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OUR BEST IDEAS, QUICK AND CURATED | OCTOBER 21, 2022

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This week, we delve into why digital trust matters so much. Plus, a peripatetic podcast with the economist Tyler Cowen, and a look back at the Stanley Steamer and how its demise offers lessons for the car market of today.

What is digital trust and why does it matter to businesses? We define it as consumer confidence in an organization to protect their data, enact effective cybersecurity, offer trustworthy AI-powered products and services, and provide transparency around AI and data usage. Consumers increasingly want to know a company’s policies before buying its products or services.

A trust gap. A recent McKinsey global survey of more than 1,300 business leaders and 3,000 consumers shows that companies are confident in their ability to establish digital trust: nearly 90 percent believe that they are at least somewhat effective at mitigating digital risks. However, this assuredness is largely unfounded. Fifty-seven percent of executives report that their organizations suffered at least one material data breach in the past three years; many of these breaches resulted in financial loss (42 percent of the time) or customer attrition (38 percent).

Best practices. The survey results suggest that delivering on digital trust could provide significant benefits beyond satisfying consumer expectations. Digital-trust leaders are defined as those companies with employees who follow codified data, AI, and general ethics policies and that engage in at least half of the best practices for AI, data, and cybersecurity that we asked about. They are less likely to have experienced a negative AI incident in the past few years, and are 1.6 times more likely than the global average to see revenue and EBIT growth of at least 10 percent annually.

A focus on value. Senior partners Alex Singla, Kate Smaje and their team looked at the practices of digital-trust leaders to see what they’re doing differently. They found that success starts with goal setting, particularly those that cultivate value. These include strengthening existing customer relationships and acquiring new customers by developing competitive advantage through faster recovery from industry-wide disruptions. In a digitally connected and data-driven world, achieving digital trust is a major strategic imperative and a huge business differentiator.

Off the charts

The aftermarket: No longer an afterthought?

While many industries have learned that aftermarket services can be a critical component of the sales mix, many aerospace and defense (A&D) companies have treated the aftermarket as an afterthought. Recently, however, some A&D companies have been assessing the opportunities to accelerate revenue growth and improve profit margins even while they face a range of common challenges. Five priorities, grounded in data, can point the way.

PODCAST

‘Get more and better mentors’

Tyler Cowen, a prominent economist, author, podcaster, and talent investor, discusses how to better match human talent to opportunities, including his belief that young people benefit from attending events with top talent. “They will absorb the energy of that talent, they’ll see how that person presents, how they carry themselves, what kind of charisma they have. The idea of top talent will become emotionally vivid to them.” He also shares a piece of advice for people of any age: “Get more and better mentors, no matter what your station in life is. And your mentors can be younger than you.”

More on McKinsey.com

Resetting the e-commerce model in Europe | To achieve profitable growth, winning EU consumer goods players are reprioritizing channels and markets to drive online sales, shifting to an online-first playbook, and investing in tech and specialist talent.

Four keys to merger integration success | In large transactions, integration is the phase that business leaders struggle with the most. M&A experts share the integration practices that set the most successful large deals apart.

How effective boards approach technology governance | As technology’s strategic importance to the business expands, management needs stronger board guidance. Four engagement models have proven useful.

LOOKING BACK

The little engine that couldn’t

To mark the 125th anniversary of the Stanley Steamer, McKinsey partners Russell Hensley, Moritz Rittstieg, and Shivika Sahdev write about what lessons the dawn of the car market holds for the disruptions of today. This is a lightly edited excerpt from their article.

What would you imagine as the “car of the future,” if you were imagining it 125 years ago? At the end of the 19th century, the Stanley brothers—twins Francis and Freelan—imagined an automobile that would be aesthetically pleasing. They aspired for high but safe speeds. They strove for a vehicle that was intuitive and reliable. And, inculcated by 19th-century industry, they imagined a car that would run on steam. They created their automobile in a rapidly industrializing United States, in 1897, and five years later branded it the Stanley Steamer. For two remarkable years, in the days before the Ford Model T, it was the highest-selling car in the country.

When the Stanleys put their working model on the road, steam dominated commerce: it propelled the world’s navies and gave rise to an intricate network of coaling stations, coaling islands, tugboats, cruise ships, battleships, and dreadnoughts.

The success of steam-powered railroads did not make steam-powered automobiles a sure thing in 1897. Just like today, multiple powertrains—including internal-combustion engines (ICE) and electric motors—were available. Records show that in 1900, US companies manufactured about 4,200 automobiles: 40 percent were steam-powered, 38 percent were electric, and 22 percent were ICE.

Steam cars, which could be powered by a variety of fuels—from coal and charcoal to kerosene and wood—had an uneven range, at least from the driver’s perspective. One steam car reached 1,500 miles on a single load of fuel. Practically speaking, however, steam automobile range was restricted by the requirement to keep adding more water. Drivers needed to stop for water-tank top offs to keep their car kettles boiling.

The Stanleys produced about 500 cars in 1917; the four-passenger touring car was priced at $2,550. However, a gentleman by the name of Henry Ford produced more than 600,000 Model Ts that same year; its five-passenger touring car was priced at $360. Unlike the Stanleys, Ford thought relentlessly in systems—when developing the assembly line, when thinking of costs, and when imagining consumer expectations on speed power, range, reliability, and, especially, price.

There are remarkable parallels between the dawn of the 20th century’s transition from steam to ICE, and the 21st century’s challenges of moving from ICE to electric (or possibly, or in tandem, to hydrogen or to other non-carbon-emitting fuels). First is the challenge of form and function: What exactly does a great car mean? It should be a reliable, well-running vehicle to move people and goods. But increasingly, a great car is a platform, bringing technologies to bear that enhance driving safety and efficiency.

Second is the challenge of resources. As Henry Ford recognized, but the Stanleys seemingly never fully grasped, making a great car requires not only operating a great factory but also considering infrastructure. Even as market demand for electric vehicles today catches up to forecast expectations, leaders know that they must do everything they can to advance investment in effective supporting infrastructure. This means connecting cars to the electric power grid for refueling convenience, bolstering the grid’s resilience, and providing new electric-power utility via the power plant within each vehicle.

As these two epochs show, a great car can create great change, but the future always has the last word. Imagine the ecosystem of the future, and you can imagine the car of the future. In exactly that order.

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