Business is being disrupted, your Enterprise must transform! Variations of this message appear widely throughout the media, from business press, through general interest publications and into social media and events. The message that change is underway has been received, and noted. Boards and senior management are thirsty for more clarity as to the extent and speed of the ‘transformation’ and want more clarity to provide a bench mark for their own changes.
What is Digital Business and why does it both Disrupt and Transform is a question seldom asked, indeed definitions are usually, and obviously driven, but the context in which the question is posed. There is a simple answer, and keep this in mind when reading the rest of this piece;
A new generation of ‘Digital’ Technology is ‘Transforming’ the supply and consumption of assets, products and services and in so doing ‘Disrupting’ the established business models and markets for those items.
Similarly, it’s worth reminding what is ‘Transformation’ in when applied to Business. The Business Dictionary definition says. In an organizational context, a process of profound and radical change that orients an organization in a new direction and takes it to an entirely different level of effectiveness. Unlike 'turnaround' (which implies incremental progress on the same plane) transformation implies a basic change of character and little or no resemblance with the past configuration or structure.
This links to, and aligns with, the term ‘Disruption’ as defined by Clay Christensen, a Harvard Business School professor, in his much acclaimed book ‘The Innovator’s Dilemma’; A disruptive product addresses a market that previously couldn’t be served — a new-market disruption — or it offers a simpler, cheaper or more convenient alternative to an existing product — a low-end disruption.
Tech Crunch wrote a great article on Silicon Valley startups love of claiming ‘disruptive’ capabilities for their products entitled ‘What “Disrupt” really means’. Building upon the basics of the Innovators Dilemma with real examples to illustrate how products can disrupt markets, ending with the statement; Business models, not products, are disruptive.
Hopefully those three statements help clarifies the Enterprise objectives or actions, but competitively successful execution, is all about timing. Established Enterprises with successful business models rightly see change as a risk to their established position, delaying action until their market has been disrupted, which forces their belated response to be focused on their challenger’s terms, not their own strengths.
Startups see market disruption as their opportunity to grab a slice of the newly defined market, and consciously build their business model from day one to deliver in a Transformed manner. Second Tier Industry Sector players also see market disruption as an opportunity to rapidly increase their revenues at the expense of the market leaders. Both Startups and smaller second tier players can use their size, even their culture to transform quickly, even repeatedly.
Digital Business has the capability to disrupt and destroy established Industry sector markets simply because existing players find their established Business models to potentially handicap their ability to compete in the changed circumstances. Customer loyalty evaporates fast if the benefits of the disruptive change are high enough. For nearly 100 years the iconic Black Cab in London has been a byword for high quality service, but Uber has disrupted their market totally with 3.5 million Londoners holding Uber accounts.
Unionized Black Cab business operators attempt to force the Uber out through persuading the City of London to legislate in their favor, resulted in nearly 1 million of their customers petitioning for Uber to be allowed to continue. Demand for Taxi services remains high, or has become even higher through Uber, but Digital Business has disrupted the supply and consumption business model, resulting in Taxi operators facing the need to transform their enterprise business models.
Competent Boards and Senior Management no longer need convincing there is a potential ‘game change’ underway, the challenge is to assess, and plan responses. Quick win projects are naturally popular and can be thought to indicate progress, but to be meaningful a succession of ‘individual’ initiatives have to add up to an Enterprise wide transformation of their Business model. Much, much, more important is whether such initiatives convince customers and shareholders of the value of their actions.
Consider the following two statements, and recognize that the first dubbed ‘Evolutionary’ should be a planned path to prepare for the inevitable moment when it becomes necessary to launch the second, a Revolutionary counter attack. There is no denying that it is extremely difficult to predict when, even how, your market and its business model will be disrupted. Building a wide foundation of capability, culture and understanding using a planned Evolutionary path massively improves the ability to recognize the early market signs as well as successfully organize a response. Sadly, Evolutionary can become a mechanism to contain change to selected areas and allow denial to flourish across the majority of the Enterprise.
Evolutionary; An Enterprise can choose an Innovation program to develop new capabilities within its current Business Model as an Evolutionary move. In which case the timing, extent and pace of the change is entirely under the control of the management team.
Revolutionary; An Enterprise is forced to react to the competitive threat of one or more competitors disruptively transforming the market for your business model. In this situation, the Enterprise Management has lost the advantage of controlled innovation, and is in a forced pace Business model transformation.
The Manufacturing and Industrial Sectors provide an example of how Evolution is driving adoption rather the Revolution, even if the terminology used, (transformation and disruption), suggest otherwise. The two sectors provide many of the examples that are used to illustrate the adoption of IoT, and various innovations such as Digital Twins, Outcome based charging, etc. The sector has been boosted in the USA by the declaration by GE of their strategy to use the new Digital technologies to improve margins directly related to a campaign to gain a 1% reduction in direct costs. The strategy starts with an Evolutionary stage to improve competitiveness within existing Business models. There will come a Revolutionary moment when with the time, experience and understanding gained, GE, or one of its competitors, will launch a market disrupting move, using a transformed Business model.
Europe has experienced a similar boost driven by The German Federal Ministry for Economic affairs Industrie 4.0 initiative, so called to indicate the entry into the fourth Industrial age driven by new technologies. The dependence of the German economy on Manufacturing, particularly in specialist mid range sized companies, is endangered by the potential disruption of markets. The goal was to prepare German Industry through initially assisting the development of Evolutionary improvement to increase existing competitiveness in the World economy. Practical tools such as The Industrie 4.0 Maturity Index; Managing the Digital Transformation of Companies provide progress milestones, and naturally the skills gained increase the likelihood of German Industrial companies becoming the market disruptors.
Manufacturing and Industrial Enterprises certainly have benefited from some unique factors, including the established use of sensing and automation in production. The resulting duality in technology skills from Operational Technology and Information Technology brings direct experience in deploying Evolutionary initiatives. Conversely the sector has suffered badly from the Globalization of production into low cost economies and needs to find a new route to improved Business competitiveness. Short term goals to re-energizing the value from current business models by the use of new Digital technologies positon Evolutionary change as the obvious strategy. The lessons to learn from the sector lie in the successful Business execution of Evolutionary initiatives, rather than searching for examples of Revolutionary disruption and transformation.
In the coming years Product Manufacturers will change the ‘supply’ of products, into a supply of Outcomes and Buyers will have new choices in how they ‘consume’ the capabilities of the product. The shift from selling/ suppling air conditioning units with a maintenance contract to the users buying/ consuming the provision of a required temperature will disrupt the market and will force the transformation of Business models. Small pilots show the way, but a disruption at market level hasn’t happened yet, but Digital Technologies have provided big benefits to in field Service Maintenance.
It’s a big mistake to take the over enthusiastic use of the terms Transformation and Disruption look around your industry sector, and conclude there is no need to act as nothing like this has happened. Low key Evolutionary moves don’t create headlines, but they do change existing completion and lay a foundation for the inevitable sudden shift that will occur. Probably it won’t be an existing competitor, but an entrant intent in disrupting the current market to the consternation of many of the existing market leaders and niche operators.
That’s when the investment in Evolutionary initiatives as an organized strategy will suddenly be the basis of competitive survival. Until then the Evolutionary initiatives will improve current competiveness, put that way it’s hard to understand why any Board should be in denial of the need to act.