Digital Transformation: The Main Driver of Business Disruption
How much disruption? 40% of the top ten incumbents in each industry will be displaced in the next five years.
The effect of digital disruption on business has the potential to overturn incumbents and reshape markets faster than perhaps any force in history, according to a report by the Global Center for Digital Business Transformation (DBT Center), an initiative between Cisco and the International Institute of Management Development (IMD) in Lausanne, Switzerland.
The results of the study show that digital disruption will displace approximately 40 percent of incumbent companies in each of the 12 industries studied for the report within the next five years. Despite digital disruption’s potential to overturn incumbents and reshape markets, the survey indicated 45 percent of companies do not believe digital disruption merits board-level attention.
McKinsey recently published a paper titled “An Incumbents Guide to Digital Disruption” that explores this business challenge. stating:
- Companies often fail to recognize disruptive threats until it’s too late and, even if they do, fail to act boldly enough
- The right actions to take depend on whether disruption is detectable, clear, inevitable, or the new normal
Most executives surveyed see digitization as a positive for business and society. In fact, 75 percent of executives surveyed believe that digital disruption is a form of progress, 72 percent said it improves value to customers and 66 percent feel it empowers individuals. At the same time, 43 percent either do not acknowledge the risk of digital disruption, or have not addressed it sufficiently. Only 25 percent describe their approach to digital disruption as proactive.
The Case for Digital Transformation is Compelling.
- Companies that are “Digital Masters” have 9% more revenue growth and 23% more profit 1
- Companies who invest heavily in advanced analytics outperform the S&P 500 by an average of 64% 2
- Firms who have effective end to end process management grow 42 % faster and are 28% more efficient. 3
- Companies with stronger transformation management intensity are more profitable, have higher market valuations than those that don’t (+26% and +12 % respectively) 4
- The “Everyday Bank” is highly industrialized with automated front and back offices that are integrated and optimized for speed with 5:
- Back Office effort slashed by 80%
- Managed application portfolio reduced by 70%
- Time to market cut by 70%
- Operating Income increased up to 30%
The Paradigm is Shifting…Reality and Implications
Reality: Digital Disruption is Driving Significant Change
Implication: 40% of “traditional” businesses will be disrupted by the arrival of new competitors with lower cost or revolutionary operating models – Uber, AirBnB, Amazon
Reality: The Status Quo is Not Safe
Implication: Changing / evolving your operating model to survive is an imperative
Reality: Customer Journey Design/ Execution is the New Battle Ground
Implication: Customers are more demanding, better informed and expect a full Omni channel experience (and they will leave if they do not get it); redesigning your processes to enable and enhance the client experience is critical to surviving and out-competing
Reality: Operating Models are Being Redesigned / Reimagined
Implication: Artificial intelligence, robots and cognitive computing and decision-making, and digital technology are fundamentally changing the way work is done
Reality: Analytics Is Driving Operational Effectiveness
Implication: Data analytics about operational effectiveness with timely insight is now used by many organizations to improve their business
Reality: Skilled labor (experts) are becoming increasingly scarce
Implication: Applying digital labor to operational functions mitigates this risk and frees the best and brightest to bring more value to the enterprise
Reality: Process Automation Lowers operating costs and improves quality
Implication: Digital labor reduces the cost of a traditional employee by 40% to 60%, and can work longer with fewer errors
1 “Leading Digital”; Harvard Business Review Press 2014
2 2011 Accenture Enterprise Analytics for Banks 2011
3 CEB Operations Council Process Ownership Survey 2013
4 The Digital Advantage: How digital leaders outperform their peers in every industry, Cap Gemini MIT Sloan 2011
5 Digital Banking: Stretch the boundaries to the Everyday Bank, Accenture (July 2015)