McKinsey research shows offensive digital strategies pay off

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A recent report by McKinsey concludes that the implication of digitization for revenues, profits and opportunities will be dramatic. While one might assume that digitization is already far advanced as digital technologies pervade more of everyday life, less than 40 percent of industries have been digitized. The report looks into what approaches actually work and how well they perform.

Their research has also shown that companies in the lower revenue growth quartile will lose out on digitization while companies at the top capture disproportionate gains. Bold, tightly integrated digital strategies will be the biggest differentiator between companies that win and companies that don’t, and the biggest payouts will go to those that initiate digital disruptions. For publishers this means they also have to go in the offensive. Relying on your still successful print business won’t be enough and alternative paid content models have to be sought after.

McKinsey’s findings suggest that digital disruption hits incumbent companies the hardest. The reason behind this is that new entrants tend to build on business models that undermine those of incumbents and often offer better value for money.
The way most companies approach digitization is to develop a digital plan without radically transforming their capabilities and portfolio of activities. Their strategies are essentially defensive. In order to stand out however, companies must approach this challenge more comprehensively, revising their entire corporate strategy by entering new market segments and taking on more risk. What is more, is that companies that go on the digital offensive are also less effected by disruptors.
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There are two ways to win the digital game

Be the first mover – the Netflix way

Netflix had comfortable success before it disrupted the whole TV and movie industry. However, they knew that defending its existing business would not be enough. They pursued a completely new business model and managed to extend its original marketplace to a global streaming service. Netflix invested upfront and dared to cannibalize its initial business, DVD rental, and it paid off big time. This kind of approach yields a 30 percent increase in revenue growth or about 4.3 percent of extra revenue a year.

Follow fast – the digital astute organization

Being first is not the only way to keep on growing. Being a fast follower is an alternative way to secure long-term success. While retaining the existing corporate strategy but moving aggressively to build organizational agility also builds more digital revenues. This requires to reorganize to optimize towards digital processes by using digital tools and smart data to improve efficiency. Letting data make the small decisions so you can focus on the big ones. It is essential that from the top management down the whole organization is aligned fully on building a digital organization.