This is the first article in a multi-part series exploring disruptive technologies and the strategies today’s businesses must adopt in order to thrive in a digital world.
At the risk of falling prey to the young agile startups or the innovation labs of today’s most progressive companies, enterprises must learn to look beyond their immediate bottom line and adapt to the digital revolution at their feet. We rarely see companies die because they moved too quickly. It is the companies that wait until the market demands a reaction that are at the greatest risk of being replaced with younger, more agile organizations already utilizing new technologies.
According to a McKinsey study, the US economy as a whole is realizing only 18% of its digital potential. Even though the companies that embraced digital innovation early are currently winning the battle for market share, we have only just scratched the surface. With the continued growth of cloud computing, big data analytics, the Internet of Things and more, the lagging sectors still have opportunity for rapid digital growth, which McKinsey estimates could add up to $2.2 trillion to the annual GDP by 2025.
What is Digital Disruption?
Digital disruption is the change that occurs when new technologies and business models affect the value proposition of existing goods and services. What are the technologies that are driving this disruption? The Singularity University, a global community whose mission is to educate, inspire, and empower leaders to apply technology to address humanity’s grand challenges, uses the term “exponential technologies” to describe the technological breakthroughs that are disrupting our world.
In this article we explore the internet-based exponential technologies and how companies are leveraging their power to gain huge competitive advantage.
Internet Technology’s 5 Exponential Technologies
1. Cloud Computing
Cloud computing is driving the greatest systemic change within enterprises today and cloud infrastructure has become the building block for digital disruption everywhere. In order to effectively introduce new digital innovations into the organization, enterprises are overhauling existing systems and adopting public clouds, most often AWS, Google or Microsoft.
2. Big Data
Big data refers to data sets that are too large or complex for traditional data processing applications to handle. Organizations use big data for the use of predictive, or user behavior analytics, to identify correlative patterns to further their industry and business objectives.
The amount of data that is captured from digital devices, sensors and platforms continues to double every three years according to Moore’s Law. While enterprises have already started using big data analytics to disrupt their business models, there is still a lot of underutilized, valuable data across industries that, once taken advantage of, will fuel new discovery and innovation.
3. Internet of Things (IoT)
These days, everything comes with some kind of network connection option. This includes our thermostats, TVs, refrigerators and even coffee makers. The real progress is being made in the area of industrial equipment, such as those sold by GE and other manufacturers that have pushed this concept in the last few years. This has led to all sorts of applications, including self-driving cars, self-maintaining and self-repairing industrial machines, and the ability for farmers to monitor crops to a point where they can increase yield by 30% or more.
4. Machine Learning
Machine learning is a subset of artificial intelligence. This allows computers to actually learn from experiences, much like humans do. By giving computers access to a repository of digital information generated on the Internet, letting them work from a system of probability using neural networks and providing a continuous feedback loop, the applications for this technology become limitless. Natural Language Processing has also emerged in recent years to further the ability for computers to understand and interact with humans.
Blockchain is a public ledger system that can be used to record any kind of transaction. The ledgers are concurrently stored in multiple locations, and the entries are cryptographically signed to prevent changes. Moreover, Blockchain provides an auditable trail of all the transactions and removes the need for a trusted middleman. The use cases are many when one considers Blockchain benefits for real estate, financial contracts and even healthcare.
Facing the Disruption
Startups often have a clear advantage over the incumbents that built their businesses on legacy technology. Young organizations begin with a blank slate and the freedom to experiment. Their concern involves creating value for expected future earnings. In contrast, established businesses value standardization, consistency and stability, making it difficult for them to embrace digital innovation that comes with disruption and uncertainty.
A McKinsey report explains the hesitancy incumbents face when approaching the possibility of disruption (Figure 1):
“In a disruption, the company heading toward the top of the old S-curve confronts a new business model at the bottom of a new S-curve. The circle of creative destruction is renewed, but this time the shoe is on the other foot. Two primary challenges emerge. The first is to recognize the new S-curve, which starts with a small slope, and often unimpressive profitability, and at first does not demand attention.”
The essence of this concept is the fact that those who invest in digital disruption are often “unimpressed” by the value that it is able to generate in relation to the investment. For example, take leveraging IoT-based technology to track production. While the initial investment in those systems is significant, the disruption that it causes may not be seen for a year or more. Thus, those enterprises that are able to invest in digitally disruptive technology are often the ones that obtain the most gain, although that gain may not be immediate.
There are many examples of digital disruptors in the market today. Here are a few selected industries that have been disrupted by key players and first movers leveraging cloud technologies.
