Camera, movies, books, music, and many others have already gone through digital disruptions. And many others are in the pipeline. Industry experts believe that a growing number of incumbent products will be recreated, causing digital disruptions. But why are more than 90 percent of startups pursuing digital disruptions failing? On the other hand, due to not being vigilant and non-responsive, incumbents suffer from Kodak moments, creating the effect of digital disruption. Does it happen all of a sudden as a random event? Are there reoccurring patterns to predict and manage the change so that digital transformation becomes less painful?
We are used to hearing that the change occurring in the value proposition of existing goods and services due to new technologies and business models causes disruption. Change is understood. But how does it disrupt incumbents’ business creating Kodak moment? Experts think that digital disruption happens due to the transformation of goods and services using new technologies. Digital disruption technologies include smartphones, big data, mobile internet, cloud computing, machine learning (ML), the internet of things (IoT), and a few others. How does it cause disruption appears to suffer from lack of clarity. Although we are getting used to using digital disruption, it has become something of a cliché in recent years. Often, we refer to it to describe any product involving digital technology.
Many of us are terming digital technologies as disruptive technologies, which Harvard Business School professor Clayton M. Christensen used to describe a new technology that displaces an established one. But the effect of digital technologies in products and businesses causing disruption does not appear to be very clear though.
Table of contents:
- Digital disruption meaning and causes–for addressing lack of clarity about it means
- Examples of digital disruptions–from e-mail to eBook
- What is the importance of digital disruption?
- Digital disruption strategies and digital disruptors
Defining digital disruptions:
Digital disruption begins with the reinvention of existing products by changing the mature technology core with the digital ones. But in the beginning, this reinvention does not create disruptions, as it emerges in inferior form. It needs to progress further, reaching the tipping point at which reinvented products get better and preferably cheaper than incumbent mature products. At this point, the reinvention wave graduates as creative destruction, as it starts destroying the demand of mature counterparts. But it is not disruptive yet. If new entrants lead this creative destruction wave and incumbents fail to make timely switching, once dominant incumbent firms start suffering from loss of business or disruptive effect.
Hence, digital disruption is about the reinvention of existing products, whether goods or services, through the change of mature technology core with digital ones, and its success to cause destruction to incumbent firms due to their failure to timely switch to creative destruction force of reinvention.
For example, in the 1980s, digital cameras emerged from the reinvention of the camera with the change of mature film technology core with electronic image sensor did not show up as digital disruption. In those days, it was far inferior to the film camera. Due to continued improvement, subsequently, in the late 1990s, the digital camera reinvention wave succeeded as a creative wave of destruction to the film camera. As film camera makers failed to lead or make timely switching to this creative destruction wave of digital camera, it suffered from disruptive effects, making it digital disruptive innovation or digital disruption.
Not all reinventions succeed
But not all reinventions forming creative destruction waves succeed to be digital disruption. For example, the reinvention of CRT-based Television making LCD/LED TVs did not become a digital disruption. Unlike new entrants, the creative destruction wave of LCD/LED TVs was led by incumbent CRT-based TV makers, like Sony or Panasonic.
Examples of digital disruptions:
One of the notable digital disruptions is eBook. First of all, it emerged due to the reinvention of the paper book. Mature technology core comprising paper, printer, ink, and binding was replaced by digital representation and display. Reinvention extended further by replacing postal delivery or physical books stores with e-book stores and delivery of eBooks over the Internet. However, to make this reinvention wave to creative destruction force, underlying technology core had to make continued advancement. Still, further progression is needed to unleash its full potential. Furthermore, as a new entrant like Amazon led it, existing publishers have started to suffer from loss of business or the effect of digital disruption. Among many others, the smartphone is a great example of disruption.
Some other notable examples include:
- an e-mail has been disruptive to postal and telegram service departments and fax machine makers.
- word processor caused digital disruption to typewriter makers
- e-Commerce is a disruption to conventional retailers
- smartphones are disruptive to watches, torchlights, and many more
- steaming of MP3 music, and Netflix are among others
Often, the success of digital disruption requires synchronizations of different technologies, users’ habits, and external factors. For example, in the 1990s, OnDemand video service over the Internet failed. Similarly, at the beginning of the 2010s, music streaming service was struggling. Subsequent development of technologies and externality effects like broadband mobile internet and smartphone penetration made their success. On the other hand, the digitization of driving services or autonomous vehicles, or robotaxi has still been struggling to be a creative destruction force.
Importance of digital disruption:
For two important reasons, we need digital disruption. First of all, through the reinvention of various goods and services, we can reduce material, energy, and labor need. Most importantly, we can reduce emissions and increase the reach. For example, the reinvention of Books as eBooks has substantially removed the material need. Besides, access to eBooks has been democratized. As Paul Romer has mentioned, in the absence of a better recipe, we will run out of resources and capacity to absorb pollution if we keep doing more cooking. Hence, we need ideas, ideas to reinvent. It seems that digital technologies form a very powerful technology core to reinvent many products for expanding our scope of continued progression.
The second importance of digital disruption is about destroying existing monopolies and revitalizing innovation. At maturity, more or less all products suffer from the monopoly effect, slowing down innovation due to weakening competition. As digital disruption give rise to new entrants and cause destruction to monopoly, it has been a blessing for the market economy. Hence, the importance of digital disruption has been for making existing products better, less resource-consuming and polluting, and revitalizing innovation by destroying monopoly.
Digital disruption strategy:
Mere digitization of goods and services and offering through subsidies for market creation don’t lead to digital disruption. At its core is the strategy of turning digitization into creative destruction and monopolizing the new market of digital goods and services. Just efficient implementation of digital ideas is not good enough. It requires strategy. Digital disruption strategy is about creating technological economies of scale, scope, and network externality effects to turn reinvention out of digital technologies into creative destruction and monopolize the new market, turning it into a blue ocean. Hence, digital disruptors succeed in envisioning and implementing digital disruption strategy in creating a new market by destroying the old one and making the competition irrelevant.
One of the notable examples of digital disruption strategies is Apple’s innovation strategy. Apple’s innovation success as a digital disruptor has emerged from it. Notable examples of digital disruptors are Netflix, Spotify, Google, Microsoft, and Amazon.
By the way, digital should not always be disruptive, as many products are benefiting from digital technologies through incremental innovations. For example, although the technology core of the microwave oven has remained identical, its control panel has gone through digital transformation. Similarly, from washing machines to refrigerators, many household appliances are experiencing incremental advancement due to digital possibilities.
Digital disruption is inevitable. Despite its destructive effects on products, jobs, and firms, digital disruption is not random. There are underlying patterns. To face disruption, we need to interpret and predict unfolding dynamics of reinvention out of digital technologies and respond proactively.
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