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How to Think Like a Disruptive Digital Leader

CEOs and other top executives today know that a major shift is needed to adapt to the dramatic changes that the digital revolution has brought to the business landscape. But all too often, they overlook one of the most important factors in achieving such a shift successfully: their own mindset.

leadership meetingAs the business world becomes increasingly driven by digital developments, two distinct categories of CEO mindsets are emerging. One is the traditionalist: these executives are strongly on the side of the incumbent marketplace, of letting solid business cases determine investment strategies, and of prioritizing predictability over speed and innovation. The other is the digital market disruptor: the type of leader who believes that innovation can lead to big wins, that embracing failure is an inevitable part of risk management, and that innovation and speed should be prioritized over predictability.

These mindsets are important because, inevitably, a leader’s mindset is their frame of reference for interpreting and acting on information, and this process is in turn directly connected to how the company itself operates. Thus, a traditional CEO may struggle to lead a company’s digital transformation successfully, not necessarily due to lack of knowledge or willingness, but simply because they have difficulty altering long-established thought and decision-making patterns that are increasingly less relevant to the real world of business today. Transforming their mindset is therefore one of the first things that leaders who become successful digital drivers must do in order to transform their company.

To find out if you’re thinking like a disruptive digital leader, check yourself against these five key mindset traits of digital disruptors, as outlined in a recent article from Gartner.

Thrive on uncertainty.

Uncertainty can be paralyzing, particularly to incumbent business leaders who are accustomed to having plenty of time to make decisions and strong business cases arguing for or against those decisions. In the digital era, however, technology and innovations are evolving so rapidly and unpredictably that uncertainty is inevitable. Disruptive digital leaders not only understand, but embrace this idea. They don’t waste time or energy trying to make the uncertain more certain. Instead, they explore what is technologically possible, what impending changes might mean to the markets, and what are the risk-reward tradeoffs, doing the best they can to establish plans that allow for change and evolution.

Focus on “leapfrogging” ideas.

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Traditional incremental thinking simply can’t keep up with the pace of change in the digital era. Disruptive digital leaders are therefore always on the lookout for breakthrough ideas—ideas that that have the potential to leapfrog ahead into a visionary new frontier and to bring dramatic, rather than step-by-step, changes to a company. Naturally, this requires a mindset that tolerates risk, given the volatility of future technologies. A true digital leader will be driven by this challenge and the possibility of creating net-new business value while still keeping a close eye on the end goal.

Master the digital-era levers.

The digital revolution has unfolded over a relatively short time frame, but it’s been long enough to demonstrate that not all new digital technologies are ready for the long haul. There are plenty of shiny innovations that look good if you’re interested in technology for technology’s sake, but won’t ever become true drivers of transformation. Digital leaders know to look beyond these distractions, seeking to master not isolated pieces of technology, but the real competitive levers of the digital era. Making long-term, strategic investments in areas like platform-based business models or customer data analytics can help companies become pioneering digital business leaders, rather than just another flash in the pan.

Start, experiment, learn, iterate.

If traditionally-minded leaders would rather wait until technology-enabled breakthroughs have been tried, tested, and proven, disruptive digital leaders know that waiting for certainty just means that another company will get in the door first. That’s why the mindset of digital leaders is focused on a start-experiment-learn-iterate approach: beginning from well-grounded strategic bets, these leaders explore and experiment with different pathways to breakthrough solutions, learning as they go rather than waiting for a sure thing before they start. The result is often a leaner approach that yields new value while still mitigating downside risk.

Innovate faster than the competition.

Speed is everything in the digital era. The current landscape is so rich in disruption and innovation that, often, the only way for companies to differentiate themselves is simply to launch their new product or service first. To achieve this goal of innovation at maximum speed, digital leaders work to establish a true culture of creativity. This means incentivizing speed, but not punishing failure—indeed, sometimes mistakes are even rewarded. This type of culture also involves breaking free of traditional industry rules, and championing and modeling risk-taking and discovery at every level of the company, from new recruits to established directors.

