Inaugural digital index shows pockets of excellence

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Australia’s climb up the digital ­ladder is proving to be an uneven one, according to the latest ­research by consultancy firm McKinsey & Co, with some sectors still playing catch up with their US counterparts.

According to the inaugural Digitisation Index for Australia, put together by McKinsey, while there are local pockets of world-class practice, there’s still a lot of value yet to be fully realised.

McKinsey Australia and New Zealand senior partner Simon Blackburn said the index was the first concerted attempt to get an idea of digital maturity of organisations in Australia.

With overall technology adoption in Australia high, the trend has seen strides made in sectors such as mining and mobile banking. However, asset-intensive sectors have been slower off the mark.

“Businesses in these sectors by their very nature make substantial investments outside of ICT, which may explain where they are on the index,” he said.

The Australian retail industry, which employs more than 10 per cent of the workforce, is one sector that the McKinsey report has pinpointed as a laggard.

Despite strong strides in recent years, the digital maturity of ­Australia’s retail sector lags behind international peers, partic­ularly in reaching and influ­encing consumers through digital channels, the report says. The obser­vation is particularly noteworthy at a time when disrupters like Alibaba and Amazon are entrenching their presence locally. The problem, according to the report, lies under the hood.

While the signs on the customer interaction and transaction side of the equation are healthy, it’s the non-consumer facing areas that pose a challenge.

“Areas of retail that are not consumer facing, however, including back-end processes such as the supply chain, are less digitised than in other industries,” the ­report says.

“This reflects, in par­ticular, a persistence of manual labour where other sectors have been more readily able to apply automation. A troubling sign for the retail industry is poor performance on the digital talent and digital spending on workers metrics — as both will likely be key as retailers look to address the digital imperative ­rapidly in the near future.”

According to the report, an ­improvement in digital acumen has the potential to deliver a $30 billion uplift for the retail sector annually (approximately 10 per cent of current industry value), even as Amazon and Alibaba weave their magic in Australia. “We are still some ways away from global best practice when it comes to supply chain and logistics,” Mr Blackburn said.

Unsurprisingly, the pay-off for those able to successfully harness digitisation is immense, according to the report, with the potential to contribute between $140bn and $250bn to Australia’s GDP by 2025, based on currently available technology alone.

However, capturing these opportunities will take clear leadership, smart investment, capability building at scale and, most importantly, changes in organisational cultures and ways of working. ­According to the report, simp­lified processes and the use of ­advanced analytics could reduce annual ­expenditure in the healthcare ­sector by up to 12 per cent and even the sectors doing well, such as banking and mining, could eke out more gains.

“There is further opportunity to increase digital service and sales, apply advanced analytics particularly in managing risk, and use new technologies like telematics to reinvent traditional products,” the report said.

Meanwhile, the conversation in the public sector will need to focus on improving engagement between the government and ­citizens. According to Mr Blackburn, the scope for agencies extends beyond improving service delivery and online interaction for citizens. “Enabling citizens to use publicly available data to create solutions is one area of opportunity and there’s also the ongoing digitisation of how the government works,” he said.

Applying digital tools to the government’s citizen facing activity and back office support has the potential to generate annual efficiency gains of 4-15 per cent, the report said.

“The stakes are high when it comes to getting this right because citizens are also consumers,” Mr Blackburn said.

“Leadership is critical to this — there’s too much focus on technology but how organisations are run is equally important.”

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