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  • McKinsey & Company

Taking the Leap: How large corporations can stay ahead of disruption

Launching a new business can beat smaller, more agile startups at their own game

Taking the Leap: How large corporations can stay ahead of disruption

The only constant is change. And these days, change happens fast in the corporate world. Even the most proven companies can lose their footing when innovative upstarts disrupt the status quo. But amid the pitched competition and continuous threat of disruption, established brands increasingly are embracing the benefits of playing offense. “There’s no reason an incumbent can’t disrupt as well as a startup,” says Ralf Dreischmeier, senior partner at global consulting firm McKinsey & Company and a global leader of Leap by McKinsey. “Disruption can be an opportunity rather than a challenge.”

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For many traditional companies, staying ahead of the competition requires a sustained focus on reinvention. In fact, Dreischmeier notes that eight out of the 10 largest companies in the world are serial business builders, launching new ventures to capture new growth opportunities. One area many of these firms are targeting with their new businesses is the digital world, in order to access new customers’ loyalty, generate e-commerce sales, and make inroads into lucrative new markets.

While digital businesses offer plenty of promise, companies often get stuck on the crucial first step: how to build that new business. Some may be tempted to tackle reinvention conservatively, taking an incremental approach. But Dreischmeier says that embracing the opportunity of disruption requires leadership, a clear sense of where the value lies, and, most important, a dedication to act. “The holy grail of new business building for companies is to combine the agility and speed of a startup with the ‘unfair advantage’ of an incumbent by leveraging existing assets like customers and infrastructure,” he says.

At established firms, there’s merit in being methodical, taking the time to analyze the situation from different angles and planning every aspect of the new venture. But such a process can lead to indecision, slowing down the very disruption it’s meant to provoke. An outside partner can jumpstart that process, helping a company break free from analysis paralysis and take meaningful steps toward their goal.

Dreischmeier often works with companies in these types of scenarios, for which he and his McKinsey colleagues have developed a proven approach they call Leap. The foundation of this strategy is building a team led by veteran executives and professionals with expertise in creating successful businesses. Leap by McKinsey draws on experts from the client company, including design leads, digital marketing specialists, business analysts, and data engineers. They work closely and collaboratively to evaluate ideas, build on the client firm’s existing strengths and, ultimately, create a self-sustaining new business.

“Focusing on all dimensions of a successful new business and not just one aspect, like technology, is key here,” Dreischmeier says. “Our Leap methodology does exactly that.”

THE INCUMBENT EDGE

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Smaller companies have certain competitive advantages when it comes to capitalizing on—or initiating—trends. Their reflexes are fast, helping them to maneuver nimbly in their quest to tap a rich market vein. But incumbents, Dreischmeier points out, often have a rich stable of assets they can draw on as they enter new markets or launch new ventures, such as existing customer bases and the financial heft to fund new ventures and provide working capital.

Consider the example of Amazon, which in the early 2000s launched a side business to provide e-commerce service to other merchants. It leveraged its massive IT infrastructure to create Amazon Web Services, the world’s largest cloud-computing platform. In 2018, AWS revenue grew nearly 50% and was the largest contributor to Amazon’s $10 billion profit. Dreischmeier says this kind of creative thinking around a company’s existing infrastructure and expertise is what can spark innovation to drive future growth. The question to ask, he says, “is how can that asset be leveraged in a different way?”

But for every company like Amazon that has been able to answer that question, there are dozens more that are unable to figure out how to redeploy their company’s strengths in innovative ways. Leap aims to help firms build a bridge between their existing businesses and their growth-oriented future.

It also seeks to address the cultural challenges of disruption. For example, green-lighting the launch of a disruptive business can pose an existential threat to C-suite leaders. After all, Dreischmeier notes, sometimes the business that’s launched as a strategic hedge against disruption can transform the parent company so much it becomes the core of the firm. That’s why leaders need to let their ego take a backseat to the future health and wellness of the company. “The CEO needs to be a really strong leader to enable and support the founder of the new business,” he says. “It requires a significant mindset shift for the CEO.”

That support must seep all the way through the organization. Building a corporate culture that isn’t merely tolerant of these new ventures but actively backs them offers several benefits: One, it makes the broad range of the company’s resources available to the new business; and two, it signals to the workforce as a whole that the organization supports efforts to explore new ideas and bring them to fruition.

“Growth comes from innovation and disruptive moves,” Dreischmeier says. “It’s a core capability you need as a leader to be successful in the long-term.”

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