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5 Rules You Need to Know for Digital-Physical Fusion

When the digital revolution first began sweeping the business landscape, many experts and insiders were quick to announce that the full-scale demise of physical commerce was at hand. Pundits predicted that, in relatively short order, e-commerce would completely take the place of physical retail and services across a broad range of industries, from banking to entertainment. But while there’s no question that digital transformation has completely upended most industries, it also seems to be the case that brick-and-mortar retail is not going anywhere—at least not yet.

workstationThe insight that many of these early predictions of digital annihilation failed to take into account is that the physical world is, and remains, an indispensable part of both business and life. Humans value physical and social interaction; we like to have in-person exchanges with other people, and to touch, handle, and make real things. What’s really going on with digital transformation, therefore, is not the replacement of the physical world by the digital world, but rather the fusion of both worlds into new combinations that open up completely new sources of value. In an article from 2014, Bain & Company coined the term “digical” to describe this phenomenon. The new word recognizes the changes that both digital and physical innovations are bringing to the business world.

But despite the fact that the future seems to be all about digital-physical fusion, a surprising number of businesses still behave as if these two worlds were separate and distinct, running their digital operations as fully independent business units. For every company that has figured out a successful path to fusion, there are many others who continue to separate physical from digital—and who suffer the consequences of doing so. A typical case in point is the retailer that offers a different price for an item sold online versus an item sold in-store, but has no idea how to handle the customer who comes to the store in person wanting to pay the online price.

Writing for the Harvard Business Review, Bain & Company analyst Darrell K. Rigby reviews five important rules for businesses tackling digital-physical mashups, using insights drawn from the results of a study of more than 300 global companies and leaders across 20 different industries.

Rule #1: Make strategic digital-physical fusion your new competitive edge.

In a world where technology changes extremely rapidly and advantages are quickly copied, companies must learn to ride each new wave of opportunity as it comes their way, without throwing away vital core advantages or pouring too many resources into high-risk ventures. What’s important here is to understand exactly what advantages your core business can offer the new venture. These may include elements like proprietary customer insights, unique capabilities, or strategies for capitalizing on competitor vulnerabilities. Leveraging these strengths when embarking on a digical fusion initiative can provide just the edge that a company needs.

Rule #2: Add and improve linkages throughout the customer experience journey.

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Digical innovations aren’t just about changing existing products or services; rather, they’re about improving the customer experience overall. Companies that are digically savvy take a systematic, end-to-end look at the customer journey, identify adjacencies (spheres outside the company’s traditional boundaries of operation), and use those to strengthen the core business and open up new revenue streams. The ultimate goal is the development of an innovative and holistic system, focused on the customer, that maximizes competitive advantages to accelerate growth.

Rule #3: Transform your approach to innovation.

The “waterfall approach” that previously characterized traditional companies’ traditional approach to innovation has had its day. Now, rather than having marketers and product designers create ideas and prototypes and then kick the ideas down to IT, companies that are having success in the digical realm are starting by creating teams of complementary experts from both digital and physical territory. With digital experts engaged at every stage of development, integration becomes dramatically deeper and broader, and the solutions generated are more innovative and wide-ranging, fusing the best of what the digital and physical worlds have to offer.

Rule #4: Separation is a transitional step.

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Successful innovators often start by keeping their digital component separate from their core business. But while this strategy can be useful at the beginning, allowing for the formation of an innovative culture free from corporate bureaucracy and traditional business practices, at some point the goal must focus on creating the best of both worlds. In this way, companies will gain an edge over pure play digital disruptors who don’t have the physical assets and capabilities that the companies they are disrupting do. Integrated companies are better able to give customers a seamless digital-physical experience, communicate and coordinate effectively, and leverage existing assets.

Rule #5: Create a digically savvy management team (CEO included).

Traditional executives can have a challenging time leading digical transformations. Often, they are not fully aware of how limited their grasp is on technological issues, making it hard for them to spearhead innovation or hire the people who can do so. The key here is for businesses to boost the know-how of management teams by appointing chief digital or technology officers, implementing “no executive left behind” programs to ensure that digital training and mentorship is provided to all managers, and working towards a comprehensive understanding of how technology can transform the business.

business

What You Need to Know about Choosing a B2B E-Commerce Platform

With B2B online retailing revenues projected to reach $6.7 trillion by 2020, according to research from Frost & Sullivan, it’s clear that B2B businesses no longer have the option of doing without an e-commerce platform. However, selecting the right one can be a challenge, particularly for B2B businesses that are still in the early stages of digital transformation. If your B2B business is struggling with the question of how to choose an e-commerce platform, the following tips and strategies can help:

Understand your drivers.

