Digital disruption is an overarching term used to describe the impact of new emerging technologies on society. Digital disruption affects the fundamental aspects of consumer behavior and expectations associated with cultures, markets, processes, and entire industries. Digital technologies can be considered disruptive because of the nature of change, in that changes are driven in both consumers and businesses. Businesses will develop new channels and digital capabilities and consumers will access and sometimes drive the need for a better consumer experience.
Digital technologies are now disrupting domains only previously accessible to humans, this is being termed as the fourth revolution. Technologies such as AI are now performing cognitive tasks and self-learning.
Digital disruption can be termed as the outcome of digital innovation initiatives. The creative forces and outputs of innovation can lead to digital disruption of existing processes, business models and in some cases whole industries. Digital disruption often appears to occur in a rapid and upheaving way, often catching entire industries on the back foot, however there is a school of thought that suggests a trial and error approach is taken , with organizations regularly refining a business model as new disruptive technologies materialize. Therefore, it is important that organizations are constantly horizon scanning to see what competitors in their markets are doing.
Digital disruption has a history going back 30 years, with the first phase including the rollout of websites, providing information to customers and key stakeholders. Charities used the web to inform donors and funders of the work they carried out. The second phase developed the website further with integration of business processes. e.g. paying online. Now organizations find themselves connected to customer networks, utilizing big data, and delivering services via the web.
The impact of digital disruption on businesses
Digital disruption can be focused on a multidimensional level, affecting work practices and processes, the organization, the marketplace, and ultimately organizational culture. New services and products can be brought to the market and new value created for customers and consumer.
Digital disruption can have a positive impact on businesses, aided by new and emerging disruptive technologies. New, more efficient, simpler, and cost-effective products can be bought to market compared to traditional products and services (Christensen, 2003).
Personalization of communication, because of big data analytics, allows for a closer relationship with customers. Customers feel more connection with the brand and trust is created to allow increased brand loyalty. Relevant information can be sent to targeted groups by marketeers creating a sense of personalization.
Organisations can find themselves in a situation often referred to as the Red queen effect, trying to continually update legacy infrastructure and systems just to keep up with competitors, and not implementing new disruptive technologies alongside major upgrade programmes, this can have an impact of running on the same spot, trying to keep up and getting nowhere.
According to Bouveret, Digital disruption has challenged the traditional business model of banks, delivering new innovative services to their customers, and streamlining internal processes. The move towards digital has led to several vulnerabilities being exploited and has introduced several significant risks to banking services. Banks, account for the majority of cyberattacks with 91 % being targeted against the banking sector. Of this 91%, retail banking accounts for 39% of the targeted attacks.
The impact of these attacks is beginning to become more significant, with increased fines being levied to businesses, significant reputational damage being incurred and impact on operations being felt by customers and stakeholders.
The impact of these attacks is having an adverse consequence on trust, with the public becoming ever more concerned with security and privacy. It can be said that the nature of cyberattacks is evolving and becoming more complex, with several new “actors” emerging on the stage.
According to Krstic and Tesic, within the banking sector new E-loans, digital signatures and video appointments have disrupted traditional banking processes with a streamlined, simple, and quick service for mortgage products.
Digital disruption can lead to better working practice and processes, for instance the NHS is exploiting the use of big data to support better healthcare outcomes. The NHS is moving from merely reporting findings and facts to creating health insights and designing workflows for enhanced health outcomes, by personalizing the end to end patient journey.
Culture and skills
With digital disruption comes an increased pace of change where businesses must maintain their services and products within an ever-changing environment. Human resource strategies will have to adapt to support the workforce going into the future.
An organization will inevitably have to adapt internally with new skills and the requirement of working within an agile and adaptable environment. The workforce will now have to self-disrupt and become resilient to change.
The advance of digital disruption will have an impact on job design, with routine processes being automated via AI technology or digitization. The skills set required within the workforce will change with technical, digital, and professional skills becoming the norm. Executives will increasingly have to improve their digital understanding.
Therefore, the resulting outcome of working on a more agile basis will inevitably have an impact on organizational culture as behaviors and values are embedded over time. Organizational culture will inevitably become fast moving, digitally savvy and more productive. It is safe to say that there is a correlation between agile methods and agile culture.
A business model is a conceptual model of how an organization does business, it describes how value is created and captured. Value creation will inevitably have differing viewpoints and forms, with social value becoming increasingly important alongside economic value.
There are nine elements that form the business model , customer segments, value proposition, delivery channels, customer relationships, revenue streams, resources, key activities, partnerships, and cost structure. These elements put together deliver value.
Digital disruption has accelerated the breakdown of successful traditional business models, introducing technology driven models providing more value to its customers. A recent survey conducted by MIT center for information systems research, has suggested that board members envisage their revenue decreasing by 32% because of digital disruption.
Generally, the impact of digital disruption has been two-fold, one where businesses collate a better understanding of their customers and secondly to operate within a digital ecosystem.
Digital disruption has had an impact on organizational business models, especially since the advent of the internet. With digital disruption customers have more choice as businesses exploit technology to create new products and services. These services are created for a range of customer segments with personalization of communication and brand relationship. Businesses require a stronger relationship with their customers and develop customer centric solutions. Therefore, the business model adopted by an organization will inevitably require realignment to deliver further value for customers.
A key development as mentioned above within the emerging environment has been the rise of the digital ecosystem as a form of a successful business model. An ecosystem is a network of organizations forming a partnership to deliver value to customers. These could be suppliers, customers, government organizations, etc. all working together ensuring they remain flexible and adaptable to survive. Examples of successful digital ecosystems are Airbnb and Booking.com.
Digital disruption sometimes produces new unlikely competitors in existing traditional markets. Both Google and Facebook have entered in the traditional banking market by utilizing their platforms as banking platforms. Facebook obtained a license from the Central bank of Ireland to issue e-money via its social media platform. Google is not far behind with the ability to send e-money via Gmail attachments.
According to Weill and Werner, Digital disruption has introduced some unlikely partnerships being formed to create digital ecosystems, alliances between former competitors and suppliers has formed to produce new value for customers. In the instance of Amazon.com, there are varying numbers of suppliers vying for customers often providing the same products for different prices. Feedback is provided by customers to suppliers which is used to improve their customer experience whilst Amazon utilizes data within the ecosystem to fine tune and identify new opportunities. Consumers receive a one stop shop, Amazon managed experience.
1st, October 2020
Jasvir Chohan, CEO and Founder ItautiDigital consultancy services