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.

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A supply-and-demand guide to digital disruption.

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.”¹ Then he turned and saw the fin.

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:

• Simple (later bought by BBVA) took on big-cap banks without opening a single branch.
• A DIY investment tool from Acorns shook up the financial-advisory business.
• Snapchat got a jump on mainstream media by distributing content on a platform-as-a-service infrastructure.
• 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.

Deeper forces

Consider an insurance company in which the CEO and her top team have reconvened following a recent trip to Silicon Valley, where they went to observe the forces reshaping, and potentially upending, their business. The team has seen how technology companies are exploiting data, virtualizing infrastructure, reimagining customer experiences, and seemingly injecting social features into everything. Now it is buzzing with new insights, new possibilities, and new threats.

The team’s members take stock of what they’ve seen and who might disrupt their business. They make a list including not only many insurance start-ups but also, ominously, tech giants such as Google and Uber—companies whose driverless cars, command of data, and reimagined transportation alternatives could change the fundamentals of insurance. Soon the team has charted who needs to be monitored, what partnerships need to be pursued, and which digital initiatives need to be launched.

Just as the team’s members begin to feel satisfied with their efforts, the CEO brings the proceedings to a halt. “Hang on,” she says. “Are we sure we really understand the nature of the disruption we face? What about the next 50 start-ups and the next wave of innovations? How can we monitor them all? Don’t we need to focus more on the nature of the disruption we expect to occur in our industry rather than on who the disruptors are today? I’m pretty sure most of those on our list won’t be around in a decade, yet by then we will have been fundamentally disrupted. And how do we get ahead of these trends so we can be the disruptors, too?”

This discussion resembles many we hear from management teams thoughtful about digital disruption, which is pushing them to develop a view of the deeper forces behind it. An understanding of those forces, combined with solid analysis, can help explain not so much which companies will disrupt a business as why—the nature of the transformation and disruption they face rather than just the specific parties that might initiate them.

In helping executives to answer this question, we have—paradoxically, perhaps, since digital “makes everything new”—returned to the fundamentals of supply, demand, and market dynamics to clarify the sources of digital disruption and the conditions in which it occurs. We explore supply and demand across a continuum: the extent to which their underlying elements change. This approach helps reveal the two primary sources of digital transformation and disruption. The first is the making of new markets, where supply and demand change less. But in the second, the dynamics of hyperscaling platforms, the shifts are more profound (exhibit). Of course, these opportunities and threats aren’t mutually exclusive; new entrants, disruptive attackers, and aggressive incumbents typically exploit digital dislocations in combination.

We have been working with executives to sort through their companies’ situations in the digital space, separating realities from fads and identifying the threats and opportunities and the biggest digital priorities. (For a quick guide to assessing your organization’s situation, see “How vulnerable are you to digital disruption?” [PDF–57KB].) Think of our approach as a barometer to provide an early measure of your exposure to a threat or to a window of opportunity—a way of revealing the mechanisms of digital disruption at their most fundamental. It’s designed to enable leaders to structure and focus their discussions by peeling back hard-to-understand effects into a series of discrete drivers or indicators they can track and to help indicate the level of urgency they should feel about the opportunities and threats.

We’ve written this article from the perspective of large, established companies worried about being attacked. But those same companies can use this framework to spot opportunities to disrupt competitors—or themselves. Strategy in the digital age is often asymmetrical, but it isn’t just newcomers that can tilt the playing field to their advantage.

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Here is a direct link to the complete article.