Incumbent businesses are right to be paranoid about the expanding impact of technological disruption. Of the top ten global companies by market capitalization a decade ago, only two have maintained their positions; many of the rest were replaced by digital natives. And we expect the list ten years from now to be at least as different from today’s: we know that only one-third of companies faced with industry disruption thrive, while the remaining two-thirds languish or fail. It is not surprising, then, that incumbents in many sectors are engaged in extensive digital transformation efforts in an attempt to inoculate themselves against the threat of disruption.
Our research has shown that three-quarters of large-scale change efforts fail to meet their objectives. Digital transformations are among the riskiest for established businesses because of the depth and breadth of change involved, the capability disadvantage of many incumbents, the pace at which digital disruption can unfold, and the fact that customers’ expectations are typically set by a digital native like Amazon or Netflix rather than a direct competitor. Given the high stakes, it’s important to consider how such efforts are structured and executed in order to avoid a number of common pitfalls.
Several traps can derail the effectiveness of a digital transformation:
How, then, can incumbents effectively defend their positions and increase their odds of success in digital transformation? We suggest several imperatives for effective digital transformation:
Responses to the threat and opportunity of digital disruption should not confuse means and ends. Technology may be the threat and the medium of change, but in the long run, only applications and organizational models that focus on competitive superiority will win.
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