Digitization has barely started, and so has the accompanying upheaval. Some key insights for winning strategies.
March 27, 2017 – All the talk of digital disruption turning incumbents into dinosaurs and unicorns into masters of entirely new domains might lead you to think this is already an old narrative—so 2016. In fact, digitization has barely started, and so has the accompanying upheaval.
Digital technologies and processes have penetrated only about 35% of the way into the average industry, meaning that merely a third of a typical company’s products and operations that could be digitized have been. Yet the impact has already been dramatic: Globally, digital disruption is shaving 45% off incumbent companies’ revenue growth and 35% off their earnings before interest and taxes (EBIT). As digitization accelerates, the hit to revenues and profits of digital laggards will grow significantly, even as the digital leaders capture disproportionate gains.
These findings emerge from a research effort my McKinsey colleagues and I undertook to examine the nature, extent, and implications of digitization’s spread. We wanted to understand how economic performance will change as digital technology continues its advance, and what strategies are most likely to win the game.
Digital disruption is already shaving 45% off incumbents’ revenue and 35% off their earnings. First, how did we track digitization? The most widely discussed dimension is the way digitization enables new entrants using disruptive models to penetrate existing industries. Today, our research finds, those digital newcomers own about 17% of total revenue worldwide.
But digitization has more dimensions than this. Technology can affect your product or service, such as turning a DVD into a digitally streamed experience or a service into a software offering. It can also transform how the product is delivered to the customer—through e-commerce versus retail stores, for example. Furthermore, digitization encompasses the automation of a company’s operations and processes, and can extend to the full industry supply chain and broader ecosystem, with customers linked via crowd-sourcing platforms and middlemen eliminated.
To date, incumbent companies have rarely ventured to disrupt their own markets: only 9% have adopted this approach. Rather, incumbents’ digital strategies have focused primarily on digital distribution and marketing, with almost half investing in this area. That focus is sensible given the extraordinary impact digitization has already had there—in fact, it’s really “table stakes” for staying in the game.
Please click below to read more: