percent of UK firms matched that of Germany, the United Kingdom would be more than £100 billion better off annually as measured by incremental gross value added (GVA). This analysis also showed that a major reason for that discrepancy is the United Kingdom’s relatively slower diffusion of digital technologies and proven business practices among the bulk of its business population.
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We set out recently to investigate what drives, and holds back, the diffusion of technology-enabled business practices, using a mix of academic literature, studies from multinational organizations such as the Organisation for Economic Co-operation and Development (OECD) and the World Economic Forum, and in-depth interviews with business leaders and other experts. We identified 13 levers, or “characteristics,” that appear to accelerate the adoption of technologies and practices that have been implemented by innovation leaders but are new to less advanced firms.1 Six of those 13 levers can be influenced directly by the actions of businesses themselves, largely independent of broader factors such as competition, education, regulation, and infrastructure quality.
The application of these six levers varies widely among firms within countries and across different geographies (exhibit). For example, professional management practices that drive diffusion have been more widely adopted, on average, in German and US firms than in firms in other countries. On the other hand, Japanese firms tend to benefit more than others from access to plentiful science and technology talent. UK firms, in turn, stand out for their external collaborations with the strong local-science base and for their embrace of value chains that are advanced, global, or both.
Exhibit
Six levers help companies to accelerate the adoption of technology and innovative business practices.
Given the importance of, and wide disparity in performance across, these six levers, they form a useful checklist for companies anywhere seeking ways to accelerate their uptake of productivity-enhancing, technology-enabled business practices:
1. Attract top managers with the vision and desire to drive adoption of new ideas. It makes sense to ensure that at least some C-suite executives have a track record of advocating and implementing new business approaches or technologies such as artificial intelligence (AI), big data analytics, or robotics. Sixty percent of companies identified as early adopters of artificial intelligence in a recent MGI study, for example, reported significant support from their C-suite; only 33 percent of those conducting more limited experiments with AI reported this sort of support.
2. Cultivate the mind-sets and culture to take considered risks. This can happen through embedding the outside perspective in company values and through creating opportunities for managed experimentation and quick wins (emphasizing that it’s not essential to get it right the first time). McKinsey innovation analysis shows that 55 percent of top-quartile innovators set concrete targets and aspirations for innovation and growth, compared with just 38 percent of second-quartile innovators and 20 percent and 10 percent, respectively, of third- and fourth-quartile innovators.
3. Collaborate externally. Business and professional hubs and networks, as well as exchanges or joint research activities between universities and business, are key. As Corning’s Silicon Valley technology chief Dr. Waguih Ishak pointed out in a recent McKinsey Quarterly article, such relationships constantly renew how a firm operates. Indeed, academics estimate that around 40 percent of a company’s success in adopting new ideas is explained by the quality of its internal and external networks.2 Associations among business, government, research institutions, and trade unions have been behind the adoption of Industrie 4.0 in Germany.
4. Integrate the business with advanced or global value chains to expose it to the maximum number of best practices. This can mean looking beyond the usual supplier suspects to more innovative up-and-coming companies, or seeking experimental partnerships with leading-edge potential customers (even if not initially profitable). Surveys consistently show that suppliers and customers are among the most important sources of encouragement for the adoption of advanced business practices.3
5. Prioritize training and development to build better employee skills. Such efforts may include initiatives to improve top management’s understanding of technology but may also be targeted at ways of working. In an experiment in India, textile firms were split into two groups, with one set receiving training (a key mechanism for diffusing knowledge) to build up its management skills, while the other did not. The group with training was 11 percent more productive and $230,000 a year more profitable.4
6. Recruit people with the skills to turn external innovation into concrete business practices and competitive advantage. The United Kingdom’s Innovation Survey shows that companies that both invent new ideas and adopt those of others employ almost twice as many degree-level graduates and two and a half times as many science and engineering graduates as noninnovative ones. Highly educated talent not only tends to be more externally oriented5 but also enhances “absorptive capacity”: the ability of companies to observe, learn from, and implement ideas from the outside.6
These levers sound fairly intuitive, but our research suggests they’re too often overlooked. Leaders worried about staying at the leading edge can’t afford to ignore them.
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About the author(s)
Tera Allas is a senior fellow with the McKinsey Center for Government and is based in McKinsey’s London office, where Vivian Hunt is a senior partner.
The authors wish to thank Kimberley Moran for her contributions to this article.
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