Recently, I spent a week in Asia with clients, partners, and our various teams. One of the most common themes I heard from clients is that the pace of disruption in today’s markets can be overwhelming. Yet, despite the speed and pace of change resulting from todays’ technology forces, most leaders recognized that the disruption also presents opportunity — and that cutting-edge innovation can provide the path to success amidst all the change.
Lately we’ve been looking at a new concept of how ideas constantly collide, combine, and reform, and how the disruption rate varies by industry. It’s an interesting topic and has yielded some fascinating insights. One of the areas we’ve unveiled involves what we call the “Digital Vortex” — and you can read more about it in this post by my partner Martin McPhee.
Out of that swirling, chaotic “Digital Vortex” comes game-changing innovations that upend existing business models and blur industry lines. It’s exciting, yes, but more than a bit unsettling, especially for industry incumbents.
However, I believe that even market incumbents can gain an edge by understanding the nature of the Digital Vortex in which they compete — along with the “combinatorial disruption” that redefines industries by combining and recombining value drivers such as cost, experience, and platform.
To that end, Cisco has launched a joint initiative with the International Institute for Management Development (IMD) to create the Global Center for Digital Business Transformation (DBT Center) in Switzerland. The initiative’s first thought leadership piece is titled “Digital Vortex: How Digital Disruption Is Redefining Industries,” and it includes findings from a survey of 941 business leaders across 12 industries and 13 countries.
Among the key insights:
- Nearly four in 10 top incumbents will be displaced in each industry due to digital disruption over the next five years. However, 45 percent of companies don’t consider digital disruption a board-level concern.
- Respondents believe the average time to disruption across industries will be 3.1 years — a dramatic escalation from historical levels. Yet, nearly a third are taking a “wait and see” approach to addressing digital disruption, and only 25 percent are taking proactive steps — willing to disrupt themselves in order to compete.
- A majority of executives surveyed believe that “insiders” will be the most likely disruptors, meaning incumbents or start-ups from their own industry.
To me, these insights represent an alarming failure to appreciate the power of digital disruption to rewrite the rules of engagement. As industries move toward the center of the Digital Vortex, manual, paper-based components are shed. Then, whatever can be digitized is digitized. Components of digital value can then be readily combined and recombined as disruptive business models. As a result, competition can arise from seemingly nowhere. (Did Nokia and Motorola see Apple coming?)
Combinatorial disruption is an outgrowth of “combinatorial innovation,” often associated with Hal Varian, the chief economist at Google and emeritus professor at the University of California, Berkeley. Varian has cited many examples of how the combination and recombination of technologies have produced history-making inventions. Combinatorial disruption takes this concept one step further, with digital components recombining into new business models. This, in turn, gives rise to digital disruption, competitive change, and the need for incumbents, in particular, to transform.
We all know the names of successful disruptors (Amazon, Facebook, Tesla) that have fused multiple sources of value—cost, experience, and platform—to create disruptive new business models and exponential gains. I see technologies and business models continuing to recombine in highly disruptive ways, redefining entire industries.
Many business leaders feel that their money, size, and scale will protect them. These days, however, cloud and mobility offer start-ups the opportunity to scale at unprecedented speeds, eliminating a onetime incumbent advantage. Which brings us to the concept of the “encumbered incumbent.” As Clayton Christensen of Harvard Business School has observed, “The reason why it is so difficult for existing firms to capitalize on disruptive innovations is that their processes and their business model that make them good at the existing business actually make them bad at competing for the disruption.” The answer is for incumbents to attain the agility and rapid innovation necessary to drive their own disruption.
For that, digital business transformation is critical. Armed with the ability to combine digitized components in unexpected ways in the Digital Vortex, incumbents can become agile disruptors that stay ahead of the competition.