The Best Response to Digital Disruption

Few executives would dispute that digitization’s disruptive influence is growing. But surprisingly little empirical evidence has captured either the magnitude of digital disruption or how incumbents are reacting. Leaders know they have a problem but lack guidance to determine the right course of action.
In a global survey of 2,000 C-suite executives in more than 60 countries, McKinsey & Co. found that few companies are responding appropriately to digital disruption. While 90% of companies indicated that they are engaged in some form of digitization, only 16% said their companies have responded with a bold strategy and at scale; only 30% of companies are focusing on new ways to bundle demand or resegment their market. Based on these numbers, some leaders might assume that they have plenty of time to get their digital acts together. But the authors argue that this would be a dangerous assumption because new digital entrants are seizing a significant share of revenue across regions and industries.
The authors highlight three bold tactics companies can use:
1. Develop new customer segments. Rather than just defending existing business lines through cost cutting, automation, or service improvements for existing customers, companies should focus on developing new customer segments. Medialaan NV, a leading free-to-air video broadcaster in Belgium, spotted young customers moving to platforms such as Netflix or YouTube. In response, it bought a mobile virtual operator with attractive data plans, thus becoming one of the few traditional broadcast companies to grow its TV audience in the youth segment.
2. Introduce new business models. Innovative companies are experimenting with business models intended to disrupt their own legacy strategies. When Schibsted Media Group of Oslo, Norway, saw that its print classified advertising was drying up, it moved the classified business to a free online marketplace. Today, more than 80% of the group’s earnings come from commissions on sales from its consumer e-commerce platform.
3. Redefine the value chain. When digital entrants threatened its payment services business, Commonwealth Bank of Australia (CBA) chose to confront the disrupters head-on with a new open payments platform that hosts an ecosystem of applications and devices for merchants and is open to third-party developers. Although the platform and its ecosystem contribute to the disruption of the traditional banking value-add chain, it also positions CBA to compete with digital entrants.