Earlier this month, I attended a unique, one-week program at the IMD Business School in Lausanne with 400 executives from all over the world. The program was named “Orchestrate Winning Performance: How to survive and win in today’s digital world.”
The ice-breaker question on Monday morning was eye-opening for all attendees: What is the impact of digital transformation? The answer was consistent across all participants and quite alarming: “We understand that something is going on, but don’t know how to respond or what to do.” This is totally in line with my observations in countless government and customer discussions across Europe. The digital transformation impacts every business around the world. It is becoming the norm, not the exception, and it’s the number one concern for executives. However, only a few companies and countries are truly prepared.
The Global Center for Digital Business Transformation (DBT Center), an IMD and Cisco initiative based in Lausanne, Switzerland, provides world-leading research, analysis and roadmaps to accelerate digital business transformation. It helps organizations seizing opportunities and evaluating threats.
The DBT Center estimates that four out of 10 companies will be displaced by digital disruption in the next three to five years. However, only twenty-five percent of companies are actively responding and building a digital plan. The vast majority is doing nothing—because either they don’t know what to do or they don’t think they’re at risk. The dangers are real. Disruption comes from unexpected places and completely different industries—such as Apple entering the watch market. Start-ups can easily turn incumbents upside down with more innovation, greater agility, and higher propensity to experiment and take risks.
Digital business models provide three fundamental types of customer value: cost value, experience value, and platform value. Digital disruptors use these business models to undercut the price, improve the customer’s experience, or use platforms to expand their reach exponentially. Masters of digital disruption combine all types.
The heart of the DBT research is the Digital Vortex, a model describing which industries are most likely to be disrupted. The closer an industry is to the center of the vortex, the greater the likelihood that all value that can be digitized will be digitized. The media and entertainment and retail sectors are popular examples for digital disruption. Being on the exterior of the vortex doesn’t mean an industry is safe. Disruption is happening everywhere.
How would our world change if self-driving cars became pervasive? The automotive industry wouldn’t be alone: public transportation, airlines, and current disruptors like Uber would all be impacted. We would see effects on the hospitality and leisure sector. The insurance industry would have to define new business models. The impact across the economy would be as big as the combustion engine or the Internet. All of a sudden, nearly every industry would find itself at the center of the vortex.
The DBT Center suggests 4 strategies, encompassing defensive (“retreat” and “harvest”) and offensive (“occupy” and “disrupt”) strategies. These dictate how a firm creates new customer value through digital channels and how it maximizes revenues and profits. Defensive strategies are used to fend off aggressive value vampires, as well as more modest disruptive threats, and to maximize the useful lifespan of businesses under attack. Offensive strategies are associated with the pursuit of value vacancies.
There is certainly no magic formula or “one-strategy-fits-all” approach for organizations to succeed in the Digital Vortex. Instead, we must acknowledge that we live in a world of constant change, driven by digitization. Success requires that we be ready with a digital plan whether our organization is big or small, public or private. The roadmaps the DBT Center provides are an excellent insight into what is possible in a digital world—and how to exploit the endless opportunities.
We at Cisco are building the infrastructure and solutions for the digital era, but we don’t stop there. We support our customers throughout their digital journeys. Our partnership with IMD is an important cornerstone. Hot off the presses, The Digital Vortex is a result of our partnership and joint research. It is a must-read for executives on all levels. Powerful reading—not just for the summer break!