The first big step in choosing a B2B e-commerce platform is understanding why your business needs one. At present, it’s not difficult to find information on the broad drivers of B2B e-commerce, including the fact that the high quality of consumer experience now available in the B2C marketplace is strongly influencing buyers’ expectations of B2B transactions. Buyers are looking to replicate the same ease and personalization of their B2C experiences in their B2B decisions, as well as to achieve targeted goals like shifting their procurement process online, placing business orders from mobile devices for greater convenience, and making their sales force more strategic by decreasing manual tasks and enabling off-hours ordering. Helping customers meet these and similar goals is therefore a strong motivator for most B2B businesses.

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In addition, it’s important to clearly define your business’ individual objectives and expectations for implementing an e-commerce platform. Broad market drivers work well as initial motivators, but in order for your e-commerce platform to fit your business well, you must be clear about what specific challenges you want the platform to address and solve. For example, do you primarily want to make transactions easier for repeat buyers in order to boost customer loyalty, or is your main objective to drive new traffic and leads to your site? Being precise about your goals will greatly improve your chances of making a smart platform investment.

Perform a realistic self-assessment.

After you’ve identified why your business needs an e-commerce solution, the next step is to assess your organizational readiness; understanding the reasons for implementing e-commerce and having the capacity to execute it are two very different things. To make this self-evaluation stage worthwhile, it’s important to be both thorough and realistic.

First, look closely at your business’ current capabilities, particularly at the personnel who are most likely to assume the responsibility for setting up the e-commerce platform and maintaining it once it goes live. You also need to clearly identify how automated e-commerce solutions will impact current processes like sales, service, and inventory. Next, assess whether your organization has or can put measures in place to effectively analyze and leverage the new volumes of customer data that an e-commerce platform will deliver. Then, you should evaluate the current technical environment of your organization, including how your e-commerce platform would integrate with pre-existing software like ERP, CRM, or accounting tools.

Ask the right questions.

Once you’ve conducted a thorough assessment of your company’s organizational readiness, it’s time for a comprehensive evaluation of possible platform solutions. Having a list of key questions to ask of each platform will help you match your business’ needs with platform functionality. Some of the most important features to analyze include whether the platform offers responsive design that optimizes content across multiple devices; whether the platform offers self-service capabilities and to what degree; how the platform handles customer-specific pricing options; what payment options are available through the platform and how customizable those options are; and whether the platform is hosted on-premise or is cloud-based.

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Know the risks.

B2B e-commerce platforms represent a significant investment of time and money. On average, a mid-market B2B company can spend anywhere between $250,000 and several million on an e-commerce solution and can take between nine months and two years to launch it. Given these figures, it’s not surprising that many B2B companies making their first foray into the world of e-commerce are tempted to scale down and look for less costly “starter” options. But while this might make sense in some cases, it’s vital that you understand the risks associated with focusing more on up-front savings than on effective solutions. These risks include the following:

Poor integration—Choosing less expensive software options and attempting to piece together an e-commerce site may appeal to businesses that are interested in a DIY approach, but this often leads to poor integration. As a result, it can become harder to fulfill orders because the various systems required for the job don’t play well together.

Lack of customization—It’s true that a higher degree of customization will be more costly in an e-commerce platform, but businesses should remember that customization is exactly what their buyers are looking for. Generic e-commerce solutions may be cheaper, but they frequently lack the personalized experience that is essential for today’s B2B customers.

