A new McKinsey and Company paper dives deep into the forces underlying the destructive and creative energies unleashed by digitization. Authors Angus Dawson, Martin Hirt and Jay Scanlan reveal existential threats to businesses large and small, but also rich opportunities for forward-leaning companies to disrupt the disrupters.

The economic essentials of digital strategy demands some old school respect for the time worn principles driving supply and demand. McKinsey finds that businesses under threat – and all businesses are under threat all the time now – are better served by focussing on the nature of potential disruption than simply tagging who might be trying to disrupt them right now. After all, most of those challengers won’t be around in ten years. Many won’t survive twelve months.

Legacy players however can’t rely on the crushing advantages once offered by sheer mass and inertia. Danger comes from two directions. The first threat emerges in the making of new markets, the second in the dynamics of hyper scaling platforms, and new value propositions and business systems.

The authors have condensed a complex, shifting swarm of disruptive menace into a cheery infographic. Changes to supply and demand sit up top. Previously inaccessible supplies are liberated and set loose on the market. Think Airbnb and Uber dropping all of those spare rooms and cars into the channel. Distortions in demand are wiped out as customers gain access to complete information and unbundled products. This makes it harder for businesses like Foxtel to lock up high demand shows behind its crumbling paywall.

 

McKinsey Matrix

In the lower part of McKinsey’s framework – the lower level of disruption hell – hyper-scaled platforms and reimagined systems promise and threaten even more extreme shifts. Here is where horse buggy makers, camera manufacturers, and possibly even huge, venerable banks and insurance firms go to die. More often than not they are collateral damage of ‘wars in heaven’. Kodak was destroyed by phone makers, not a rival film company.

By “immersing themselves deeply in the world of the attackers” existing companies can prepare their defences and launch their counterattacks. Bottom line though, if they are successful, they will be as radically transformed as they would have been by failure. They will not be the same companies, but they will live to fight new battles another day.

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