Given the pace at which digital disruption is taking place in today’s economy, one of the biggest lessons that savvy incumbents are learning is that it is up to them to make the first digital move if they want to avoid being hit hard by digitally disruptive startups.
But for others, that lesson is more difficult to accept. Despite constantly mounting evidence that the future for all sectors is digital, many businesses, particularly those in long-established or strongly traditional industries, are resistant to the need to change the way they operate. The belief that, whatever may be happening elsewhere, one’s own industry is somehow immune to digital transformation, is still deeply held by many business leaders.
It’s certainly important for executives not to let digital pressure push them into making hasty or poorly-considered digital decisions for their businesses. However, it’s equally important not to ignore pending, dramatic change.
Regardless of their industry, executives should be ready to think long-term about what a digitally disrupted sector could look like and plan accordingly. A recent article from INSEAD, one of the world’s leading graduate business schools, identifies four key questions business leaders in any industry can ask to gauge how quickly disruption may be heading their way.
How would digitizing the product or customer experience impact customer satisfaction?
Industries in which a digitized product or customer experience would have little or no negative impact on levels of customer satisfaction may be particularly ready for disruption. Some sectors still rely strongly on the human element to meet customer expectations.
For example, despite the ways in which digitization has transformed many aspects of the health care industry, many people still prefer to see a doctor – a real person – when they have a medical problem. Replacing doctors with digital substitutes in the future is certainly not out of the question, but it seems clear that such a move would severely reduce customer satisfaction over the short- to medium-term.
Contrast this scenario with sectors in which a product or service is as good or better when it is digitized as it is in its traditional form. The rise of online shopping is the perfect example. Many customers find the ability to make purchases online, at any time and from any location, far easier and more convenient than shopping at brick-and-mortar versions of their favorite stores.
Therefore, if business leaders can identify potential within their own industries for the customer experience to be replicated, or even improved, with digitization, that’s usually a clear indication that disruption is likely to happen sooner rather than later.
Overall, is the existing customer experience negative or positive?
The big disruptive success stories of recent years have largely involved companies leveraging customer dissatisfaction with a product or service that was inadequate in some way. These companies then offered a cheaper, more rewarding, or more convenient alternative.
Think of Uber turning the expensive, regulated taxi industry on its head by offering customers an easier and cheaper way to get around. Airbnb opened up a vast new supply of accommodation for travelers disenchanted with the cost and standards of the hotel industry.
Today’s economy is more customer-centric than ever. Businesses or entire industries offering a sub-standard customer experience are prime targets for disruption. Business leaders must be prepared to take a realistic look at customer satisfaction levels in their sector, and be ready to take steps to improve areas with low satisfaction levels – before a disruptive competitor does.
How would the cost of running a business be impacted by digitization or automation?
One of the main drivers of digital disruption is the potential for businesses to offer the same level of value to customers while substantially reducing their own costs. Online travel agents like Expedia or Booking.com seized this idea and ran with it.
By doing away with physical properties, large teams of staff, and other types of overhead that were deemed unnecessary, these disruptors can offer convenient service to customers at a much lower price than their traditional counterparts. Business leaders should look to these models to determine the potential within their own industries for eliminating or reducing costs through digitization or automation – without compromising service and value.
If the potential for doing so is strong, disruption is more than just a good idea, it’s an imperative that can leverage capital savings to add value for customers and boost shareholder returns.
How solid are the barriers to entry in your industry?
Many incumbents like to think that tangible barriers to entry – such as capital, physical assets, or legislation – will help them maintain their industry lead and protect them from disruption. But far more often than not, these barriers are not as solid as they appear, as the examples above demonstrate.
A lack of physical vehicles did not prevent Uber’s massive disruption of the taxi industry, and a lack of real estate property did not keep Airbnb from revolutionizing the hotel industry. Business leaders must realize that, realistically, few or no barriers exist that can completely insulate them from disruption.
Therefore, rather than assuming that the present barriers will hold when disruption hits, a more sensible practice is to get out from behind the barriers. Then you can see how your business, and your industry overall, can respond to digitization.