Digital transformation has been a hot topic for at least he last 5 years and is increasingly become reality. for those of us who lived through the re-engineering of the early 90s this seems to be another twist of a familiar tale. However there are major differences.Digital is no longer the shiny front end of the organization – it’s integrated into every aspect of today’s companies. As digital technologies continue to transform the economy, many leaders are struggling to set a digital strategy, shift organizational structures, and remove the barriers that are keeping them from maximizing the potential impact of new digital technologies.
A workable definition is that Digital disruption is the change that occurs when new digital technologies and business models affect the value proposition of existing goods and services.
A current aphorism is that you either have to be smarter than a robot or cheaper.
Recent developments in robotics, artificial intelligence, IoT, digital printing, virtual reality, and machine learning have put us on the cusp of a new automation age. Robots and computers can perform a range of routine physical work activities better and cheaper than humans, and are now capable of using cognitive capabilities once considered too difficult to automate successfully, such as making tacit judgments, sensing emotion, or even driving. Automation is already changing the daily work activities of everyone, from retailers, miners and landscapers to commercial bankers, fashion designers, welders, DBAs and CEOs.
What will the impact be on productivity? previous technical revolutions such as the introduction of the steam engine, or personal computing, delivered annual productivity increases of less than 1%. The speculation now is that new changes will increase productivity by 1 to 1.5 % an unprecedented rate of change, with many economic, social and political implications.
Fifty-two percent of the Fortune 500 since 2000 have merged, been acquired, or gone bankrupt since 2000.
A study by Richard Foster from Yale, shows that in the the SMP 500, the average age of a company in 1959 was about 58 years. It’s now down to 15, and it’s going to be 12 by 2020. There’s no time to wait. Digital Darwinism is unkind to those who wait.
“We’re talking about a three to four-times compression in terms of age of a company since the 50s and 60s. So, if you’re not making the shift, if you’re not even moving in that direction, you’re probably going to be merged or acquired, or go bankrupt.”
According to the new MIT Sloan Management Review and Deloitte University Press report, “Aligning the Organization for Its Digital Focus”, nearly 90% of more than 3,700 business executives, managers and analysts from around the globe say that they anticipate that their industries will be moderately, or greatly disrupted by digital trends. Yet less than half (44%) currently believe their organization is adequately preparing for this digital disruption. Ray Wang
Also see this HBR post for similar survey results
The most disrupted industries typically suffer from a perfect storm of two forces. First, low barriers to entry into these sectors lead to more agile competition. Secondly, they have large legacy business models which often generate the majority of their revenue. These organizations, therefore, have embedded cultural and organizational challenges when it comes to changing at the pace required. Digital companies can reach new customers immediately and at virtually zero marginal cost. They can compete in new sectors by collaborating with peers and competitors.
In the first wave of the commercial Internet, the dot-com era, falling transaction costs altered the traditional trade-off between richness and reach> Rich information was suddenly communicated broadly and cheaply, and changed how products are made and sold. Strategists made hard choices about which pieces of their businesses to protect and which to abandon. The learned to repurpose some assets to attack previously unrelated businesses. Virtual companies relied on outsourcing and offshore and owned little and made nothing. Incumbent value chains were “deconstructed” by competitors focused on narrow slivers of added value. Traditional notions of who competes against whom were upended—Microsoft gave away Encarta on CDs to promote sales of PCs and incidentally destroyed the business model of the venerable Encyclopædia Britannica.
With Web 2.0, the economies of mass scale evaporated for many activities nd small became beautiful. It was the era of the “long tail” and of collaborative production on a massive scale. Minuscule enterprises and self-organizing communities of autonomous individuals surprised us by performing certain tasks better and more cheaply than large corporations. Hence Linux, hence Wikipedia and Open source. Those communities grow and collaborate without geographic constraint, and major work is done at significantly lower cost – and oftenat zero price.
Many strategists adopted and adapted to these new business architectures. IBM embraced Open Source to challenge Microsoft’s position in server software; Apple and Google curated communities of app developers so that they could compete in mobile; SAP recruited thousands of app developers from among its users; Facebook transformed marketing by turning a billion “friends” into advertisers, merchandisers, and customers.
Where are we now? Hyperscaling and connectivity. Big—really big—is now beautiful. The cloud, new databases, new processing power, new BI tools, predictive analytics, data from IoT correlated with contextual search, delivered anytime anywhere on any device. Social media and smart phones are ubiquitous and real time news and peer opinion is replacing traditional news channels, and marketing and government communications. At the extreme—where competitive mass is beyond the reach of the individual business unit or company—hyperscaling demands a bold, new architecture for businesses.
We are only at the beginning of what the World Economic Forum calls the “Fourth Industrial Revolution,” characterized not only by mass adoption of digital technologies but by innovations in everything from energy to biosciences. The digital consumer, who enjoys more interactive and personalized experiences thanks to SMAC (social, mobile, analytics and cloud) technologies; the digital enterprise, which leverages SMAC technologies to optimize the cost of corporate functions and to transform enterprise collaboration for greater productivity; and the emerging digital operations wave, where companies are revolutionizing business with the use of artificial intelligence, robotics, cognitive computing and the Industrial Internet of Things.
