Benchmarking

5 Pitfalls That Doom Digital Strategies

Businesses are treating digital disruption as if it is a coming tsunami, and that is actually a problem—because digital disruption is really more like a meteor impact. In other words, the magnitude of change is even more extreme than most business leaders realize. In an article for McKinsey, Jacques Bughin, Tanguy Catlin, Martin Hirt, and Paul Willmott identify five associated pitfalls of this thinking that are dooming digital strategies:

  1. Fuzzy definitions
  2. Misunderstanding the economics of digital
  3. Overlooking ecosystems
  4. Over-indexing on the “usual suspects”
  5. Missing the duality of digital

Extinction Warning

In the first place, businesses’ idea of what “digital” means is variable. When businesses are not even clear what “digital” means to them, it is no wonder that they have a hard time building a strategy around it. Imagine trying to craft a pair of shoes if you have only ever seen feet in drawings.

Another problem is not recognizing that digital disruption introduces new economics. For instance, since digital is actually creating more value for customers than for businesses, it is resulting in less economic rent, which is “profit earned in excess of a company’s cost of capital.” So much convenience is coming to customers that they often have the power to pick and choose when they want to use/purchase anything at all, as opposed to being locked into service agreements/buying a product outright. Businesses are still figuring out how to deal with this new reality.

A third issue that business leaders may not realize is that industries are converging. The authors refer to this convergence as ecosystems, industries sewn together by digital offerings. A good digital strategy has to be able to play well across a whole ecosystem, not just your industry.

The authors continue to say this about the danger of “over-indexing the usual suspects”:

Most companies worry about the threats posed by digital natives, whose moves get most of the attention—and the disruptive nature of their innovative business models certainly merits some anxiety. Excessive focus on the usual suspects is perilous, though, because incumbents, too, are digitizing and shaking up competitive dynamics. And the consumer orientation of many digital leaders makes it easy to overlook the growing importance of digital in business-to-business (B2B) markets.

One more thing to keep in mind about digital is what the authors refer to as a “duality.” This duality is the importance of not simply building new things (i.e., whole-cloth innovation) but also digitizing the current business. It cannot be a baby-with-the-bathwater scenario where you travel too far into the unknown and forget about the practices that got you to your current point. A balance must be struck between the pace of change and the degree of change enacted.

For a much deeper discussion of each of these pitfalls, you can view the original article here: https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/why-digital-strategies-fail

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