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Here’s how companies can withstand digital disruption

New Delhi: In an increasingly digital world, making incremental changes to long-standing business models may not be enough. Established companies can win by addressing digital strategy’s dual imperatives – building new digital businesses while digitising legacy operations, suggests new research from McKinsey & Company.

Digitised incumbents – companies that are more than 20 per cent digital and are launching new digital businesses while transforming the core – are twice as likely as traditional incumbents to experience organic revenue growth of 25 per cent or higher, according to respondents to a McKinsey survey on digital strategy.

Digitised incumbents command a 20 per cent share, on average, of their core markets, according to the study titled “ Mastering the duality of digital: How companies withstand disruption”.

That is five percentage points more than what respondents at traditional incumbents report, and four times what respondents at digital natives do.

The best economic performers – that is, companies with organic revenue growth of 25 per cent or higher during the past three years –are more likely than other companies to work on creating new digital businesses, according to a separate survey.

While not all digitised incumbents are top economic performers, they are much more likely to be in that elite group than traditional incumbents.

Three bold strategic moves, all geared to building digital businesses, distinguish the top economic performers from all other companies.

The first move is allocating digital capital. Respondents at top economic performers said that their companies divide this capital equally between digitizing their core businesses and developing new digital businesses. Other companies put more money into digitising legacy operations.

The second bold move is centering mergers and acquisitions on digital opportunities. According to respondents, top economic performers dedicate most of their M&A investments– 63 percent – to acquiring digital businesses and capabilities. By contrast, other companies focus their M&A on non-digital ventures.

The top performers’ third bold move is to emphasise innovation when they develop their digital product portfolios.

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