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Why the “digital disruption” should lead to rethink traditional business models

NewsFromThePlatform | November 18th, 2015

Francisco Gonzalez, CEO of the renowned international bank BBVA, has stated that 50% of the banks could disappear in the coming years due to the so-called digital disruption in the fintech industry. The former CEO of Cisco said that 40% of existing companies will no longer be present in the next 10 years as they will not survive the digital revolution.

In order to better understand what is going on, let’s consider these figures: in 2003, Facebook and smartphones did not exist and there were about 800 million Internet users. Today Facebook has 1.4 billion users, subscriptions to smartphones are about 2 billion and there are about 4 billion Internet users. But it’s not just about people: there are now 5 billion objects and devices which are connected to the network and, according to Cisco, their number will rise to about 50 billion in 2020. This means that anything or anyone will be connected, and these connections will generate huge amounts of data. Such data, thanks to increasingly sophisticated software, will provide business and enterprises a kind of “intelligence” that will permeate every business process.

The digital revolution is changing everything, everywhere, in a radical way and at an impressive rate. Companies that until a few years ago boasted solid market leadership (think, for example, of Blockbuster), have been overwhelmed by new entrants that are able to start “destructive” innovative models. The digital disruption has given easier access to many industries, as it has caused the collapse of established and long-lasting relationships. As some well-known management consulting firms have pointed out, the “plug and play” nature of the digital asset is triggering a breakdown of the value chain. In this way they are favouring the entry of new, focused and fast players (typically startups) in markets that have historically been dominated by incumbents – who, due to structural rigidities and high costs, are now struggling to compete.
In a digital world, the customer has become more informed and demanding. To satisfy customers, companies must generate useful knowledge using all kinds of information, especially new digital techniques such as predictive analytics or artificial intelligence.

No industry is immune, including high tech. The process of rethinking business models will obviously have to abide by the so-called “digital economy”, that is, an economy where traditional paradigms have changed, technology cycles are getting shorter and value is created by exploiting the increasing density of interactions between business, people and things (cit. Gartner).

The “reaggregation” of the value chain, which then won’t necessarily be similar to the original, will occur thanks to digital interfaces that every company will build to connect and cooperate with other parts of the ecosystem. One important point must be clear: to survive and increase their value, companies will not have to change their business model only once, but continuously and, if necessary, they will have to follow the fluid nature of the digital economy. As highlighted by Ray Wang, CEO of Constellation Research, in his book “Disrupting Digital Business“, “connecting” their products to the cloud won’t be enough for companies to participate in the digital disruption.

To be competitive, all players will have to invest in flexible and open IT devices that can integrate with other products and services. Moreover, these developments will inevitably affect companies’ structure and management: from the Board down, companies will have to implement a digital agenda. New roles, including CIO (Chief Innovation Officer) and CDO (Chief Data Officer), will be necessary and, again, they will clash with the traditional paradigms of established companies.

I should like to make one final consideration: according to Gartner, by 2017, 70% of successful business models will be based on deliberately unstable digital processes designed in order to adapt to the changing needs of the end customer. By 2018, 50% of companies will challenge the status quo and overcome the Big Change Revolution. In result of all this, we will move towards customer-centric, responsive and “very malleable” processes. We are going through a time of big changes, and if we do not want to be overwhelmed by the digital disruption, the only thing we can do is to embrace it – as suggested by James McQuivey, CMO of Forrester, in his video “Digital Disruption: Unleashing the Next Wave of Innovation“.