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How to make a success of your digital strategy

Terry Frost

If you want your digital strategy to succeed, avoid these five pitfalls, write Jacques Bughin, Tanguy Catlin, Martin Hirt and Paul Willmot for McKinsey Quarterly.

The pace of digitisation is rapid, and it’s changing everything. You and your company must respond, and quickly. You know this already, of course. Every business leader knows it. But what have you done about it? How robust is your company’s digital strategy?

Most leaders have not reacted appropriately to the the pace of digitisation, say McKinsey’s Jacques Bughin, Tanguy Catlin, Martin Hirt and Paul Willmot: “We find that a surprisingly large number underestimate the increasing momentum of digitisation, the behavioural changes and technology driving it, and, perhaps most of all, the scale of the disruption bearing down on them.”


Only 8% of those companies the authors surveyed believed their business model would remain economically viable if digitisation in their industry maintained its current direction and pace.

Here are five potential pitfalls when formulating your digital strategy:

1) Fuzzy definitions. Before you create your digital strategy it’s vital you have a clear definition of digital, which takes into account its magnitude. These authors define it as “the nearly instant, free and flawless ability to connect people, devices and physical objects anywhere”.

In the past two years smart devices have generated 90% of the data ever produced. Twenty billion devices will be connected by 2025.

Data mining and analytics have resulted in the automation of both processes and decisions. For example, thanks to telematics, the insurance industry is able to collect and analyse real-time information about a customer’s driving behaviour, assess the risk and calculate the cost of coverage accordingly.

Levels of automation are only going to increase. You must ask yourself what this is going to mean for your industry and your company. What opportunities does it present you with?

2) Misunderstanding the economics of digital. Forget the core economic principles you learned in the pre-digital era. It’s time to learn the new economic rules.

Digital has put power in the hands of the consumers, with limitless choice creating fierce competition and hitting revenue growth and earnings.

Digital disrupts entire industries. For example, airlines, hotels and other providers used to pay travel agents to secure customers, but now consumers can find everything travel agents once offered online.

The profit pool is shrinking. How are you going to create value for your customers in order to compete?

In the current economic climate there are big winners and losers. Market leaders such as Amazon and Apple prosper while their peers suffer. Never assume market share will remain stable. Every industry is volatile and disruption is happening faster and more frequently than ever before.

You must move first and move fast. “We found that the three-year revenue growth (of over 12%) for the fleetest was twice that of companies playing it safe with average reactions to digital competition,” write the authors.

3) Overlooking ecosystems. You are no longer competing just with your traditional rivals; competition could come from anywhere, and you must be ready for it. Digital is destroying the boundaries between industries and sectors, creating new “ecosystems”. For example, Amazon’s acquisition of Whole Food Market makes it grocers’ number-one competitor.

Research by McKinsey shows that emerging digital ecosystems could account for more than US$60 trillion in revenues by 2025 – more than 30% of global corporate revenues. “Seven of the top 12 largest companies by market capitalisation, Alibaba, Alphabet (Google), Amazon, Apple, Facebook, Microsoft and Tencent – are ecosystem players.”

With industry boundaries blurring, you must keep an eye out for potential competitors and partners.

4) Ignoring the threat from within. It’s easy to focus solely on the threat posed by so called “digital natives”, but market leaders within your own industry or sector can also be dangerous.

Research by McKinsey shows market leaders command a 20% share, on average, of digitising markets, while digital natives take just a 5% share.

5) Failing to find a balance. In the fact of rapid digitalisation, it is easy to panic and focus all your energies on innovating at the expense of your core business. Disruption rarely brings about wholesale change, and most companies cannot afford to move away from their existing business entirely. Fortunately, digitisation often presents opportunities to improve your core business and to innovate.

In order to succeed in this new world, you must invest in technology, digitally related acquisitions and business model innovation; banish fear of failure; learn from your mistakes and be willing to “pivot”.


The first step is realising what you have to do. Repeat this mantra: “I need to develop a strategy to become number one, and I need to get there very quickly by creating enormous value to customers, redefining my role in an ecosystem and offering new business value propositions while driving significant improvement in my existing business.”

The next step is to formulate a digital strategy. This is a matter of who, when, what and how. You must involve the whole management team. You must have quarterly rather than annual strategy reviews and be willing to make real-time refinements. You must embrace role playing, scenario-planning exercises and war games. You must see strategic opportunities in real time, test, learn, adapt and be prepared to pivot.

Source Article: Why Digital Strategies Fail
Author(s): Jacques Bughin, Tanguy Catlin, Martin Hirt and Paul Willmot