New research from McKinsey suggests incumbents under pressure are best served by adopting offensive corporate strategies and the development of their own online platforms and marketplaces.
According to the report “digital attackers” have become a significant challenge for incumbent players, and the best defence may be a good offence.
“Companies under pressure can limit the damage if they adopt an offensive corporate strategy, one that involves willingly cannibalising existing businesses and reallocating resources aggressively to new digital models.”
The report, New Evidence for the Power of Digital Platforms, is authored by Jacques Bughin and Nicolas van Zeebroeck. It examined the strategic responses of over 2100 companies and found only 15 per cent had employed offensive corporate strategy moves.
“Their revenue and earnings over the last three years, on average, are superior to those describing their strategic reaction as defensive,” the authors said.
Organisations that had developed their own platforms along with overall offensive strategies also enjoyed better recent financial performance, according to the report.
“Going beyond the mere digital delivery of products or services and setting up an online marketplace correlates with markedly improved performance at established companies,” the authors said.
“Demand-driven platform plays, when combined with an offensive digital corporate strategy, are strongly correlated with superior financial performance—about six to more than seven percentage points in earnings before interest and taxes and revenues.”
The nature of the platform also matters, according to the report. The biggest advantage comes when “platforms redefine value propositions for customers, reshaping the demand side of the market”.
The reason many incumbents have not yet implemented these offensive platform strategies is the significant overhaul they often require, according to the report.
Implementing these strategies requires significant transformations in legacy IT systems, while also managing the accompanying culture changes digital requires, the authors said.
Indeed, other McKinsey research has indicated many IT departments are ill equiped for digital transformation and that culture remains one of most significant impediments.
According to this report many incumbents are “reluctant to disrupt today’s business model for an uncertain digital future”.
“Most companies worry that they may open up the value pool to competitors if they cede power to customers via new platforms,” the authors said.
“Our research shows that this reluctance may be shortsighted.”