The economic essentials of digital strategy

Posted on: June 26th, 2016 by bobmorris

EconomicEssentials

Do you and your colleagues need a supply-and-demand guide to digital disruption?

Here is a brief excerpt from an article written by Angus Dawson, Martin Hirt, and Jay Scanlan for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

To learn more about the McKinsey Quarterly, please click here.

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In July 2015, during the championship round of the World Surf League’s J-Bay Open, in South Africa, a great white shark attacked Australian surfing star Mick Fanning. Right before the attack, Fanning said later, he had the eerie feeling that “something was behind me.”1Then he turned and saw the fin.

How to make sense of digital disruption

Thankfully, Fanning was unharmed. But the incident reverberated in the surfing world, whose denizens face not only the danger of loss of limb or life from sharks—surfers account for nearly half of all shark victims—but also the uncomfortable, even terrifying feeling that can accompany unseen perils.

Just two years earlier, off the coast of Nazaré, Portugal, Brazilian surfer Carlos Burle rode what, unofficially, at least, ranks as the largest wave in history. He is a member of a small group of people who, backed by board shapers and other support personnel, tackle the planet’s biggest, most fearsome, and most impressive waves. Working in small teams, they are totally committed to riding them, testing the limits of human performance that extreme conditions offer. Instead of a threat of peril, they turn stormy seas into an opportunity for amazing human accomplishment.

These days, something of a mix of the fear of sharks and the thrill of big-wave surfing pervades the executive suites we visit, when the conversation turns to the threats and opportunities arising from digitization. The digitization of processes and interfaces is itself a source of worry. But the feeling of not knowing when, or from which direction, an effective attack on a business might come creates a whole different level of concern. News-making digital attackers now successfully disrupt existing business models—often far beyond the attackers’ national boundaries:

o Simple (later bought by BBVA) took on big-cap banks without opening a single branch.
o A DIY investment tool from Acorns shook up the financial-advisory business.
o Snapchat got a jump on mainstream media by distributing content on a platform-as-a-service infrastructure.
o Web and mobile-based map applications broke GPS companies’ hold on the personal navigation market.

No wonder many business leaders live in a heightened state of alert. Thanks to outsourced cloud infrastructure, mix-and-match technology components, and a steady flood of venture money, start-ups and established attackers can bite before their victims even see the fin. At the same time, the opportunities presented by digital disruption excite and allure. Forward-leaning companies are immersing themselves deeply in the world of the attackers, seeking to harness new technologies, and rethinking their business models—the better to catch and ride a disruptive wave of their own. But they are increasingly concerned that dealing with the shark they can see is not enough—others may lurk below the surface.

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Here is a direct link to the complete article.

Angus Dawson is a director in McKinsey’s Sydney office, Martin Hirt is a director in the Taipei office, and Jay Scanlan is a principal in the London office.

The authors would like to thank Chris Bradley, Jacques Bughin, Dilip Wagle, and Chris Wigley for their valuable contributions to this article.

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