Speculation about the effects of technologies often suffer from extreme optimism or pessimism. In the 1930s, several countries were enthusiastically experimenting with using new rocket technology to deliver mail, and in 1959, the United States trialed mail delivery via cruise missile, a proposition that could now be regarded as comical yet it ahs surfaced again with drone deliveries.
Jo Caudron and Dado Van Peteghem in their book Digital Transformation highlight 10 business models behind digital disruption. Professor Michael Wade, co-director of the IMD Leading Digital Business Transformation course has highlighted 7 strategies to respond to disruptors.
10 Hyper-Disruptive Business Models
1.The Subscription Model (Netflix, Dollar Shave Club, Apple Music) Disrupts through “lock-in” by taking a product or service that is traditionally purchased on an ad hoc basis, and locking-in repeat custom by charging a subscription fee for continued access to the product/service
2.The Freemium Model (Spotify, LinkedIn, Dropbox) Disrupts through digital sampling, where users pay for a basic service or product with their data or ‘eyeballs’, rather than money, and then charging to upgrade to the full offer. Works where marginal cost for extra units and distribution are lower than advertising revenue or the sale of personal data
3.The Free Model (Google, Facebook) Disrupts with an ‘if-you’re-not-paying-for-the-product-you-are-the-product’ model that involves selling personal data or ‘advertising eyeballs’ harvested by offering consumers a ‘free’ product or service that captures their data/attention
4.The Marketplace Model (eBay, iTunes, App Store, Uber, AirBnB) Disrupts with the provision of a digital marketplace that brings together buyers and sellers directly, in return for a transaction or placement fee or commission
5.The Access-over-Ownership Model (Zipcar, Peerbuy, AirBnB) Disrupts by providing temporary access to goods and services traditionally only available through purchase. Includes ‘Sharing Economy’ disruptors, which takes a commission from people monetising their assets (home, car, capital) by lending them to ‘borrowers’
6.The Hypermarket Model (Amazon, Apple) Disrupts by ‘brand bombing’ using sheer market power and scale to crush competition, often by selling below cost price
7.The Experience Model (Tesla, Apple) Disrupts by providing a superior experience, for which people are prepared to pay
8.The Pyramid Model (Amazon, Microsoft, Dropbox) Disrupts by recruiting an army of resellers and affiliates who are often paid on a commission-only model
9.The On-Demand Model (Uber, Operator, Taskrabbit) Disrupts by monetising time and selling instant-access at a premium. Includes taking a commission from people with money but no time who pay for goods and services delivered or fulfilled by people with time but no money
10.The Ecosystem Model (Apple, Google) Disrupts by selling an interlocking and interdependent suite of products and services that increase in value as more are purchased. Creates consumer dependency.
Business leaders are now more intent on disrupting before they are disrupted. How can you drive value from data in new ways? How can you shorten product development cycles? How can you tap into predictive analytics and social media to determine the right strategy?. Success is not just changing strategies, increasingly the need is for agility to execute multiple strategies concurrently. Such success requires CEOs to develop new leadership capabilities, new workforce skills and new corporate cultures and processes to support digital transformation. Mobile, ‘work from home’, BYOD, self-service, collaboration tools like Yammer and Team and Skype Business, e-payments, digital signatures, are tools that offer new ways of working.
For society, the implications of the Fourth Industrial Revolution are profound – from saving lives to creating jobs to better stewardship of the environment. For example our Healthcare solution built on Dynamics CRM, is providing guided pathways to the optimal route for treatment and is delivering huge cost savings and more effective care delivery by better targeting and use of resources.
Strategies to Respond to Digital Disruption
1.The Block Strategy. Using all means available to inhibit the disruptor. These means can include claiming patent or copyright infringement, erecting regulatory hurdles, and using other legal barriers.
2.The Milk Strategy. Extracting the most value possible from vulnerable businesses while preparing for the inevitable disruption
3.The Invest in Disruption Model. Actively investing in the disruptive threat, including disruptive technologies, human capabilities, digitized processes, or perhaps acquiring companies with these attributes
4.The Disrupt the Current Business Strategy. Launching a new product or service that competes directly with the disruptor, and leveraging inherent strengths such as size, market knowledge, brand, access to capital, and relationships to build the new business
5.The Retreat into a Strategic Niche Strategy. Focusing on a profitable niche segment of the core market where disruption is less likely to occur (e.g. travel agents focusing on corporate travel, and complex itineraries, book sellers and publishers focusing on academia niche)
6.The Redefine the Core Strategy. Building an entirely new business model, often in an adjacent industry where it is possible to leverage existing knowledge and capabilities (e.g. IBM to consulting, Fujifilm to cosmetics)
7.The Exit Strategy. Exiting the business entirely and returning capital to investors, ideally through a sale of the business while value still exists (e.g. MySpace selling itself to Newscorp)
As the world moves to amore digital future so the threats change. There is more data so there is more to steal and to corrupt. Security threats- phishing Trojans, malware, hacking of politicians email or government or company files or credit card details are now major challenges for all. As data grows-(how many hours of you tube video get uploaded each second) topics like high speed internet, and edge computing become more important.
