Digital technology is continuing to advance at a rapid pace, presenting opportunity and threat in equal measure to companies in almost every sector.
From advanced smartphones connecting everyone at every time, to Cloud Computing offering unprecedented processing power and data storage for low prices, there is no denying the power of digital technology. Still, many companies and many executives are in denial, thinking that somehow they are immune to these powerful disruptive forces. Make no mistake; no one is immune. All industries can fall prey to commoditization and obsolescence. And no one is moving fast enough to outpace threats and take advantage of opportunities.
Disruption is often defined as “a shift in relative profitability from one business model to another.” While recently this has typically been driven by technology and digital innovation, this is not always the case.
Digital Disruption in Mobility and Payments
Take one of the biggest disruption success stories of our era: Uber. The technology behind Uber wasn’t disruptive itself. Each piece of technology enabling their product—mobile payments, GPS, etc—already existed. What was disruptive about Uber was the way they leveraged that technology into a new business model that took advantage of the rise in the gig economy.
According to Bill Gates, we have a tendency to overestimate the amount of change that is possible on a 2 year time frame, and greatly underestimate the amount of change possible over a 10 year time frame. Successfully navigating disruption requires a balance. It requires a balance of short and long term thinking, and a balance of reactive and proactive action.
When it comes to digital disruption, success breeds more success.
This success is characterized by Positive Feedback Loops, Zero Marginal Cost or significant Economies of Scale. Take social media as an example. The more users there are on a platform, the more revenue that platform can generate through advertising. Additionally the more users there are on a platform, the more likely others are to join.
More users attract more users, which attracts more revenue.
This positive feedback loop can be seen in a number of industries, whether its social media networks, PC operating systems, smartphones, ride sharing applications, and others. To be successful, you need to obtain a critical mass, a key level of volume.
Sometimes disruption means cutting out the middle man, but not always.
In some cases, cutting out the middle man doesn’t work at all. For example, Massive Open Online Courses (MOOCs) weren’t successful when they tried to cut out the “middlemen” of universities. However, companies like Coursera successfully partnered with the universities to provide a disruptive service in education.
Examples of Digital Disruption are everywhere, in any industry you can think of and everyone from New York City to Silicon Valley is talking about it. In a business context, the term has become so prolific since Clayton Christensen first introduced it in 1995 that many have complained that is has transformed from a revolutionary concept into an empty buzzword. While the word might have become a bit overused, the idea of disruption—as well as the dual threat and opportunity it provides, is bigger today than ever.
Check back for our next article on disruption, “Strategy and Lean Leadership in Digital Disruption.”