Disrupt to Profit from the Digital Revolution

What leading companies do differently from the rest

A recent report from McKinsey – “The case for digital reinvention” states that “Digital technology, despite its seeming ubiquity, has only begun to penetrate industries. As it continues its advance, the implications for revenues, profits, and opportunities will be dramatic.”

Not only does it conclude that investment in Digital is now essential to stay-in-the-game but it goes further in stating that the only way to get ahead of competitors (old and new) is to lead the pack and disrupt. By disruption it means new digital capabilities, business models or platforms that shift  or broaden the base of value creation, either at the company or ecosystem level.

It’s an interesting piece of research and and the underlying models must be open to challenge. However, its conclusions tally with our client insights:

1. Digital adoption reduces Revenue & EBIT!

“Current levels of digitization have already taken out, on average, up to six points of annual revenue and 4.5 points of growth in earnings before interest and taxes (EBIT)”

“… the most assertive players will be able to restore more than 11 percent of the 12 percent loss in projected revenue growth, as well as 7.3 percent of the 10.4 percent reduction in profit growth (that digitisation brings).

So What? This is the bad news. Digitisation reduces costs but it also reduces revenue and profit so it’s very hard to get a competitive edge with Digital. This is not what Execs. want to hear but it is the new reality so it’s pointless to resist – now is the time to get Digital.

2. Digital Disruption Wins

“Our research suggests that the more aggressively they (companies) respond to the digitization of their industries—up to and including initiating digital disruption—the better the effect on their projected revenue and profit growth.”

“Bold, tightly integrated digital strategies will be the biggest differentiator between companies that win and companies that don’t, and the biggest payouts will go to those that initiate digital disruptions”

“Disruptive strategies are a powerful response to intense digitisation”

So What? The only sure way to get ahead of your competitors (old and new) with Digital is to lead from the front and disrupt.

3. The next best thing? Fast-follower strategy

“Fast-following and great execution are the next best thing to disruption…competitive advantage then lies in the quality of execution”

So What? Where investment & resources limit the ability to disrupt via new business models and platforms, execution excellence ” fast followers”  may also profit, but only IF they out-execute their competitors via agility, digital capabilities or other strategic assets, a tough ask.

4. Ensure Digital Strategy is aligned with Business Strategy

“When companies respond to digitisation assertively and across multiple dimensions, they improve their performance”

“Some Digital initiatives generate attractive returns, while others don’t return their cost of capital….the fact that high performers exist in every industry indicates that some companies are getting it right”

“….more than twice as many leading companies closely tie their digital and corporate strategies than don’t. What’s more, winners tend to respond to digitization by changing their corporate strategies significantly….winners exceed laggards in both the magnitude and the scope of their digital investments”

“…a great strategy can by itself retrieve all of the revenue growth lost, on average, to full digitization—at least in the aggregate industry view”

So What? Too many executives still display a mixture of fear & ignorance whenever the ‘D’ word is mentioned and are deeply uncomfortable with the idea of embarking on a Digital Strategy, even though every Business Strategy is now incomplete without one.

5. A strategic shift in resource allocation is required to compete in the era of Digital

“In general, companies that strategically shift resources create more value and deliver higher returns to shareholders. This general finding could be even more true as digitization progresses.”

So What? You can’t succeed by simply digitising ‘what is’, the current business model, organisation structure or processes. This ‘tinkering’ will only deliver marginal gains and at best, keep you in the race. You need to be bold and prepared to shift resources, make new investments and abandon others.

6. A long way too go: Digital has only reached mainstream adoption in Media & Entertainment

So What? The Digital revolution has only just begun. It just so happens that it is most advanced in domains and via devices that are very visible to all of us – media & entertainment, smartphones, TV’s and tablets. The reality is that the media & entertainment industry, though large & visible, is only the tip of the iceberg and every other industry (and almost all other equipment & devices) are as yet, non-digital.

7. Digital Marketing & Distribution is no longer a differentiator but simply essential to stay in the game

“… the survey indicates that distribution channels and marketing are the primary focus of digital strategies (and thus investments) at 49 percent of companies (note: all industries). That focus is sensible, given the extraordinary impact digitization has already had on customer interactions and the power of digital tools to target marketing investments precisely. By now, in fact, this critical dimension has become “table stakes” for staying in the game. Standing pat is not an option.”

So What? Too many companies (such as some Telcos) consider digitisation of Marketing & Distribution as their Digital Strategy when it should be just one essential component of something much broader & more ambitious.

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