Digital disruption is becoming mainstream, four strategies to keep an edge

27 February 2018 7 min. read
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Despite the widespread buzz surrounding ‘digital disruption’, its impact so far has been limited to well-known sectors, such as travel (, Airbnb), taxi (Uber), retail (Zappos, Alibaba) and entertainment (Netflix, Amazon Prime). However, according to a new study, disruption is about to reach a tipping point, with two-thirds of large companies now  being faced with disruptive competition, while the remainder is due to follow suit quickly.

A new study conducted by Accenture has surveyed more than 600 companies, revealing that that disruption today has passed the phase of talk, and transitionted into serious business. So what exactly are disruptors? According to the authors, they are companies – startups or incumbents – that are simply releasing new forms of value, ready to be unlocked as a result of innovations, combined with other external changes. Technology is herein the key driver; technology-driven innovations are helping disruptors shape the new reality of their industries or even create entire new industries.

The respondents of the questionnaire all had an annual turnover of at least $100 million, and were based in 82 countries. As its stands, 63% of those companies are experiencing disruption. And more than 40% of companies, accounting for a combined enterprise value of $26 trillion, class themselves as highly susceptible to future disruption. 68% of executives surveyed by Accenture expect their industry to be significantly disrupted by new innovations brought by technology in the next three years.

Companies are experiencing disruption

Executives fear disruptors because they have the potential to reshape the market, and eliminate the competitive edge of incumbents by leveraging new techniques and technology. An analysis of the main edges of disruptors finds that they tend to be successful in three ways. Firstly, they dramatically lower historic prices through new cost structures. In addition, they deliver significant innovation in products and experiences for consumers, while at the same time finding ways to break down incumbent defenses and barriers to entry.

Examples of this are everywhere. Data from Statista shows that former mobile phone market leaders Nokia saw sales peak in 2007, hitting €51 billion. That was the year Apple’s first iPhone launched. Just seven years later, Nokia’s sales revenue was languishing at around €11.7 billion, thanks largely to the smart phone revolution that left it lagging behind competitors. Similarly, Kodak was the top company in the US for digital camera sales in 2005, holding 40% of the market share, at $5.7 billion. However, just five years later, the traditional photography giant held 7% of the market, and ranked seventh, behind Canon, Sony, Nikon and others, who adapted to new innovations quicker, according to research firm IDC. To what extent do you expect your industry to be disrupted?The researchers found, however, that not every industry is impacted by disruption in the same way. The industry seeing most disruption at present, software and platforms, will apparently see the lowest susceptibility to further disruption in the future. Following this, it might seem like common sense that another sector currently seeing one of the highest levels of disruption would have less room for such change in the future, however, according to Accenture’s forecast, the energy sector is set to see even higher levels of disruption in the future. Banking, meanwhile, has one of the lowest rates of disruption at present. However, it has the second highest rating for its susceptibility to disruption in the future.

Traditionally, dominant entities in the banking sector can trace their roots back centuries, having weathered various storms, including a global financial crisis largely attributed to their policies, along with continued arrivals of various new competitors, from credit unions to internet-only banks. However, thanks to the age of digital disruption, traditional bankers now face a new era of competitive pressure, some of which has been projected to cut deep into the market share that they previously relied on. As a result, the industry is increasingly tapping into the emergent FinTech scene, in the hope that by co-opting new financial technology rather than competing with it, banks can preserve their customer base.Current level of disruptionHow susceptible a business is to future disruption depends largely on future-proofing operating models – something also outlined by a recent publication from &samhoud founder, Salem Samhoud, and consultant Mara Soekarjo – with digitalisation being a key factor. Commenting on Accenture’s own research, Mike Sutcliff, Group Chief Executive of the firm’s Digital outfit, explained, “We found that the lower an industry’s digital performance, the more susceptible it is to future disruption. Digital technologies can help make a company more resilient in times of disruption in a number of ways, whether by driving better outcomes from existing products, developing entirely new digital services, lowering costs, or increasing barriers to entry.”

Different phases of disruption

The good news for companies facing disruption, is that disruption can follow an understandable pattern, allowing leaders to understand where they stand and craft the right strategies. Leveraging the degree of current disruption and susceptibility, Accenture drafted a model that highlights key strategies comapnies can follow, depending on which quadrant they operate in.

The first is the durability state. In this scenario, simply preserving legacy operations is not enough, and companies must reinvent their business, working to maintain cost leadership within their core business and make key offerings cheaper, better, or both, to become more relevant to modern customers.

In the vulnerability state, on the other hand, firms must adapt their legacy businesses to become more productive, and position themselves to develop innovations of their own, or to leverage those of their competitors. One example that Accenture provides is for such firms to look to reduce dependence on fixed assets, while monetising underused assets.Susceptibility to future disruptionAccenture’s third grouping, the volatility state, is even more difficult for companies to thrive in. According to the analysis, the only way to survive here is by decisively, but methodically, changing the current course. Incumbents in this area must radically transform the core business while scaling new businesses. However, while changing at a brisk pace is key to remaining relevant, the consultancy is keen to advise that should they reform too quickly, firms will likely stretch themselves too thin financially.

Finally, in the viability state, companies have to make peace with life in a constant state of innovation. This change involves increasing the penetration of innovative offerings for existing customers, while making moves to aggressively expand into new markets which are either adjacent or unchartered to the company. Firms can break ground in these markets by leveraging the strength of their reinvigorated and innovation-enabled core business. Companies in the perpetually changing energy sector are perhaps those which best fit this sector.