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Executives say their companies are at risk unless digital technologies are better embedded into their business models.
Unviable
Companies know they’re vulnerable to digital disruption. So why aren’t they investing where the risks (and opportunities) are the highest?
The digital mismatch
In this edition:
A quick briefing in five—
or a fifty-minute deeper dive
Follow the money
Because big risk often requires big spending, digital initiatives are getting big money—despite belt-tightening elsewhere in the business.
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The new digital edge: Rethinking strategy for the postpandemic era
Where it’s at
The areas of highest risk differ by type and by industry.
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Misaligned
Yet in many industries, such as healthcare and pharma, the highest investment areas don’t align with those most prone to disruption (or that offer the highest returns).
The new digital edge: Rethinking strategy for the postpandemic era
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Why ‘digital’ is no different when it comes to valuation
Article
Survey
The new digital edge: Rethinking strategy for the postpandemic era
Survey
Dive deeper
The new digital edge: Rethinking strategy for the postpandemic era
Survey
Dive deeper
Valuation
Sorting out the best digital investments requires following the same valuation approaches that apply to all investment decisions—while factoring in the relevant dimensions of risk.
The new digital edge: Rethinking strategy for the postpandemic era
Survey
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64
We need to build new digital business(es)
11
Our current
business model
will remain
economiclly viable without changes
4
Not applicable;
we have already
made fundamental business-model changes
21
We need to digitize
specific elements of our current business model
Changes needed to make company’s business model economically viable by 2023,
% of respondents
Low
High
Professional
services
High tech
and telecom
Financial
services
Public and social sectors
Consumer-packaged goods/retail
Healthcare
and pharma
Auto and assembly
Profit structure
Manual value
chain/operations
Unused capacity
Operating-
cost structure
Market
dynamics
Connected
products
Fulfillment lag
Demand
predictability
Customer
experience
Bundling
Customer
subsidies
Level of business area’s potential vulnerability to disruption, by industry,
% net agree
Note: Figures do not sum to 100%, because respondents who answered “don't know/not applicable” not shown.
Changes in business metrics from Dec 2019 to Jan 2021,
% of respondents
Staffing
Funding
Variable
costs
Physical
footprint
Fixed
costs
65
25
7
26
21
52
18
38
43
8
59
29
No change
Decrease
Increase
Funding of digital/
tech initiatives
Funding
Full-time
equivalents (FTEs)
in digital/
tech roles
Total
number
of FTEs
44
40
11
19
35
43
Increase
Decrease
No change
Funding
Staffing
Staffing
Risk areas
• Operating-cost structure
• Types of products offered
Investment areas
• Enabling on-demand access
to products and services
• Tailoring product and service offerings
Risk and investment in the healthcare and pharmaceutical industries, as assessed by survey respondents
Why ‘digital’ is no different when it comes to valuation
Article
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Resilient organizations place strategic bets to address business-model risk—including starting businesses with high growth potential. These businesses often grow fast and defer profitability, but the valuation approach should still use the standard discounted-cash-flow model.
Understanding the economics of cost reduction from digital requires estimating present value not just by discounting the expected savings and subtracting the investments required but also by examining second-order competitive effects, for instance, on pricing.
When vetting digital initiatives in this category, executives should ask themselves: Does improved customer service lead to higher market share because the company’s customer experience is better than that of its competitors? Or does it merely keep pace with competitors to maintain or avoid losing market share?
Advanced analytics can help you make better decisions about digital initiatives, promising to boost revenues, reduce costs, or both. But as you apply advanced analytical techniques, be sure to keep focus on the basics—which investments create or destroy the most value.
Business models
Customer experience
Cost reduction
Analytics
