Technological changes foreshadow a dramatic — but manageable — shift in business logic everywhere.
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 even pushed out of business. A group of challengers that embrace the new business model gain advantage and take a dominant position in the market. The winners may be new entrants, as were 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 into telephony and Amazon did with groceries. Or they could be large incumbent companies shifting business models, as GE is doing now with its large-scale business-to-business infrastructure offerings (for example, its integrated industrial Internet platform, Predix).
Businesspeople have been worried about disruption at least since 1996, when Clayton M. Christensen popularized the word in his book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. But the degree of actual disruption in business over the past 15 years is much lower than you might expect. Our colleagues at PwC discovered that discrepancy in a research project published this year, in which they tracked the top 10 companies (by revenue) in 39 key sectors. On average, only 6 percent of company value shifted over a full 10-year period, except for the three most volatile sectors (Internet software and services, IT, and biotechnology), where the figure was 10 percent. In short, if you measure disruption by the degree of market share gain or loss in the dominant companies in each sector, most industries have not yet been affected.
This case, however, is different, because its digital aspect gives it unusual breadth and scale — comparable to the introduction of commercial electric power in the early 20th century. Digital disruption is a shift in industry value triggered by advances in information and communications technology. (By this definition, the shift to electric cars is not digital disruption, because it is largely enabled by advances in battery technology, but a move to flexible manufacturing, enabled by 3D printing, is.) During the next few years, the technologies associated with this wave — including artificial intelligence, cloud computing, online interface design, the Internet of Things, “Industry 4.0,” cyberwarfare, robotics, and data analytics — will advance and combine. Products and processes will routinely learn from their surroundings; markets will converge to an unprecedented extent. As electric power did, the new wave of technological advance is expected to shift a wide array of business practices, in nearly every sector, and in both business-to-business and business-to-consumer firms.
Although the pace of disruption can be slower than people expect, the time to act is now — for three reasons. First, preparations for these changes require time. As when a hurricane is bearing down on a coastline, the longer you wait to act, the more vulnerable you become. It won’t be possible to predict the precise tipping point, which will vary from one industry to the next, but some common threads will emerge. Prices will decrease, assets will lose value, and the willingness of customers to shift their habits will determine the pace of change. This is happening to some old-model retailers now; their businesses are not bankrupt yet, but the dollars they invest in their legacy businesses don’t earn a return. Thus, they cut back their spending, and their stores deteriorate further.
Read more: https://www.strategy-business.com/article/The-Coming-Wave-of-Digital-Disruption