'It's digitize or die:' McKinsey digital transformation expert

McKinsey & Company Partner Pooya Nikooyeh speaks at the 2022 Korea Times Forum at the Korea Chamber of Commerce and Industry (KCCI) building in Seoul. Korea Times photo by Shim Hyun-chul

Partner Nikooyeh says digitalization will be 'game-changing' for Korea

By Lee Kyung-min

The Korean government should promptly innovate its culture and revise hiring policies to enable swift digitalization, a much-needed solution for the country's widening productivity gap with the U.S. and sinking growth potential, a digital transformation expert at McKinsey & Company said, Tuesday.

Korea is the world's leading digital competitor defined by top digital proficiency and inclusive internet access. But it has yet to fully integrate high-tech, strong IT capabilities into broader industrial and commercial use, an area that requires major improvements with committed policy assistance and administrative support, according to Pooya Nikooyeh, a partner at McKinsey & Company. He gave a lecture at The Korea Times Forum at the Korea Chamber of Commerce and Industry (KCCI) on Tuesday. The topic of the 30-minute session was "Korea's digital imperative: What we want from the new government."

The productivity gap between Korea and the U.S. has considerably widened over the past decade, he said, a concerning development requiring the country to embrace the digital transformation to counter an overall decline and the loss of economic vitality. The gap is measured either by the output per worker or the output per hour worked compared to the country's main export competitors.

However, this can be effectively mitigated by the government's efforts to spearhead the digital transformation at every economic, social and administrative level to stimulate synergy and promote economic growth, as well as the overall streamlining of government and administrative activities that can be modeled by private sector participants, he said.

The breakthrough solution will in turn help Korea weather the unprecedented combination of uncertainties and volatilities both domestically and around the world.

"We are facing extreme levels of volatility: the COVID-19 pandemic, supply chain disruptions, high inflation and a potential impending recession," Nikooyeh said. "In this context, businesses and countries that manage to capture the power of digital to improve productivity and manage volatility will be the clear winners. It's digitize or die."

Tale of two worlds

Korea has strong digital accessibility as measured by global standards, a competitive edge compared to some of its more advanced global peers, the digital transformation expert said.

Korea ranked 12th out of 64 countries in digital competitiveness announced by the International Institute for Management Development (IMD) in the 2021 IMD World Competitiveness ranking.

It ranked 11th out of 120 in the Inclusive Internet Index by the Economist Intelligence Unit (EIU) and topped the list of OECD countries in digital proficiency as measured by people between the ages of 16 and 24 years.

However, these outstanding capabilities are not being fully leveraged for the economy. Korea came in second to last, or 19th out of 20 OECD countries, in the use of cloud computing and in the use of customer relationship management (CRM) software. It came in 17th out of 20 when ranked by the use of e-commerce by large enterprises. Only 3 percent of the World Economic Forum's "digital lighthouses" ― leading manufacturing organizations in the adoption of Fourth Industrial Revolution technologies for manufacturing ― are in Korea.

The notable lag in the efficient use of such digital growth potential is explained in part by Korean business leaders' shared understanding that they are not "fully ready and there have not been many bold transformations," despite the equally strong sense that digital will be "the promising next step."

The responses are drawn from a McKinsey digital industry 4.0 survey of 300 executives on their thoughts on the digital transformation.

A total of 87 percent of respondents in the U.S. said they viewed digitization as critical for achieving operational goals, compared to the 84 percent of respondents in Korea who agreed. Only 14 percent of the U.S. respondents said that their country has a well-defined strategy for achieving the digital drive, while 17 percent of their Korean counterparts responded that they felt the circumstances in their country were similar.

Three-pronged strategy

The McKinsey partner outlined a three-pronged strategy for Korea to facilitate the digital transformation in the economy, society and government administration, a growth momentum that will fortify efficiency across all sectors.

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Digital economy in his view increases the gross domestic product (GDP) and creates jobs via digital-enabled sectoral growth and productivity improvements.

Digital society improves people's quality of life by increasing the use of digital technologies among individuals and communities. Examples of integrated digital systems include single-sign ID systems and digital healthcare systems.

Digital government improves the efficiency of government processes and the quality of government interactions via digital adoption. Examples include the digitalization of government processes and data sharing within the government.

Talent policy

Chief among the six government actions required to enable this transformation is to broaden the approach to talent acquisition and retention so as to catalyze innovation, he said.

The government should lead in fostering the culture of innovation by utilizing diverse, talented people, including academic and industry professionals, to create policies to cultivate a multi-disciplinary and high-level talent pool. The government should push to seek out talent contributions from around the world and attract a greater number of talented people for building global expert networks, in his view.

"The broadened talent policy will help cover emerging areas becoming integral to the digital sector including design thinking. University as well as high school education can reorient to become fit-for-purpose, preparing students for the needs and demands of the job market, changing the paradigm," he said. "Repurpose them and create educational and training courses."

Nikooyeh's insight followed an impromptu question by panelist Han Sang-man, the president of the Korean Academic Society of Business Administration, who sought ideas on how best to integrate the management strategy into higher education.

The thought-provoking response strengthens the argument that not everybody has to go to Seoul National University ― Korea's top university ― to become a fast, agile player in the world of fast-changing digital transformation, so to speak. Going to the top university and the ability to talk to other young people about what they care about are not mutually exclusive, he explained.

"The government needs to accept that it cannot lead the digital initiative alone, as was embraced by the Taiwanese digital minister," he said.

Creating a thriving startup ecosystem should be another goal to double down on priority start-up ecosystems, while a "fail fast" mindset should be adopted, he added.

Equally important is fostering of a supportive regulatory environment, helping encourage open data sharing and open data exchanges. Such an environment will enable customer data sharing for retail optimization, or between telecommunications and financial service providers.

The industry should be granted greater research and development (R&D) benefits, to ensure sufficient focus on the effective application of digital technologies.

Outcome-based funding, or startup grants contingent on export strategy, for example, could increase the agility of funding by clarifying criteria.

A game-changer

Reality is harder than revolution, he acknowledged, as evidenced by data that he cited where only 16 percent of attempts at digital transformation have fully succeeded.

But he stressed that we need to deal with a whole lot of complexity to get to the promised land of simplification. "When it works, it is game-changing," he said.

Other big challenges to going digital come from culture, people and organizations.

In a survey of 2,135 CEOs of global companies interviewed by McKinsey on the reasons digital transformations failed, with multiple answers allowed, 36 percent cited the focus of Chief Experience Officer (CXO) and the corporate culture.

This response was followed by the CXO's lack of understanding of digital technology (26 percent).