I recently talked to a CEO in a traditional industry—utilities. His company produces meters to measure the flow of gas, water, and electricity. He described his competitive environment in the following way. He said that the industry had always been tough, kind of like a desert. It was challenging, resource constrained, highly competitive, but relatively predictable. Today, he told me, it feels more like a jungle. Instead of having a clear view to the horizon, the environment is almost impossible to navigate, full of unfamiliar sights, sounds, and smells. When you are in a desert, at least you know what you need to do to survive, he told me. But, in a jungle, every step is full of danger.
We are hearing more and more stories like this one, describing a kind of confusion, bordering on panic, about the nature and pace of change occurring within and across industries. We refer to this emerging environment as the digital vortex.
The vortex drives the inevitable movement toward a “digital center” in which business models, offerings, and value chains are digitized to the maximum extent possible. Industries that are most at risk are those in which products and services can be digitized, such as music, software, and retail. However, all industries are being affected. Who would have imagined the taxi industry going through a complete digital disruption?
Organizations need to understand the mechanics of disruption in order to minimize the threats and leverage the opportunities that digital provides.
Getting Comfortable in the Digital Vortex
Some companies will benefit enormously from digitization. Others will not. The question business leaders needs to ask themselves is this: “How will my organization leverage digital to transform and succeed?”
It is easy to look at start-ups and so-called Unicorns with envy. They are unencumbered with the legacy systems, processes, structures, and people that characterize established players. Small players tend to be fast, agile, and innovative. Yet, established companies also have advantages. They often have strong brands, deep industry relationships, extensive knowledge, large customer bases, and access to capital.
These companies need to become digitally agile.
What’s up with WhatsApp?
A great example of how a start-up can use digital to disrupt multiple revenue streams within an industry is WhatsApp. They are disrupting multiple industries with a single offering.
Facebook bought WhatsApp in 2014 for a whopping $22 billion. Its impact on the $100 billion global text messaging market is a perfect example of a major digital disruption. In addition to free text messaging, WhatsApp allows users to make free mobile voice calls. Now, Facebook is considering offering person-to-person payments via WhatsApp, something that it already offers through Facebook Messenger.
WhatsApp has successfully disrupted two major revenue streams for telecommunications service providers—text and voice. WhatsApp and other services are projected to drain global telecommunications companies of $386 billion in revenue by 2018 from the use of mobile voice calling alone. Plus, it could go after a mobile payments space that will approach $2.8 trillion in the next five years.
WhatsApp has accomplished these feats by building an innovative platform with a simple function—allowing consumers to send messages to each other via smartphones for “free.”
There is no question that the stakes are incredibly high for established companies. They must understand the changing nature of competitive change due to digital disruption. The key will be to match the agility of small firms and new entrants while leveraging the experience and scale of being an established market player.
Is your company ready for the digital vortex?
Joseph Bradley, Jeff Loucks, James Macaulay, and Andy Noronha of Cisco also contributed to this article.
Michael Wade is a Professor of Innovation and Strategy at IMD and the Cisco Chair in Digital Business Transformation. His interests lie at the intersection of strategy, innovation, and digital transformation.
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