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In today's economy, we are experiencing an unprecedented wave of change. Digital disruption is transforming entire industries and fundamentally challenging established business models. As a decision-maker, you need to understand that this change is no longer just a possibility, but an absolute necessity [1]. Companies that recognise the signs of the times can benefit from the enormous opportunities presented by digital disruption. Others, on the other hand, risk being squeezed out of the market in a short space of time. This article shows you how to actively manage digital disruption and successfully guide your company through the transformation process.
What is digital disruption and why is it so important now?
Digital disruption describes the process in which new digital technologies and innovative business models fundamentally change established markets [3]. This transformation often goes far beyond simple digitalisation. It involves radical upheavals that render traditional offerings obsolete and create completely new competitive landscapes [5]. The difference is that digitalisation optimises individual processes, while digital disruption can reinvent entire industries.
The speed of these changes is increasing rapidly. What seemed impossible yesterday is a reality today. Companies often report that they are under enormous pressure to constantly adapt their strategies. They come to us with questions about how they can protect their existing business models and at the same time expand into innovative areas. Often it is also about how they can become faster and make their organisations more agile.
Historical examples: How digital disruption has changed industries
To understand how digital disruption works, it is worth taking a look at specific examples. These clearly show how radical the change can be.
Netflix and the streaming revolution
Netflix revolutionised the entertainment industry with a simple concept: instead of renting DVDs or sending them by post, the company offers films and series on demand [1]. Large video stores such as Blockbuster disappeared from the market. Today, Netflix produces its own content and is helping to shape the entire industry. This is digital disruption in its purest form. Traditional television broadcasters are now fighting for their relevance. Many are reporting that their viewer numbers are falling and they are having to completely rethink their strategies.
The situation is similar with Spotify in the music industry [8]. Instead of buying CDs, millions of users stream their favourite songs. The physical sound carrier has almost completely disappeared. Artists earn differently, distributors have new roles and the entire ecosystem has been reshaped.
Uber and the reorganisation of mobility
Uber has fundamentally changed the taxi industry [2]. The company does not own any vehicles and does not employ any drivers. Instead, an app connects private drivers with passengers. The business model is as simple as it is brilliant. Taxi drivers report that their income is under pressure. Cities have had to rethink their regulations. This is digital disruption in the mobility sector [4]. Traditionalists would have liked faster taxis and better customer service. Instead, a completely new system came along.
Amazon and the retail sector
Amazon has transformed the retail sector [3]. Online shopping is now standard and many traditional shops are disappearing. The company offered something that traditional retailers could not imagine: unlimited choice, fast delivery and easy returns. Bookshops like Borders disappeared. Retail chains are having to completely rethink their strategies. Many are now opening online shops and converting their physical shops into places of experience.
Understanding digital disruption in other industries
Digital disruption is not limited to just a few sectors. It is now affecting almost all areas of the economy. This makes the situation particularly challenging for decision-makers.
Financial services and FinTech
We are experiencing massive upheaval in the banking sector due to FinTech companies [5]. Digital payment systems such as PayPal enable users to transfer money without traditional banks. Cryptocurrencies such as Bitcoin are challenging the established currency system. Banks report that their younger customers are increasingly using alternative services. Some financial institutions are responding by massively expanding their digital offerings and cooperating with fintechs.
BEST PRACTICE at the customer (name hidden due to NDA contract): An established financial company recognised the threat of FinTech disruption early on. Instead of simply reacting, it founded its own digital subsidiary. This unit works in an agile manner, tests new products quickly and learns from mistakes. After two years, this company had doubled its digital service quality and was able to acquire new customer groups. The coaching helped to combine the old organisational culture with innovative thinking.
Aviation and tourism through Airbnb
Airbnb revolutionised the accommodation industry [1][15]. The company does not own any hotels or properties. Instead, it creates a platform on which homeowners can rent out their rooms. Tourists get cheaper alternatives to expensive hotels and often more authentic experiences. Traditional hotel chains need to rethink. Some are developing additional services, others are cooperating with platforms, and still others are focussing on premium offers that Airbnb does not provide.
