Are you ignoring the most important digital playing field?

Are you ignoring the most important digital playing field?

Apple. Google. Tencent. Alibaba. What do these companies have in common? Yes, they’re all fast-growing global behemoths closely watched and emulated by competitors. But they also share a key characteristic: Each created and leads an entire digital ecosystem.

These days, traditional companies preparing for a digital future focus mainly on how they market and distribute their products and services. That’s sensible. However, such initiatives no longer provide any competitive advantage; they’re merely the table stakes for staying in the game. The aspect that makes the biggest difference in successful digital reinvention is morphing from products to platforms, which means adapting supply chains and leveraging ecosystems.

However, incumbent companies have largely ignored this dimension to date, putting themselves at risk of missing key changes to their industries. This finding, along with others I discussed in two earlier posts, comes from a major research effort my McKinsey colleagues and I undertook to study the progress and implications of digitization’s spread. We found that for incumbents standing still, digital disruption exacts a dramatic cost, reducing revenue growth almost in half, on average, and shaving a third off earnings. We also identified two strategic approaches that put companies on the best footing for addressing digital change.

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