Too many sacrifices—It may be difficult to find an e-commerce solution that fits your budget and meets all of your business’ needs, but if you find yourself having to sacrifice too many of your initial requirements, it could be a sign that you need to increase your investment. You’re not actually saving money if you’re spending a smaller amount on an e-commerce platform that doesn’t effectively help your business.

tech

5 Lessons from Yesterday for the Technology of Tomorrow

In this era of the Fourth Industrial Revolution, new technologies are evolving faster than ever. But some experts are concerned that the pace of progress is so rapid that there isn’t enough time for us to absorb and reflect on (and consequently avoid) some of the mistakes that have caused technological development to stumble in the past.

Hilary Sutcliffe, a responsible innovation expert and the director of SocietyInside, addresses this concern in a recent World Economic Forum article in which she looks back to the early days of nanotechnology in. In examining some of the issues that accompanied the introduction of nanotechnology, Sutcliffe identifies five important lessons that one can (and should) apply to all future forms of technological development, from artificial intelligence to gene editing.

  1. Distinguish the brand from the science.

tabletSutcliffe’s article refers to the “tyranny of the ‘ology’”—the danger of becoming overly fixated on the brand of a particular new technology rather than on the science behind it. Brands like nanotechnology or synthetic biology, in particular, have become popular buzzwords that organizations use to attract funding and academic investment, as well as to demonstrate their commitment to innovation. However, development can be compromised when the glamor surrounding a new technology, rather than how well it works or what risks are associated with it, drives discussions.

For example, the early excitement around nanotechnologies focused on the definition of nanomaterials as having features smaller than 100 nanometers. But while this size specification was an important element of “brand nano,” it proved to be a poor predictor of how these new materials actually behaved or the hazards they presented.

  1. Hype has consequences.

In the new technology sector, competition for funding, media attention, and public interest is fierce. As a result, what Sutcliffe calls an “economy of promises” has developed, in which scientists and businesses hugely exaggerate the potential benefit of their particular “ology” to boost their chances of accessing vital financial support and other resources.

But these overstated claims have repercussions that we should not overlook. One of these is the inevitable tarnishing of a technology’s reputation when it proves unable in the short term to live up to its hype. For example, the 2004 goal of the US National Cancer Institute—to use nanotechnology to eliminate death and suffering from cancer by 2015—can’t help but make us feel disappointed now, even though the technology itself may eventually lead to that desired outcome.

Another repercussion concerns the delicate world of new technology regulation and legislation. Regulators have no option but to start their process based on what scientists and businesses claim their technology will deliver, but too much hype here can distract from a thorough and accurate exploration of a technology’s very real risks and hazards.

  1. Language matters.

Closely associated with the issue of over-promising is the actual language involved in discussing and promoting new technologies. Naturally, we must devise new terms and metaphors when describing technologies and possibilities we haven’t seen before, as well as what problems they might solve, but we need to be careful to consider the impact of our chosen words. For example, many new technologies rely on military-inspired metaphors to evoke a feeling of control, dominance over nature, or extreme scientific accuracy. Not only do such terms lead to unsettling comparisons, they are also not usually reflected in reality, which compounds the problem of over-promising.

  1. Don’t start by obsessing about the backlash.

statisticsYes, new technologies can sometimes prove controversial, but when scientists launch their ideas from a place of defensiveness and confrontation, they often spark the very problems they are trying to avoid. Society does not necessarily have a widespread fear of technology itself. Instead, it has a widespread desire for engaged and collaborative discussion about what the technology is being developed for and what problems it will help solve. While it’s certainly important to think about how to address a potential backlash, imagining that such a backlash is already occurring when it isn’t can obstruct both developmental productivity and useful, forward-thinking societal dialogue.

  1. Weigh the risks and benefits thoughtfully.

One of the biggest challenges associated with the hype, as well as the sheer volume of information around new technologies, is that it can be difficult for us to accurately weigh the real evidence for either potential benefit or possible harm. So much conflicting information and opinions surface when new technologies are introduced that parties from both sides of the debate often fall back on pre-conceived ideas, cherry-picking data to prove the point they’ve already decided on. However, as a society, it’s important that we discuss and weigh the question of acceptable benefits and risks in a thoughtful and clear-headed way, especially because reports have repeatedly shown that early warning signs of disaster are often clear (as in the case of asbestos, for example), but we are held back from acting by systemic biases and behavioral reasons.

