Digital Disruption - Cause and Effect

Dennis Adonis

Disruption in commerce means a radical break from the existing processes in an industry. In the digital age, disruption usually comes from new internet-enabled business models that are shaking up established industry structures.

Businesses, government agencies and even NGOs are being forced to adopt these new operating practices, or face going out of business.

The risks are real and dramatic. A recent study by Accenture showed that industry leaders expect up to 40 per cent of incumbent businesses to be displaced by digital disruption by 2020.

A clear example of this is emerging in the banking & finance sector, where industry insiders expect to lose as much as 23 per cent of revenue to leaner tech-enabled competitors (FinTechs) by 2020.

FinTech competitors are targeting 33 per cent market share, and smart money seems to agree. Global investment in FinTech grew to $17.4 billion in 2016, up from just $2.1bil in 2011.

So what’s driving the current wave of disruption?

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The Global Software Revolution

The growth of accessible cloud infrastructure, SaaS and open source software solutions, and mobile computing has significantly lowered barriers to innovation, distribution, and adoption of IT.

This ubiquitous access to advanced technology is seeing software, and communications technologies, becoming key differentiators in the way organisations of all sizes now compete.

More and more major businesses and industries are now run on software and delivered as online services—drawing inspiration from Silicon Valley-style entrepreneurial technology companies that are rapidly disrupting established industry structures.

Disruption tipping point

Software disruption typically manifests when nearly 50 per cent of incumbent revenue is lost to technological competition.

In less than two decades the global recorded music industry, for example, lost over half its revenues, while the fall in newspaper advertising revenues has been even steeper.

Digital disruption examples:

  • Facebook has become the largest media company on the planet
  • The world's largest bookseller, Amazon, is a software company
  • The largest video service by number of subscribers is a software company: Netflix
  • Online pure-play Google is the world’s largest advertising business
  • Online social network LinkedIn is the global leading recruitment business
  • Newspaper classifieds worldwide have been entirely supplanted by internet disruptors, such as Australian majors REA (real estate); SEEK Limited (jobs); and (vehicle sales)

Software goes beyond customer-facing business models though, affecting all parts of the production cycle - supply chain, service coordination, payment processing, human resources, marketing and more.

Staying competitive means businesses need to constantly innovate around their core software-driven processes, necessitating faster feature releases, and ever shorter development cycles.

Most organisations are trying to achieve all of these development goals with their existing internal resources, and are increasingly looking for innovative approaches to help source the capabilities.

So what are the real options for staying competitive?

Next week we continue our operational innovation series, looking at 3 of the key pathways to innovation being followed to embrace new digital capabilities.