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Digital disruption: displacing incumbents, reshaping markets

What is digital disruption?

Digital disruption is the effect of digital technologies and business models on a company’s current value proposition, and its resulting market position. Digital disruption has the potential to overturn incumbents and reshape markets faster than any force in history.

Why it matters

Digital disruptors innovate rapidly, then use their innovations to gain market share and scale far faster than challengers still clinging to predominantly physical business models.

Digital disruptors are particularly dangerous because they grow enormous user bases seemingly overnight, then are agile enough to convert those users into business models that threaten incumbents in multiple markets.

Enter the Digital Vortex

The Mighty Will Fall

What, me worry?

According to a survey conducted by the Global Center for Digital Business Transformation, four of the top 10 incumbents in each industry will be displaced by digital disruption in the next five years. Yet, 45 percent of companies don’t feel digital disruption warrants board-level attention.

Time is short

Forty-three percent of companies either do not acknowledge the risk of digital disruption, or have not addressed it. Only 25 percent are taking proactive steps to counter digital disruption.

Source: Global Center for Digital Business Transformation, 2015
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Digital Vortex: relentless, chaotic, redefining

What is it?

The process of digital disruption resembles the action of a vortex, which exerts a rotational force that draws everything toward its center. In the Digital Vortex, industries inevitably move toward a “digital center” in which business models, offerings, and value chains are digitized to maximum extent.

Redefining industries

The force of the vortex separates physical and digital elements, creating “components” that can be readily combined to create new disruptions — and blurring the lines between industries.

Moving toward the center of the Digital Vortex is neither good nor bad — but it is inevitable.

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Ranking the disruption threat by industry

No industry is immune

An industry’s ranking represents the extent of potential competitive disruption within five years as a result of digital technologies and business models. Industries poised for greatest disruption are those in which the most digitization is taking place; those on the periphery of the Digital Vortex are less vulnerable to disruption.

Technology sector tops list

The industry that will experience the most digital disruption between now and 2020 is technology products and services. Pharmaceuticals, meanwhile, is likely to experience the least amount of digital disruption.

Source: Global Center for Digital Business Transformation, 2015
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‘Combinatorial disruption’ fuels new business models

Delivering new sources of value

The most successful disruptors of recent years—Amazon, Apple, Facebook, Google, Netflix—employ “combinatorial disruption,” in which multiple sources of value—cost, experience, and platform—are fused to create disruptive new business models and exponential gains.

Spurring the need for digital transformation

Combinatorial disruption breaks value sources into constituent digital parts that are then recombined to produce the next generation of technologies and breakthrough business models. This, in turn, gives rise to digital disruption—and the need for incumbents, in particular, to transform.

The Three Categories of Digital Business Models

Cost Value

  • Price transparency
  • Consumption-based pricing
  • Reverse actions
  • Buyer aggregation
  • Rebates and rewards

Experience Value

  • Customer choice
  • Personalization
  • Automation
  • Lower latency
  • Any device, anytime

Platform Value

  • Marketplaces
  • Crowdsourcing
  • Peer-to-peer
  • Sharing economy
  • Data monetization
Source: Global Center for Digital Business Transformation, 2015
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Fortune favors the bold (and innovative)

The start-up advantage

According to surveyed executives, start-ups have clear advantages as they attempt to grow their businesses and unseat incumbents. The real advantage of smaller digital players comes not from a grand plan, but from the ability to innovate faster, take risks, and adapt.

Holes in incumbents’ defenses

The first lines of defense—access to capital and large customers bases—that insulated incumbents from upstarts of the past can now be surmounted with growing ease by start-ups thanks to the power of digitization, fueled by the Internet of Everything.

Source: Global Center for Digital Business Transformation, 2015
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Global Center for Digital Business Transformation

What it is

The Global Center for Digital Business Transformation (“DBT Center”) is an IMD and Cisco initiative that brings together innovation and learning to create disruptive business models for the digital era.

The mission

The DBT Center seeks out diverse viewpoints from a wide range of organizations to bring new ideas, best practices, and disruptive thinking into the process. The collaboration combines Cisco’s leadership in the Internet of Everything with IMD’s expertise in applied research and developing global leaders, focusing on organizational change required for digital transformation.

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