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11 Important Guidelines for Leaders in the Digital Age

We are living in an age where the line between the pre- and post-digital world no longer exists, according to a recent article from INSEAD, one of the world’s largest graduate business schools. In this digital era, there is no distinction between “business” and “digital.” Rather, all business is now digital, and all digital is now business.

While this may be an accurate way of describing the seismic cultural shift brought about by the astonishing cumulative impact of the digital revolution on business and organizations, the idea that all business is now digital may nevertheless come as a surprise to those business leaders who are still struggling to effectively implement digital transformation within their organizations. In order to help these leaders, INSEAD has developed the following 11 guidelines for effective digital leadership, distilled from the insights gathered in a 2016 survey of 1,160 top corporate executives, managers, and directors:

  1. Digitization requires an objective understanding of the external environment.

Traditional physical barriers to entry and drivers of competition are rapidly being replaced in today’s market by forces that are less tangible, such as a relevant purpose or mission, a sense of authenticity, and consumer relationships built on trust. Unlike in the pre-digital age, these forces cannot be overcome simply through cash or industry prominence. Rather, they require a clear and unbiased understanding of the state of the market and the role of businesses within it.

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  1. A firm’s mission may need to be reformulated in response to digitization.

Given the sweeping effects of the digital revolution, “business as usual” is no longer possible for any company. Some firms—or even entire industries—may find their very existence challenged by digitization. Leaders must be prepared to question all previously held assumptions about their organizations, even down to their mission and business model.

  1. The impact of digital on a firm must be clearly defined.

While it’s natural for organizations to seek a blueprint to guide them through the steps of digital transformation, digitization is not a one-size-fits-all endeavour. Instead, leaders must be ready to create their own digital road map, which will involve a clear and thorough assessment of exactly what digital means to the firm and where it is expected to take its business activities.

  1. Firm-wide digital capabilities are needed.

One of the major lessons that business leaders need to learn about digital transformation is that digital efforts cannot be siloed or confined to an isolated area of an organization. Rather, all functions within a firm must boost its digital understanding and capabilities, and it must be prepared to cooperate across distinct business units.

  1. An organization’s corporate culture must support digitization.

Even the most sophisticated digital transformation efforts will not successfully take hold unless they are firmly supported by the overall organizational culture. Leaders must understand that digitization is a cultural revolution and not just a technological one, and as such it requires significant leadership support and buy-in.

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  1. Digitization demands collaboration.

Continuous collaboration, ongoing exchanges, and conversations are all hallmark of digital transformation—not just between business units as described above, but among all company stakeholders, including executives, boards, frontline employees, and shareholders. In addition, reaching out beyond traditional industry lines is becoming more critical as digitization brings disruptive transformation to conventional industry categories.

  1. Digitization demands greater public engagement.

The digital revolution has drastically changed the relationship between companies and consumers. Now, customers are the most important driver of all business activities, and it has never been more critical for leaders to be in touch with consumer demands and expectations, as well as to source ideas from customers themselves in order to be able to deliver exactly what is wanted.

  1. Digital business strategy is a continuous process.

The days of five-year strategic plans is over. Given how quickly trends and dynamics can shift in the digital market, strategy formulation and execution need to occur in real time, with leaders and decision-makers constantly assessing and processing necessary strategic changes in a seamless feedback loop.

  1. Data must drive decisions.

The ever-increasing amount of big data available to firms of all sizes is a force that leaders must be ready to utilize. The insights available through data and predictive analytics provide firms with a degree of responsiveness to their customers’ expectations that was previously unheard of, and organizations that are unable to make the most effective use of these insights will quickly find themselves falling out of touch with their target markets.

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  1. Digitization is a journey into uncharted territory.

Digitization is a new realm, and as such, it necessarily involves some degree of risk for those entering it. The uncertainty and ambiguity that traditional businesses long sought to avoid are now qualities that leaders must become comfortable with as they launch new and ambitious experiments and prepare to learn from their failures.

  1. Digitization is based on continuous change management.

As we currently understand it, there is never a point in digital transformation when an organization has “arrived.” There is no specific point when transformation is complete and change is finished. Rather, continuous change is now an operating principle that must be fully integrated into the very fabric of a company in order to keep the business relevant and responsive.

