The Best Response to Digital Disruption

Companies that adopt bold strategies in the face of industry digitization improve their odds of coming out winners.

The imperative of digital transformation is an insistent buzz in the ears of managers in many industries, even the most unexpected.

Consider the business of funeral homes. Few industries are more sensitive, more personal, and more in need of a human touch than the business of arranging funeral services for a loved one. But a study of funeral providers in Berlin, Germany, describes what happened when impersonal yet less expensive options crept up on this market.1 Aggressive digital entrants unleashed an unprecedented wave of competition in the late 1990s. Discount online providers used search engine optimization to build dominant market positions, leaving incumbents with little choice but to respond by going online themselves to compete against both digital entrants and each other on pricing — rather than on reputation and relationships.

Few executives would dispute that digitization’s disruptive influence is growing — and growing rapidly. But surprisingly little empirical evidence has captured either the magnitude of digital disruption or how incumbents are reacting on a broad scale. Leaders know they have a problem — and know they must react to that problem — but they have little guidance to determine the right course of action.

In a bid to help address the gap, McKinsey & Co. undertook a global survey of C-suite executives to capture how digitization unfolds across industries and how incumbents are responding. (See “About the Research.”) With some notable and important exceptions, the answer is: “Not well.”

Source From: MITSloan Management Review