3 Apr 2017

Reinvent The Digital World

By: Jacques Bughin
(Sr. Partner at McKinsey & Co., Director of the McKinsey Global Institute, Core Leader of Digital McKinsey)

There are two promising ways:

1. First mover: the Netflix Way

Those who adopt this approach see where the industry is going and aim to get there first. By developing new digital businesses — with sufficient investments to gain a secure footing — they can actually win more revenue and profit from their markets than they had before digitization.

Netflix didn’t try to defend its existing franchise; by pursuing a new business model, it managed to extend its original marketplace, going from a regional player to a global streaming service.
In fact, most of its subscribers add Netflix to their existing cable or satellite subscriptions, which expands the broader industry’s revenue pie.

We find that roughly 10% of companies apply a similar strategy: they invest up front and dare to cannibalize their own legacy businesses.
Now, assume a future that is fully digitized. A company that takes the first mover approach and pairs it with even average performance in such areas as operations, culture and talent yields a 30% increase in revenue growth over what it would have otherwise, or 4.3% of extra revenue a year.

2. Fast follower: the digitally astute organization

Initiating disruption isn’t the only way to maintain growth, we discovered. The alternative is to take the fast follower route. Under this approach, the company retains the existing corporate strategy, continuing to focus on its existing products and market segments, but aggressively moves to build more digital revenue through cutting-edge organizational agility. In other words, instead of investing heavily in digital businesses, it invests in digital organizational capabilities.

It reorganizes to adopt end-to-end digital processes; it taps digital tools and big data to improve efficiency; and it makes sure that management, from the CEO down to front-line managers, is aligned fully on building a digital organization.

Roughly 20% of companies adopt this approach. Assuming again a world of full digitization, we can see that the win for fast followers is smaller than for first movers, but it’s still a win, at 0.4% in annual revenue growth.

Most of the companies ranked in the top 25% of revenue growth are using one of these two approaches. So why are they more immune to digital disruption than others?
First, agile organizations tend to better anticipate shocks, are more resilient and react quickly with new plans.
Second, companies that exploit digital technologies to reinvent themselves tend to be more focused on growth than average.

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