In recent months, many companies have rushed to build digital businesses to overcome pandemic-induced disruptions and address shifts in customer behavior. In this episode of the Inside the Strategy Room podcast, we explore how to develop a digital offering quickly and effectively despite ongoing economic uncertainty. Two McKinsey experts—Ari Libarikian, global leader of our business building practice, and Akash Kumar, who focuses on digital, analytics, and business building—are joined by Wendy Barnes, the president of Express Scripts’ home-delivery business, to talk about launching digital initiatives with McKinsey’s Sean Brown. This is an edited transcript of the discussion. For more conversations on the strategy issues that matter, subscribe to the series on Apple Podcasts or Google Podcasts.
Sean Brown: Ari, can you start us off by explaining how the conditions for building new businesses have changed?
Ari Libarikian: Certainly, the degree of focus on generating new ideas and turning them into businesses has gone up by a huge factor. Business building used to be viewed as an experiment, innovation off to the side. Now, it has become a necessity for incumbents—a differentiating capability needed for long-term success. Consumer behaviors are changing and behaviors of business clients in many industries are changing. Business building is almost a requirement to meet these new sets of needs at a pace that may not be possible if a company was trying to transform the core.
There are several new challenges. First, how do you create the right type of interactions and touch points with consumers whom you may never meet? How do you find your next star employee, from an HR and organizational perspective, whether within your business or through recruiting? Then there is resilience. How do you build resilience into your supply chain in a way that does not sacrifice agility? These have become critical questions. Some assumptions that we have long held are also being turned upside down in terms of how you operate a business, sell products, and serve customers. Take speed: I have had many clients in the past few weeks say some version of, “We had five years to execute a road map, three years to do a digital transformation, two and a half years to build it. Now we have to do it within months or weeks or sometimes days, and it’s not a matter of choice—we have to do it because that is where our customer is going.”
Business building used to be viewed as an experiment, an innovation off to the side. Now, it has become a necessity for incumbents—a differentiating capability needed for long-term success.
Ari Libarikian
Sean Brown: Large companies are not used to moving this fast. How are they adapting?
Ari Libarikian: Building businesses is hard, especially for large companies. Their leadership teams are good at managing large organizations but building a new business requires an entrepreneurial mindset and a different way of working. How do you get away from the bureaucracy that often exists in large companies and build a new culture that has a higher metabolic rate? How do you hire different types of people who will be needed to form at least part of the new organization? How do you figure out the assets you need to borrow from the mother ship and pull that into the new business but not pull in so much as to slow it down? The nirvana here is leveraging the strength of the incumbent but with the flexibility and speed of a start-up. If you can get those two things together, your business can leverage its advantages and start to scale.
Sean Brown: How do you achieve that balance of bringing in new talent alongside existing employees who may be experienced but wedded to the status quo?
Ari Libarikian: This is one of the biggest challenges that new builds face. It is also one of the most important levers, because with the right team and the right operating model, you will solve problems as they come. There are a couple of rules of thumb. Generally, bringing a large group of people from the core business and having them essentially form the new management team is not a good idea. You do not want the culture of a large, mature company in this start-up that needs to operate very differently. Having said that, the other end of the spectrum, which is a 100 percent brand-new team, is also not a good place to be, because the reality is that this is not a stand-alone venture. You are attached to an incumbent that presumably has a strong brand, customers, a distribution network, data, and industry know-how and you want to leverage those elements strategically in the new business. Oftentimes, successful builds have a small number of executives who know the industry and those executives build around them a team with a healthy mix of older and newer faces with fresh thinking and new skills. We did some research on this, and the successful new businesses have a majority of externally hired people but also 20 to 40 percent of staff from the incumbent organization.
How you measure these people is almost as important as the individual themselves, because people tend to change their behavior based on how they are evaluated. An individual has a certain way of behaving in the core company because of specific metrics and expectations. So what performance management system have you put in place around the new organization? How do you make sure you are not measuring financial results too early, because that will clip the venture’s wings? How do you track milestones? Those are all important considerations.
Ari Libarikian:..
