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How digital reinventors are pulling away from the pack

Here is a brief excerpt from an article 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.

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What are digital reinventors doing differently?

But not every company is responding tentatively. Some, and not just the digital natives, are embracing digital change. To better understand how different companies—incumbent or otherwise—are competing, we asked respondents to identify the current position of their own companies (each in its primary industry): digital natives, incumbents competing in new ways through digitization, incumbents competing in new industries through digital moves and initiatives, and incumbents competing primarily in traditional, nondigital ways. Responses from the first three groups—which we call digital reinventors—indicate that these companies are all outperforming their traditional-incumbent peers in revenues and earnings (Exhibit 4). Digital natives have impressive growth rates but are starting from a much smaller market share; respondents at the digital natives say they command a median of only 5 percent of the markets of their industries. The incumbents competing digitally, by contrast, grow from a much larger base. Respondents from these companies report that they own a median of 20 percent of their core markets.

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The practices of the reinventors differ from those of traditional incumbents in three critical areas: the approach to investments, the degree of innovation, and the application of digital technologies. The digital reinventors appear to be using these practices both to digitize their core businesses and to innovate through new business models.

[Here are the first two primary differentiators.]

Innovating the business model. Rather than just making minor modifications to traditional business models, the digital reinventors are more likely than other companies to have made significant changes to both their strategies and the very nature of their core businesses (that is, by digitizing the core more fully and innovating with completely new digital businesses). Digital reinventors are at least twice as likely as traditional incumbents to report modifying their long-term strategies in response to digital-related changes. And when asked about specific actions taken to address digitization, the reinventors are much more likely than their peers to have launched new businesses and to have built new digital business models for their core businesses. Most notably, they are almost seven times more likely than their traditional counterparts to have fully digitized their core business models.

Embedding technology innovatively and at scale. Our results indicate that the digital reinventors are more likely to use cutting-edge digital technologies—and to use them at scale—than are their counterparts, which tend to spread investments thinly across technologies, without scaling them up. Forty-four percent of incumbents playing digitally say their companies use design thinking at scale either across the organization or within functions or business units, but the same percentage of traditional incumbents haven’t even started to pilot it (Exhibit 5). Incumbents playing digitally are twice as likely as their traditional-incumbent counterparts to be using artificial-intelligence tools across the organization, a trend that is active across several of the more advanced technologies we asked about.

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Here is a direct link to the complete article.

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