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6 Important Stages on the Road to Digital Maturity

One of the most important things that companies need to understand about digital transformation is that it is not an outcome or an end-goal. Rather, the journey to digital maturity is a complex and enriching process in which the end state continues to evolve in response to changing goals and market influences; in other words, digital transformation is something that companies experience instead of something they achieve.

While every company’s pursuit of digital transformation is different—depending on a wide variety of factors, including size, industry, business model, and appetite for risk—there are a number of distinct, identifiable stages that virtually all companies pass through on the road to digital maturity. Breaking down and analyzing these stages, as a recent whitepaper from technology research firm Altimeter does, can help provide a useful baseline of a digital transformation journey that companies can use to chart their path toward pivotal milestones and to benchmark their progress against others who are further ahead on the transformation trajectory.

As outlined by Altimeter, the six stages of digital transformation maturity are as follows:

  1. Business as usual

notebookAs the name suggests, companies in the “business as usual” stage are simply continuing down the business course that was set long before digital disruption entered the scene. The risks and opportunities associated with disruption are largely ignored, and there is little understanding of the potential impact of digital technologies on customers, employees, and markets. A lack of any sense of urgency and a risk-averse attitude combine to create an organizational culture that is extremely resistant to change. New technologies are not completely overlooked, but they are used primarily to optimize operational scale and efficiency rather than as a fundamental driver of true business model shifts. The customer experience, and data associated with it, is siloed and segregated; the company’s overall approach is fragmented rather than cohesive.

  1. Test and learn

This phase involves a growing recognition within the company that “business as usual” is no longer working out as well as it once was; often, catalysts for this phase are employees or managers who see other businesses experimenting with new things and want to implement those lessons within their own companies. At this point, there is a great deal of experimentation with digital, mobile, and social technologies, both internally and externally, but very little of this action is organized or centralized. However, with the support of digital champions—the change agents who helped kick off the digital journey in the first place—companies gradually gain a better understanding of what is possible with digital and where particular investments will pay off. Work and teams are still largely siloed, but they are increasingly effective at experimenting and tracking results.

  1. Systemize and strategize

By this stage, companies are smarter; they have developed an awareness of the bigger picture and are taking steps toward achieving that vision. Formal action is now the name of the game. Strategic investments in people, processes, and technology are made, and working alliances are formed between IT and marketing in order to create an infrastructure that will properly support transformation. Programs connected to digital become more intentional, and greater focus is placed on increasing the digital literacy of key stakeholders. Executive education plays a very important role in this stage, as executives will need to use their developing digital knowledge and expertise to gain buy-in for transformation efforts across and beyond the company. It’s also at this stage that the digital customer experience becomes the primary focal point for companies’ digital transformation goals.

  1. Adapt or die

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The quest for digital has built up considerable momentum by this stage, and the entire organization is now recognizing and appreciating it. There is a greater sense of resiliency in companies that have made it to this stage; infrastructure investments have helped support the achievement of both long- and short-term goals and outcomes, and further transformation efforts are highly formalized and more ambitious than ever. Digital, mobile, and social technologies now lead business strategy rather than being viewed as optional add-ons. The digital customer experience continues to be a main driver for change, with special attention now being paid to omni-channel and automated efforts. Customer data now figures more prominently. Consequently, privacy and security are paramount issues.

  1. Transformed and transforming

Digital transformation is now comprehensively woven into the very fabric of the company. The digital transformation efforts of previous stages have led to new business models and operating standards, and the operation of the entire organization is more unified and cohesive. Every business unit and function within the company is managing key aspects of digital transformation, and a variety of new roles, such as chief digital officer or chief experience officer, have emerged to optimize resources and scale transformation.

  1. Innovate, innovate, innovate

The dominant culture with the company is now one of innovation; the focus that was once placed on transformation and technology now shifts towards identifying new and unconventional growth opportunities. The traditional business hierarchy has been replaced by a flatter management and decision-making model that recognizes that ideas and knowledge acquisition are everyone’s job. In addition, the company is well-placed and eager to further innovation within the wider community by hosting hackathons, startup showcases, or conference-style talks and programs. The level of digital maturity present within companies at this stage means that digital lessons learned are applied in real time, and are used to boost internal and external operations and to improve market strategies.