Uber disrupted the taxi and car service industry without purchasing a single vehicle. Today, the company operates in over 300 cities within 60 countries and is now building autonomous self-driving technology with machine learning to eliminate the cost of using a driver, further disrupting traditional models.
Airbnb has disrupted the hotel industry with their peer-to-peer marketplace and homestay network, again, without purchasing a single rental property. Founded in 2008, Airbnb shares space in over 34,000 cities within 190 countries. Over 70 million guests have booked trips on the digital platform using its sophisticated search algorithms, global payments and automated mobile communication.
Netflix disrupted its own business model in 2011 when it shifted from DVDs to online streaming. Using Amazon Web Services, Netflix has leveraged the elasticity of the cloud to dynamically shift during peak hours and expand its service availability. The multinational entertainment company now has 86 million subscribers in 190 countries, and generated close to $8 billion in revenue last year. Now that they no longer have to worry about IT, they can spend more time and energy producing the award winning shows we love to binge watch.
Zara, the Spanish clothing and accessories retailer founded in 1974, releases new designs each week, rather than the traditional six month industry average. By adopting cloud RFID technology and a cloud-based monitoring system to track and replenish stock, Zara has better visibility into what styles, colors and patterns their customers are buying, and which ones they are not. Zara is ranked #53 on Forbes Most Valuable Brand List and earned $15.9 billion in revenue last year.
Citigroup is driving new thinking across the financial services industry by expanding their cloud and big data capabilities to enable automation and machine learning through their digital innovation lab efforts. Working with senior teams at Apple, Citi was able to release the first financial services application on the Apple Watch, in just 120 days.
Land O’Lakes uses sensor-driven networks built on Google Cloud Platform to continuously monitor a variety of factors, from moisture content to nitrogen levels, temperature and solar coverage. Aggregating all of these data sources in real time allows their farmers to optimize the care and health of their crops, and leads to more efficient use of resources, lower costs, and higher yields. Because of this innovation, Land O’Lakes farmers are producing 650% more corn today on 13% fewer acres than they were 50 years ago
Speed is of paramount importance when it comes to digital disruption. Network effects create a winner-take-most situation in many industries; there likely will not be another Airbnb, for instance, that is as impactful in the hospitality market. The first mover advantage is real, and unless the leading disrupting companies somehow give up their market position, they will lock others out.
On a more tactical level, enterprises do not need to be the first movers. Leveraging digital technology just to increase their efficiency, for example by automating a factory floor or tracking logistics using RFID, may be enough to change the game for them. There are many instances of these types of organizations doing their business better with digital approaches, and creating many times the value for a minimal investment.
Moving forward, we will see a very different economy. Take job displacement, for instance. Today, there are over 3.5 million professional truck drivers in the United States, making it one of the most popular jobs in the country. It is foreseeable that anybody who drives could be out of a job in 5-10 years, considering the efficiency and impact of self-driving technology. This appears detrimental for the millions who drive for a living around the world. But the cost of goods should drop, and the number of fatalities on the highways should drop as well. While new technology will displace many existing jobs, it will also create new opportunities for subsidiary services that will need a human operator.
What is the most likely outcome of the digital disruption for consumers? It is the expectation of automation. While we are perfectly happy with getting daily updates on the status of our product orders, in the future, we’ll expect updates by the minute. Moreover, we’ll expect issues to be dealt with automatically as well. For instance, we will expect our cars to report problems directly to the dealership, and even schedule service without human intervention.
Out of this will come the next wave of digital innovations, and thus disruptors, that will take advantage of the first wave. Cloud, IoT, machine learning and other disruptive technologies are making better use of digital innovations. For example the ability to monitor our health will soon get to a point where physicians can be much more proactive in preventing disease before it is diagnosed.
Technology is the single most transformative force in our lives today. Enterprises and humans alike will certainly feel the affect. However, none of this will be truly effective without a push to innovate around emerging technologies.
Enterprises are realizing that they can’t layer new technology onto their existing systems and expect the same results. Transitioning to a digital world is a monumental task. It involves developing the right data infrastructure and finding the right talent to ensure your initiative is successful. If you lack in-house capability to build and develop these new initiatives, look to acquire help in the form of professional services or acquisitions. Those who stand by and wait for things to happen will not find the value, and I suspect that the market will push them out of the way.
A Never Ending Cycle
Even after you innovate, technology will continue to evolve. When you reach the top of one S curve, it is the start of a new one. Adapting once and staying stagnant is not enough in today’s day and age. It is time to get comfortable embracing change. This is not a single change. This is a process that will reward those who embrace continuous self disruption and punish those who remain complacent. The choice is yours.