This document discusses six ways that companies can be vulnerable to digital disruption and provides recommendations for how to disrupt themselves before others do. The six areas are: 1) Undistorted demand - ensuring customer needs are fully met. 2) Unconstrained supply - utilizing supply more efficiently. 3) New market-making - reducing intermediaries and speeding up transactions. 4) New value propositions - enhancing offerings through digital features. 5) Reimagined business systems - making value chains more efficient. 6) Hyperscaling platforms - creating dominant platforms connecting users and suppliers. The document provides examples of vulnerabilities and recommendations for each area to proactively disrupt business models.

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1. Undistorted demand
You’re vulnerable if… Disrupt yourself before others do:
ƒƒ Your customers are forced to cross-
subsidize one another
ƒƒ Your customers have to buy the whole
product or service when they only want
a part
ƒƒ Your customers can’t get what they want
where and when they want it
ƒƒ You’re ineffective at customer
identification and targeting (pricing,
product offering, advertising)
ƒƒ Customer experiences don’t match
standards for user functionality – both
within and beyond your industry
ƒƒ Improve search and filter tools
ƒƒ Streamline order processes and make
them more user-friendly
ƒƒ Implement smart recommendation
engines
ƒƒ Unbundle your products and offer
customized bundles
ƒƒ Digitally enhance your offerings
Strategy & Corporate Finance Top management discussion guide, April 2016
Use our supply and demand guide to digital
disruption to help you understand the opportunities
and threats facing your organization
How vulnerable are you
to digital disruption?
@McKStrategy
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Degree of change
in the nature of supply and demand
Modest
Demand Supply
Extreme
Make new
markets
Undistort
demand
Create new value
propositions
Unconstrain
supply
Reimagine
business
systems
Hyperscale
platforms
Strategy & Corporate
Finance
digital_strategy@mckinsey.com

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Copyright © 2016 McKinsey & Company. All rights reserved.
3. New market-making
You’re vulnerable if… Disrupt yourself before others do:
ƒƒ Information transparency between customers and
suppliers is low
ƒƒ Research is costly and lengthy
ƒƒ There are intermediary fees and layers
ƒƒ Transactions take a long time
ƒƒ Offer real-time and transparent information exchange
ƒƒ Remove middlemen from the supply chain
ƒƒ Automate and speed up transaction processing
ƒƒ Create transparency via search and comparison tools
4. New value proposition
You’re vulnerable if… Disrupt yourself before others do:
ƒƒ Your product or service could be significantly enriched
through information or social media
ƒƒ You offer a physical product unconnected to the Internet
(eg., thermostats)
ƒƒ There’s a significant lag between customer’s purchase
and receipt of your product or service
ƒƒ Your customer must obtain the product in person (eg.,
groceries, rental cars)
ƒƒ Improve connectivity of physical devices
ƒƒ Add social media to your product and service
ƒƒ Extend your product or service with digital features
ƒƒ Digitize or automate distribution
ƒƒ Explore new delivery and distribution models
5. Reimagined business systems
You’re vulnerable if… Disrupt yourself before others do:
ƒƒ Your value chain has redundancies such as high
number of hand-overs or repetitive manual work
ƒƒ You have entrenched physical distribution or retail
networks
ƒƒ Your industry’s margins are high compared to other
industries
ƒƒ Your industry has high variability in cost and
perceived value
ƒƒ Make your value chain more efficient and explore
selling directly to consumer
ƒƒ Turn your product into a service
ƒƒ Introduce dynamic pricing
ƒƒ Implement data-driven decision-making
6. Hyperscaling platforms
You’re vulnerable if… Disrupt yourself before others do:
ƒƒ Your business model charges customers for
information
ƒƒ No dominant platform governs interactions between
users and suppliers in your industry
ƒƒ There is high potential for network effects
ƒƒ Provide free information
ƒƒ Create a platform connecting users and suppliers in
your industry
2. Unconstrained supply
You’re vulnerable if… Disrupt yourself before others do:
ƒƒ Your customers don’t fully use your product
ƒƒ You use your supply in variable or unpredictable
fashion
ƒƒ You have high fixed or step costs
ƒƒ Users could easily become suppliers
ƒƒ Use digital means to pool unused capacity
ƒƒ Turn your product into a service
ƒƒ Tap into the sharing economy
ƒƒ Unlock existing but underused supply
ƒƒ Flatten out lumpy supply