Digital transition: Why firms choose to make the digital leap

One of the key findings of McKinsey’s State of New Business Building report is that in five years’ time, the India/MENA (Middle-East & North Africa) region will see 47% of business revenues coming from tech-driven products, services and businesses that don’t exist today. No wonder, business leaders are venturing into new areas – creating new products or services or building entirely new business models by leveraging digital-tech. “Closer home, a few notable examples of how ‘new businesses’ have been built by established firms are Yono by SBI, Apollo 24/7 by Apollo Hospitals, and Service Mandi by Ashok Leyland,” says Kushe Bahl, partner, McKinsey & Company.

The McKinsey report – as part of which 1,000+ business leaders worldwide were surveyed, including 70 (from CEOs to division heads) from India – analyses the growth areas business leaders in India and MENA are thinking about, and the potential drivers of success. It found that brick-and-mortar companies consider launching a digital business for primarily three reasons: (i) To defend their customer base against nimble digital competitors who find innovative ways to reach customers directly; (ii) To create a new revenue and profit stream, either by selling new services to existing customers or by targeting new customers with existing products; and (iii) To create value from the ‘hyper-scaling’ potential that digital businesses provide, with relatively low cost of entry.

 “Established businesses typically look to create digital businesses in areas where they have a strategic advantage over a digital native start-up. The businesses they launch are usually related to their current business in a manner that allows them to leverage such strategic advantages. Leap by McKinsey, for example, is a function within McKinsey & Company that works with established companies to imagine, build, and scale new businesses, tapping into this trend,” Bahl adds.

What future holds

— 18% of all business leaders in India & MENA regions see launch of new businesses using digital tech as a top strategic priority. 50% of leaders saw it as among the top three priorities.
— In five years’ time, 47% of revenues of traditional firms in India & MENA is likely to come from products and services that don’t exist today.
— 88% of business leaders in India & MENA prioritise new tech-based businesses as a response to broader tech-led disruption.