When do digital competitors pose a real threat to your business?
According to a new article from McKinsey and Company, incumbents should shift their strategies before their new digital rivals grab 15 per cent market share.
At that point the market changes abruptly and the insurgents have built up momentum that makes them hard to stop.
The article, When to shift your digital strategy into a higher gear, argues that when 40 per cent of industry revenues come from digital, more incumbents begin to shift to an offensive strategy.
The authors note that prior to this tipping point incumbents tend to react timidly to new digital rivals, reasoning that the risk of damage to revenues and profits is not enough to justify tampering with current business models.
According to McKinsey, high tech, media and the telco industries are all past the 40 per cent tipping point, with attackers taking more than a 15 per cent share of the market, and in more than one in five of incumbents moving boldly.
Retail is also close to the tipping point.
“Having a better view of how the market may develop should encourage executives to make decisive moves sooner rather than later. By doing so, they will increase their odds of successfully navigating digitisation’s perilous break point,” the authors write.
McKinsey points out that at the 40 per cent mark the portion of revenue digitised by incumbents still remains modest because they still have considerable legacy businesses. “However, it’s here that the two camps divide the market’s overall digital revenues roughly evenly (15 per cent for entrants and 17 per cent for incumbents), so the risks of inaction are high.”
Executive interviews suggest leaders underestimate when their industry is close to a tipping point, the authors said, urging businesses to revise their strategies early.
“Mounting market turbulence hits digital laggards the hardest. Attackers squeeze their revenues, and heavy digital investments are now required to match what incumbent competitors are spending to play catch-up,” the authors write.
“Fast-moving incumbents, our research shows, still have a chance to stay in the game if they move boldly. However, companies in the bottom quartile of digitisation will struggle to remain competitive.”
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