What is digital disruption? Executive boardroom discussions and the business media are endlessly trying to define strategies that help companies avoid disruption, but can they even define what it is? A recent feature in CustomerThink attempts to define digital disruption in the following way:
“Technology that displaces an established technology and shakes up the industry or creates a completely new industry. Examples abound from streaming videos replacing video stores to robotics affecting manufacturing, medicine, agriculture, and the military.”
So based on this summary a few examples might be:
- Online photo sharing, like Instagram, entirely replacing the photographic film industry, affecting brands such as Kodak.
- Streaming services, such as Netflix, replacing video stores like Blockbuster.
- Tablet devices, like the Kindle, replacing the need to publish and distribute books printed on paper.
So digital disruption can lead to the disruption of an entire industry if the new way of doing things completely replaces the old. Nobody goes out buying Kodak film before their holidays today so it can be said that services such as Flickr and Instagram completely disrupted the entire industry of providing cameras, photographic film, and photo development.
But executives can see all these examples from the past, so what are they doing about the future? Competition is becoming more complex and does not always come from where you might expect. Who would have thought that Apple would now be a world leader in payment services? Or Amazon Web Services would be underpinning a large proportion of the entire Internet? Are executives using their knowledge of disruption in the past to try predicting what may happen in their industry tomorrow?
According to the CustomerThink data, most executives are optimistic, in fact to be precise, 35% were somewhat optimistic about their ability to meet future disruption and 29.5% were excited about the challenge. In one sense this is positive, because it shows that around two thirds of executives are excited about the future and feel ready to change. But that figure does sound quite high – is this a sign of over-confidence about the ability of companies to change and innovate quickly?
Some industries are more vulnerable than others. Banking and financial services is a very traditional industry that has been around for centuries. Many of the best-known brands have been operating branch networks for generations and yet many of the new market entrants were not even an idea or a business plan 12 months ago.
Consulting firm cg42 recently published data in The Financial Brand suggesting that digital disruption is one of the most important threats to banks in 2019. Some of their key findings are:
- Younger customers trust tech brands more than traditional banks; if Amazon, Google, PayPal, Apple, or Facebook launched a bank then their brand would be trusted more by younger consumers than traditional bank brands. Two out of every three Amazon Prime customers has indicated that they would be willing to use a bank service operated by Amazon.
- The tech sector has reset customer expectations; customers today don’t compare the service their bank gives with rival banks, they compare their bank to Amazon and Apple. The tech companies have redefined customer expectations for service so is it any surprise consumers are already suggesting they might want to try this sector?
- China has a proven case study; Alibaba in China has proven that new brands can redefine banking in a short period of time. It took Alibaba just four years to become the largest money market fund anywhere in the world – and they were previously known only for ecommerce.
Take a look at this data and then compare it to the earlier study I mentioned. Are two thirds of bank executives really so confident that they can take on the most innovative technology companies in the world and with customers who feel that tech brands are more trustworthy and deliver better service?
I’m not sure that confidence is justified, but executives can at least start developing self-awareness about digital disruption. What may be disrupted in your sector in 2019? Which technologies are starting to be used by your customers and how is your brand responding to customer expectations?
Even companies with a long established heritage can meet this challenge if they consider where new competition may arise and how new processes might change what customers expect of them. In the case of the banks it may mean that the established brands need to launch new digital platforms, buy growing digital banks, or fundamentally change how they do business. But one thing is clear, digital disruption is real and is coming to your industry soon. You can run from a changing industry, but you can’t hide. Embracing disruption is the only way to create a sustainable business in 2019 and beyond.
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Author: Helen Murray