McKinsey Digital

Strategic principles for

competing in the digital age

Paul Willmott | November 19, 2014

Key trends are shaping the digital landscape

02

04

UNEXPECTED
COMPETITION
01

TALENT
MISMATCH
03

PRICE
PRESSURE

05

WINNER
TAKES ALL

06
GLOBALIZATION
AND
CENTRALIZATION

PLUG AND
PLAY

07
RELENTLESS
REINVENTION

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TRENDS

01 Price pressure
Mobile research in EU
Share of respondents, percent
What type of research done?

Where doing mobile

research?

Same store website

Transparency

At home

75

Commoditization
Disintermediation

Niche players

33

Prof. review site

26

Other stores website

Price comparison
site/tool
Family / friends

25
24
21

User review site

In store

Other

31

26

15

Take photos

14

Mobile Coupon site

13

Mobile Search

11

Barcode

10

Videos on product

Social Networks

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TRENDS

02 Unexpected competition
Banking

Reduced barriers
to entry

Hi-tech

New ways to
differentiate

Retail

Digital brands
Unlimited shelf
space
Low transaction
costs

Media
Telco

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TRENDS

03 Winner takes all

Amazon

Walmart

Revenue per employee

USD Million

1.01

1.01

0.93
0.86

Lower variable
costs

0.69
0.63

War for talent

Data power
Brand
concentration
Lower complexity

0.19

0.19

0.20

0.20

0.21

0.22

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013

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TRENDS

04 Talent mismatch

Role growth

Under pressure

Data scientist
User experience designer
Massage therapist

Call center agent

Retail worker
Administrator
Physician
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TRENDS

05 Plug and play

Capital One Labs

Lower transaction
costs
Increased
economies of
scale
War for talent

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TRENDS

2005

06 Globalization and centralization

2013

Category and flow

Digital component

Goods
Global price
arbitrage

E-commerce share of
total goods trade1

Improved MIS

Data and
communication

Service
expectations

Skype share of
international calls2

3.0

12.1
3.0

Services
Digitally enabled share
of total services trade3

39.0
51.0
63.0

1 Based on China data.

2 Excludes other VOIP minutes.
3 Based on US data.
NOTE: 2005 values for services are calculated by interpolating from prior and subsequent years based on constant growth rates.
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TRENDS

07 Relentless reinvention
Global recorded music market development
USD billion

CAGR

31
0 0

Percent
2007-13 2013-17

Low barriers to
entry
Increased
economies of
scale

Accelerating
diffusion

26

24

15

Streaming
subscription

36

26

10

Downloads

10

Physical
distribution

-11

-7

13

2007

2013

2017

17

43

61

DIGITAL

23
1
2

Ad-supported
streaming

25
2

Digital share
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Businesses
Businesses
face
face critical
critical
decisions
decisions

to
to

adapttoto
adapt
these
these
changes
changes

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The decisions
01

03

BUY OR
SELL

COOPERATE
OR COMPETE

02

04
DIVERSIFY OR
DOUBLE DOWN

LEAD OR
FOLLOW
05
01

06

SEPARATE
OR
BUY
OR
INTEGRATE
SELL

DELEGATE OR
OWN

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10

DECISIONS

01 Buy or sell

Reasons to buy

Reasons to sell

Increase exposure to
upside
Mitigate downside

Reduce risk
Focus on core

or

Letter vs. parcels

Credit card vs. e-payments
Car insurance vs. health insurance

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11

DECISIONS

02 Lead or follow

Reasons to lead

Reasons to follow

Create first-mover
advantage
Tap new value pools
Accelerate new capabilities

Avoid cannibalization
Reduce risk

or

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12

DECISIONS

03 Cooperate or compete

Reasons to cooperate

Reasons to compete

Focus
Access to new capabilities
Agility capabilities

Prevent disintermediation
Protect franchise
Sustain informational
advantage

or

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13

DECISIONS

04 Diversify or double down

Reasons to diversify
Reduce risk
Increase optionality

Reasons to double
down

or

Create competitive
differentiation
Ensure focus
Act at scale

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14

DECISIONS

05 Separate or integrate

Reasons to separate

Reasons to integrate

Create new culture

Attract digital talent
Accelerate execution

Avoid turn-wars
Create integrated customer
experience
Fully leverage capabilities

or

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15

DECISIONS

06 Delegate or own

Reasons to delegate

Reasons to own

Create point of focus

Onboard new talent
Avoid CEO overload

Drive cultural shift

Enable cross-functional
collaboration
Drive full value
Avoid complexity

or

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16

Getting started

Step back to move forward

Quantify the upside and

the downside
Educate the executive
team

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Thank You
www.McKinseyDigital.com

Paul_Willmott@McKinsey.com

McKinsey & Company

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