Digital strategy and business model often are inextricably intertwined. A 2021 McKinsey survey of executives shows business processes got a big push in a digital direction in 2020. But the concern goes much further than simply operating internal processes more efficiently or effectively. Whole revenue models seem vulnerable as well.
It is not hard to understand the anxiety. Most businesses these days are susceptible to disintermediation by the internet (taking out “middlemen” in the value chain). That applies to any participants whose function in the value chain is primarily distribution.
So most products and services are susceptible to internet-based selling and distribution.
Beyond that, the potential for new products to displace demand from older products is intrinsically bound up with internet-based production models. Content-based businesses (music, video, print) were early to encounter such product substitution.
But most industries now face some form of product substitution or re-creation based on digital re-imagination and delivery. Packaged software now has morphed into on-demand software as a service. Computing hardware is increasingly virtualized as well.
Cameras, music players, watches, pedometers, medical devices, navigation devices and computing devices have seen markets rearranged by product substitutes.
A wide range of smartphone-enabled marketplaces have been created for transportation, lodging, clothing and many other consumer or business products.
All of those trends can disrupt gross revenue, profit margins, customer loyalty and customer expectations. As always, lower profit margins create a need for lower operating costs.
So it is not surprising that so many enterprise executives say they believe digital transformation is so important. Markets, revenue and profits are seen as vulnerable to disruption.
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