M&A and talent development are among the key strategies for a digitalising SA

06 May 2019 Consultancy.co.za 4 min. read
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Following from its analysis on the global digital landscape in 2017, global management consultancy McKinsey & Company has released a set of recommendations for the South African market to ensure that they learn from the best practices of international digitalisation. 

Digital avenues have long been touted as the way out for the South African economy, ever since the country entered a period of stagnation in 2014, when global oil and commodity prices plummeted. South Africa’s recovery period has coincided with the global digitalisation drive, which has spelled expenditure and opportunity alike.

Experts have argued that the business environment in the country must collaborate to develop innovative means of driving growth, particularly in the digital arena. Big businesses in the country were quicker to adopt digital tools, although the smaller enterprises appear to be catching on gradually.

Digital penetration

Nevertheless, McKinsey reports that growth in the digital arena has been slow across the globe. Technology-dependent sectors have been relatively quick to adopt digital avenues, although the sectors that McKinsey describes as “traditional industries” have fallen behind in the global arena.

Sectors that have been the early adopters in the digital sphere include media & entertainment, retail, high tech and healthcare, while those that have been slower to digitalise include the consumer packaged goods sector and the automotive & assembly industry.

Slow adoption across the globe has been a result of the revenue dip that digitalisation brings with it. According to McKnisey, digitalisation had accounted for a drop of six points in revenues across the globe in 2017,  alongside 4.5 points in overall earnings. Two years later, the global digital arena has unfolded, and South Africa can learn from global practices.

Pressure from digitalisation

McKinsey has laid out four broad recommendations for South Africa to ride the digital wave successfully. The first of these is to develop internal agility within businesses, so as to ensure that quick and radical changes can be made in accordance with sudden transformations in the market.

The Financial Services sector, according to the firm, has been the quickest in South Africa to adopt agile frameworks of operation. Standard Bank is the prime example of a financial services firm that has undergone an “agile transformation” that has incorporated more than 6,000 IT professionals.

The second recommendation made by McKinsey is to ensure that firms find the new opportunities that the digital landscape produces, and capitalise on them as soon as possible. Digital ecosystems offer a range of such opportunities, allowing for more personal integration with consumers.

Spending on M&A amongst top performers

“Although few companies can mount disruptive strategies at the ecosystem level in the same way as Alibaba, Amazon, Google, and Tencent, which have radically pushed digitisation on their respective platforms, some are doing this well. South African insurer Discovery is at the forefront of ecosystem thinking with its Vitality platform, “ says the firm.

The third recommendation from McKinsey is to take the inorganic route to digital transformation rather than the organic one, primarily because speed is of the essence when it comes to remaining digitally competitive. Mergers & acquisitions are the best way forward as per the firm.

Lastly, the firm recommends the development of a talent pool that is familiar with digital applications, in accordance with a number of other expert analysis recently. As organisations transform, an entirely new skill profile will be in demand, one that includes working with machines. McKinsey recommends accumulating such talent to remain ahead.