Digital transformation emerges from technology – social, mobile, analytics, block-chain, machine learning and artificial intelligence, the cloud, and the Internet of Things. The confluence of these technologies is disruptive to existing businesses as it shifts the way in which firms conduct business and make up for what is labeled as “digital disruption.”
Don’t be fooled by the term ‘disruption’. Many people misinterpret this as meaning the process of digital disruption is a negative one; that it is an attack on their business.
In reality, it is only a negative force for those who chose to ignore it or try to fight it. Those who embrace it often find that it can benefit their business in various ways, contributing to their success.
What Is Digital Disruption?
Digital disruption is a transformation that is caused by emerging digital technologies and business models. These innovative new technologies and models can impact the value of existing products and services offered in the industry. This is why the term ‘disruption’ is used, as the emergence of these new digital products/services/businesses disrupts the current market and causes the need for re-evaluation.
Disruption, by our definition, means a shift in relative profitability from one prevailing business model to another. The dominant companies, accustomed to the old approach, lose market share to a new group of companies. Not every disruption is driven by advances in technology, but this one is. And because the software fueling this transformation can be applicable across traditional industry and business function boundaries, competitors can emerge from seemingly anywhere. In sector after sector, new entrants are lowering prices, meeting consumer needs in novel ways, making better use of underutilized assets, and hiring people with broadly relevant digital skills, who have collaborative, creative, and efficient work styles.
How Does Digital Disruption Impact Businesses?
Digital disruption is an unstoppable force and to try and fight it is futile. But what businesses can do is embrace digital disruption, even plan for it. Keeping an eye on the ball and knowing the signs of digital disruption emerging in your industry means you can get ahead of the game and work with the flow rather than against it. Not only does this prevent the wave of digital disruption from washing away your success, it can also lead to further growth and new opportunities for the business.
Digital disruption typically marks changes in consumer needs and therefore working with the tide allows you to fulfill these emerging needs, keeping existing customers happy and opening up opportunities for new customers.
Riding the Wave of Disruption
For the past 30 years, business has changed dramatically because of digital innovation — but only up to a point. Although many practices, products, and services have evolved, and a few sectors (such as media) have been fundamentally changed, very few enterprises have had their core businesses disrupted. But that is about to change, in a way that will — or should — affect the strategy of your company.
All disruption (digital or otherwise) takes place on an industry-wide scale, forcing a significant shift in profitability from one prevailing business model to another. The new model typically provides customers with the same or better value at a much lower cost. Companies wedded to the old business model lose ground, and some are pushed out of business. Challengers that embrace the new business model gain advantage and take a dominant position in the market. The winners may be new entrants, such as Southwest Airlines in the 1980s, Google in the 1990s, and Netflix and Facebook more recently. They could also migrate from another sector, as Apple did when it moved from computer to mobile media and as Amazon did with groceries.
Focus on strategic changes that reflect and incorporate your own existing strengths, as opposed to those that may impress investors in the short run but not add to your sustained performance.
Becoming a Disruptive Entrepreneur
Startups can now begin life with products that are better and cheaper than those of incumbents — and right from the start. That’s thanks largely to exponential improvements in the price and performance of core technologies — and not just in computing. And with the rise of social media marketing tools, consumers can let one another know instantly when better and cheaper goods arrive, ushering in a devastating jump from established providers to the newcomers.
We call such innovations “big bang disruptors.” While examples are obvious in hyper-competitive markets like consumer electronics, gaming, entertainment and computing, the phenomenon is now spreading to industries long thought immune to technology disruption, including the hospitality sector (Airbnb), taxicabs and limousines (Uber), health care (23andMe), agriculture (sensors and RFID) and manufacturing (3-D printing). Indeed, the longer an industry has managed to fend off large-scale transformation, the bigger the bang when entrepreneurs finally crack the code.
How can you take advantage of exponential technology to create some big bang disruption of your own?
1. Build for the Disruption
As industries undergo transformation, they often pass through interim stages that rely on incremental technologies, masking the often-dramatic endgame that may occur a few years further out. If you understand where an industry is really headed — what we call its “inevitable truth” — you can focus your efforts on getting the biggest bang for your buck, positioning yourself to jump when the real disruptor becomes possible and cost-effective.
2. Pinpoint Your Timing
Big bang disruptors might appear chaotic, but these days even dramatic improvements in the price and performance of technology can be predictable enough for you to know when it’s the right time to launch a breakthrough product.
Amazon’s Jeff Bezos didn’t invent the idea of electronic books, for example. The success of the Kindle was more a function of having perfect timing. From watching a decade or more of complete flame-outs by companies large and small, Amazon learned what was still needed in displays, battery, processors and mobile networks before a winning combination could be built.
3. Conduct Market Experiments
In a world of better and cheaper disruptors, the traditional advantage of proprietary research and development is increasingly a liability. While in-house experimentation gives you total control over the design and ownership of new products, it also saddles you with all the costs and risks.
On the other hand, through a series of market experiments with real consumers, crowdsourced R&D gives away the element of surprise, but the value realized from leveraging existing technology platforms and direct interaction with real users more than offsets the loss of control. The explosion of market experiments only looks random. In reality, entrepreneurs have discovered that building a company in the open is not only cheaper; it’s also safer.
4. Anticipate Success.
Social networks and mobile devices are revolutionizing marketing. Increasingly, consumers really listen only to other consumers. As near perfect market information becomes the norm, new products and services tend to shake out quickly either as complete successes or total flops.
Assuming that you’ve built the former, be ready when your customers arrive all at once and right after (or even before) a launch — what is called “catastrophic success.” If you believe your own hype, then you’d better be prepared with manufacturing, distribution and customer-service resources that you can rapidly scale up — and just as quickly scale down when the feeding frenzy ends. Customers won’t wait for you to catch up to demand.
5. Have an Exit Strategy
Dramatic market explosions characteristic of big bang disruptors can put entrepreneurs on the razor’s edge when facing an existential crisis: Is it better to sell a business early on to a more established company or gamble on its lasting until an initial public offering? Now this moment of truth is likely to come sooner. And the consequences of making the wrong choice can be more painful.
How you decide hasn’t really changed. If you think you’ve come up with your best idea or need the resources and user base of a larger company to take your product or service to the next level, then sell. If you have a pipeline of killer disruptors and all support you need to bring them to market, don’t be distracted by what might appear to be a big payout from someone without your vision.
It is important for organizations to embrace digital disruption in order to gain a competitive advantage. When an industry experiences digital disruption, it typically signals that consumer needs are shifting. Therefore, understanding the disruption allows companies to keep existing customers happy as well as create opportunities for new customers. It also gives companies a better idea of human behavior and how trends may occur over time