The Digital Vortex, Where Disruption Is Constant and Innovation Rules

Given the breakneck pace of technology change, business leaders can be forgiven for feeling as if they are living in a vortex. That’s because, in many ways, they are.

In a real vortex, rotational forces draw everything to the center, where objects collide and combine in unpredictable ways. To me, that sounds like business as usual in the Internet of Everything (IoE) era.

The Digital Vortex is the inevitable movement of industries toward a “digital center” in which business models, offerings, and value chains are digitized to the maximum extent possible. The result is “components” that can be readily combined to create new disruptions that blur the lines between industries.

Digital Disruption by Industry. Source: Global Center for Digital Business Transformation, 2015

Apple, Uber, and WhatsApp provide just a few examples of disruption that arose beyond the traditional realm of industry incumbents. It’s easy to forget, for example, that just a short time ago, phone makers and music providers failed to see Apple as a potential threat. Today, the potential for new digital disruptors to arise from seemingly nowhere is greater than ever — as they combine seemingly unrelated technologies and business models into new cutting-edge solutions. But are industry executives ready?

To shed light on the spiraling pace of digital disruption, Cisco and IMD have teamed to form the Global Center for Digital Business Transformation (DBT Center). Based at IMD’s campus in Lausanne, Switzerland, the center is a global research hub at the forefront of digital business transformation.

The DBT Center just issued the first of many thought leadership reports titled “Digital Vortex: How Digital Disruption Is Redefining Industries. ” The primary research included a survey of 941 business leaders around the world in 12 industries.

The results help to clarify digital disruption and how business leaders view it. Here are some key findings:

Disruption Looms… Four of today’s top 10 incumbents (in terms of market share) in each industry will be displaced by digital disruption in the next five years. The threat extends not only to displacement of big companies, but also to the very existence of entire industries.

…As Executives “Wait and See.” Digital disruption has not received board-level attention in about 45 percent of companies (on average across industries). Moreover, 43 percent of companies either do not acknowledge the risk of digital disruption, or have not addressed it sufficiently. Nearly a third are taking a “wait and see” approach. Only 25 percent describe their response to digital disruption as proactive.

In the Digital Vortex, No Safe Haven. The industry that will experience the most digital disruption between now and 2020 is technology products and services. Pharmaceuticals, meanwhile, is likely to experience the least amount of digital disruption. However, all industries will see competitive upheavals as innovations become increasingly exponential.

Disrupt, or Be Disrupted. Based on their ranking and placement within the Digital Vortex, firms can evaluate the speed at which their industry will experience disruption. They then can choose to “disrupt themselves” or potentially be displaced by a new business model.

Clearly, the stakes are high. Across all industries, the average time to disruption is just 3.1 years. But organizations that do disrupt themselves — as they light up their “dark assets” with network connectivity — will have an exciting ride. Along the way, whatever can be digitized will be digitized. Components that no longer drive competitive advantage will fall away (think manual or paper-based products). At the center, disruption arises constantly as existing business models collide and combine in exciting new ways.

Just as Tesla fused automotive technologies with software — and is now posing its battery innovations as a potential threat to utilities — other “combinatorial disruptors” are no doubt looming. As incumbents rest easy, they could be fusing new combinations of technologies and business models to upend established organizations, if not entire industries. These digital disruptors will innovate rapidly, and then use their innovations to gain market share and scale far faster than challengers still clinging to predominantly physical business models.

Incumbents, however, need not discard what has made them successful or emulate in-vogue digital tactics. Rather, they must challenge the assumptions that have underpinned prior success, and stress-test the ways in which they deliver value to customers. That means changing the organization itself, including its operations, culture, revenue model, and more — in fundamental ways, and perpetually.

Once at the center of the Digital Vortex, the ride doesn’t end. Innovation and disruption must be constant. But for those that continue to surf the vortex — and make it work for them — the rewards will be huge.