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Is Your Company Vulnerable to Digital Disruption?

For established businesses facing digital disruption, it’s natural to focus first and foremost on the particular startups or new companies that might be posing an immediate threat. After all, keeping a close eye on your competitors is perhaps one of the longest-established business principles around. But, as a recent article from McKinsey & Company argues, it’s actually far more important to consider why disruption is likely to occur; that is, what incumbents really need to understand is the nature of the disruption they face, not just which specific parties might prove to be catalysts for it.

office workTo help incumbents clarify the sources of potential digital disruption, as well as the conditions under which it flourishes, McKinsey analysts have returned to the fundamental economic mechanisms of supply, demand, and market dynamics. In other words, the vital thing to understand about digitization is that it is disruptive to industries and incumbents when it results in a critical change to supply or demand (or both together).

For example, digital disruption can have the effect of exposing new supply and uncovering latent demand, and making a new market between them; one of the best illustrations of this is Airbnb, which exposed (rather than created) a previously unused supply of accommodation while at the same time revealing underlying consumer demand for more variety in accommodation choices. On the more extreme end of the scale, digital disruption can lead to the creation of new value propositions, hyperscale platforms, and reimagined business systems, all of which can change the nature of supply and demand to a significant degree.

For incumbents navigating the mechanisms of digital disruption and attempting to better understand the urgency of opportunities and threats they may be facing, McKinsey has produced a helpful “supply and demand” guide to digital disruption. Companies can use this guide as a basic organizational assessment tool to identify how vulnerable they may be to digital disruption in the following six supply and demand categories

Undistorted demand

Companies may be especially vulnerable to changes resulting from undistorted demand if the customer experience is below the current standard of “user friendliness,” both within and beyond the company’s particular industry. In other words, there is a strong risk of disruption if customers can’t get what they want at their preferred time and place, if they have no alternative but to buy the whole product or service to get the smaller part they want, if they are currently cross-subsidizing one another, or if the company’s customer identification and targeting techniques (like special pricing or advertising) are ineffective.

Unconstrained supply

Indicators of vulnerability in this category include a supply that is used unpredictably and high fixed or step costs. If customers don’t fully use a company’s product or service, or could easily become suppliers of the product or service themselves (as in the Airbnb example), then the risk of disruption is likewise high.

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New market-making

The risk of disruption leading to new market-making is all about finding cheaper and more convenient ways of connecting supply with demand. Companies are vulnerable to disruption in this category if there is a lack of transparent information exchange between customers and suppliers, if research is costly and time-consuming with many intermediate steps and fees, and if transactions generally take a long time to complete.

New value proposition

Disruptions in this category aim to enrich a product or service and do more work for the customers on their behalf. If the experience of using a company’s product or service could be significantly enhanced through additional information or social media applications, or if a company offers a physical product that is not connected to the Internet (like appliances or thermostats), disruption that targets an enriched experience could be the result. If there is a substantial delay between when a customer purchases a product or service and when they receive it, or if they must be present in person in order to obtain the product, then disruption targeting a more convenient experience (doing more of the customer’s work for them) is likely.

Reimagined business systems

From an economic standpoint, disrupting business systems involves changing supply-side cost structure. Companies are vulnerable to such disruptions if there are multiple redundancies in the value chain, if physical distribution or retail networks are strongly entrenched, or if the industry in question has high margins compared to other industries or high variability in both cost and perceived value.

Hyperscaling platforms

Platforms are one of the major drivers of the digital economy and have been a strong disruptive force across industries. Essentially, companies are most at risk for disruption from the effect of hyperscaling platforms if their business model is based on charging customers to access information. Another clear risk indicator is the lack of any kind of dominant platform that governs interactions between industry suppliers and users. Finally, if there is strong potential for network effects related to a company’s product or service—that is, the phenomenon of a product or service gaining in value the more people use it—the risk of disruption is high.