Artificial intelligence as the next wave
The next big wave of disruption will come from artificial intelligence and machine learning [11]. These technologies are already changing customer service, data analysis and product development. Companies that do not utilise AI will soon suffer competitive disadvantages. The first significant upheavals are becoming apparent in healthcare, manufacturing and marketing in particular.
The different forms of digital disruption
Digital disruption manifests itself in different forms. Decision-makers must be able to distinguish between these in order to react correctly [13].
Disruptive technologies
Disruptive technologies are tools and systems that radically change existing solutions. Big data, the Internet of Things and blockchain are such technologies [11]. They enable new possibilities that were previously unthinkable. Companies that introduce these technologies early gain an advantage over slower competitors.
Disruptive business models
New business models are changing how companies create and offer value. The subscription model for software solutions is one example [13]. Instead of paying high investments upfront, customers pay monthly. The risk is distributed differently and the customer relationship becomes more continuous. Some companies earn through data instead of products.
Disruptive innovation
Disruptive innovation describes completely new ideas that give rise to entire markets [13]. Tesla did not simply create better cars, but electric vehicles with autonomous capabilities. This changed the entire way we think about mobility. Such innovations often come from outside, from companies that have no established structures.
How decision-makers can actively shape digital disruption
As a decision-maker, you have several options for dealing with digital disruption. Passive waiting is not a strategy. Active shaping is required.
Recognise the signals early
Companies that successfully deal with digital disruption recognise trends early on. They observe start-ups, follow technological developments and listen to their customers. What are their new needs? Where are new competitors emerging? This observation must be systematic and not random.
BEST PRACTICE at the customer (name hidden due to NDA contract): A long-established manufacturing company set up a monitoring team that continuously analysed changes in the market. This team met monthly and reported to the management. This enabled the decision-makers to recognise new competition from abroad in good time. The company was able to proactively adapt its strategy and even build partnerships with the competitor instead of just losing out.
Transforming the organisational culture
Many established companies suffer from stubborn hierarchies and deadlocked processes. Digital disruption requires agility, experimentation and the ability to learn quickly. Decision-makers need to transform their organisations from the inside. This means developing a culture of error, enabling quick decisions and empowering teams to experiment. Some companies are creating separate innovation units with more flexible rules.
Invest in technology, but not blindly
Technology alone will not solve the challenge. You need to understand which technologies are relevant for your organisation. Artificial intelligence can be transformative, but only if you use it wisely. This requires strategy and planning. Many companies report that they first want to understand which problems technology can solve before they invest.
Radicalising customer centricity
Digital disruption often arises because new providers better understand and fulfil customer needs [13]. Established companies sometimes lose focus on real customer problems. Decision-makers need to refocus their organisations on customer needs. This means talking to real customers regularly, taking feedback seriously and responding quickly.
Utilising strategic partnerships and acquisitions
You don't have to develop everything yourself. Many companies co-operate with start-ups or buy innovative companies. This gives them access to new technology and fresh ways of thinking. This allows them to keep pace with digital disruption more quickly and strengthen their position.
BEST PRACTICE at the customer (name hidden due to NDA contract): A large media company realised that it was not innovating fast enough in digital platforms. Instead of working solely with its own resources, it invested in several tech start-ups. Through these investments, it gained insight into new technologies and was able to attract talent. At the same time, it better understood the next waves of disruption and was able to act proactively.
Mastering the challenges of implementation
The path to shaping digital disruption is not easy. Decision-makers are confronted with many hurdles.
Resistance within the organisation
Employees who have spent years perfecting a certain system are resistant to change. This is human and understandable. Good decision-makers communicate transparently why change is necessary. They involve employees in solutions and create psychological security for new thinking.
Balance between old and new
You can't just redo everything. You have to maintain existing businesses while innovating at the same time. This is a balancing act. Many companies use a portfolio model: parts of the company stabilise the business while others invest and experiment.
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