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In the Digital Vortex, It’s All About the Value, Not the Value Chain

- October 13, 2015 - 0 Comments

Five years ago, the taxi industry seemed about as immune to digital disruption as any industry could be. Taxis, after all, were purely analog contraptions, far removed from digital innovation, software, apps, and the like. What’s more, their business model seemed as foolproof as the day it was created in the early 1900s: drivers prowled the streets until they spotted customers hailing a ride, drove them to their destination, and collected the fare.

Right? Well, wrong, actually. Enter Uber, and the taxi industry will never be the same.

Uber is a great example of what our recent Digital Vortex thought leadership called combinatorial disruption. In today’s climate of constant digital disruption, technologies and business models collide, combine, and recombine in startling ways. As the Digital Vortex sweeps everything of value to the center, non-digital processes fall away, to be replaced by more efficient value drivers.

In this model, the creation of new value is everything; the old value chain, meanwhile, is redefined to the point of being unrecognizable or obsolete with unnerving (for an industry incumbent) speed.

This happens when the digitization of products, services, and business processes allows disruptive players to deliver the same value as a traditional competitor — and even augment it —without having to reproduce the conventional value chain. In fact, that is the objective of digital disruption: to provide superior value to the end customer — either a consumer or another business — while avoiding the capital investments, regulatory requirements, and other impediments of “encumbered incumbents.”

Uber, for example, combined and recombined mobile devices, apps, software, social media, digital payment, and, yes, those seemingly analog vehicles and drivers into a highly disruptive new business model that sidestepped the traditional value chain. The taxi industry did not see it coming, any more than Nokia and Motorola perceived a threat from a computer company named Apple, or old-guard book retailers worried about an online upstart called Amazon.

The utilities and financial services industries are other good examples of combinatorial disruption in action. In our Digital Vortex survey, executives in these industries felt relatively safe from digital disruption. However, Tesla, fresh from combining software, automotive, and energy-storage technologies into a business model that disrupted the automotive industry, announced in May that it would make its efficient, low-cost batteries available to the home energy market. Meanwhile, so-called “fintech” startups are disrupting banks with a combination of technologies and business models, including analytics and automation, to digitize their offerings — while avoiding the barriers to entry that come with the value chain for a full-service bank.

Hailing a cab, powering your home, or managing your money — until recently, all seemed fairly straightforward activities rooted in traditional industries, value chains, and business models. With technologies, ideas, and innovations constantly colliding and combining in the Digital Vortex, however, all bets are off.

In this environment, incumbents will need to be as agile and innovative as startups. Digital business transformation is the way to do it. As they shed those manual or paper-based processes that hinder innovation and agility, incumbents will transcend the outmoded assumptions that hold them back.

In the end, it’s the value that counts, not the value chain.

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