Preparing for the digital disruption that’s coming to your industry

Whatever your business, significant disruption is either already occurring or on the way. Much of this is due to the latest wave of emerging and disruptive technologies that are serving as foundational building blocks for new, digitally based business models.

I’ve talked with a number of CEOs and business leaders recently, all of them keen to glimpse around the corner to prepare for what’s ahead. Even if your business is going strong right now, you should be doing the same. To help you in this task, here are a few thoughts that arose from those recent discussions.

Understanding the disruption

By its very nature, a disruption is extremely hard to predict. Still, with careful analysis of industry trends, a keen grasp of the art of the possible, and observations of recent “seismic activity,” you can get a sense of what to prepare for.

Have a vision for what the disruption may look like. It could be a technology-driven disruption such as 3D printing (which in transportation is expected to threaten up to 41% of air cargo and up to 37% of ocean container shipments), or a competitive disruption in the form of new entrants with digitally based business models, processes, products or services. Crafting a vision for your industry will give you a sense of what the future could look like. The German “Industry 4.0” vision for manufacturing is an example, as is GE’s vision of the industrial Internet.

Understand the magnitude. A disruption can happen at the industry level, the business-model level or the process level. But be aware that a process disruption can bubble up in scale and affect both business models and entire industries. Just think of what happened to travel agents when a process change (booking travel on the Internet) nearly eliminated their role.

Identify the likely players and their tactics. Not as easy as it sounds; a competitor can come out of nowhere. Take as an example Apple Pay and its effect on the mobile payments industry. This was a case of a technology giant leveraging its cash flow and vast customer base and using disruptive technologies to poach on territory where it had never before set foot. Apple’s limited industry knowledge was offset by its millions of customers, its eagerness to partner with major industry players to become relevant in the industry, and its ability to continually turn on new services for customers. Here’s the thing, though: If you’re in the payments industry, you’ve known for a long time that digital payments were coming. Your preparation for that day should have included the recognition that a company like Apple, with a mastery of digital services, could make a play.

Understand what the disruption can do to your industry’s value chain. In most industries, a highly likely play will be to get closer to your customers by offering a radically different way of doing business that’s faster, simpler and cheaper.

Have a sense of the disruption’s timing. To prepare your response and time your move, it’s key to estimate when these events will affect you. Is this something you need to act on immediately or something you should continue to monitor closely? Either way, it’s good to have a strategic plan and weigh all the response scenarios.

Preparing your response

Most importantly, you must conduct rigorous market research and put your innovation program into overdrive. That means fine-tuning your programs across strategy and intent, people, process, technology, and continuous improvement to maximize your organizational potential for digital business innovation. Conduct frequent innovation workshops. Talk to customers, partners and other industry experts — even outside of your industry segment.

Then, craft your response, whether it’s defensive or offensive measures or a first-mover attack. You might simply optimize your current position in the value chain or change your position to get closer to the customer.

One strategy for getting closer to the customer is to apply big data analytics to understand your customers’ preferences, needs, interests and behaviors far better than anyone else. Collecting information about your customers’ usage of your products or services may enable you to monetize the data swirling around your product or service as well, by turning it into additional value-added services for your customers.

A key factor in improved digital customer experience is rethinking how customers do business with you, much as Uber has done for finding a taxi. This is typically where SMAC (social, mobile, analytics and cloud computing) comes into play, but disrupters may additionally incorporate Internet of Things business models (Streetline) or robotics business models (Japanese hotel Huis Ten Bosch and the Aloft hotel chain).

Innovation can also focus on a single, yet critical, business process (usage-based insurance models). In the insurance example, technology comes in with intelligent sensors that measure things like acceleration and hard braking, letting the insurer offer incentives for good driving behavior — and taking loyalty programs to the next level, with incentives based on actual behavior at a highly granular level, as opposed to simply on repeat business from month to month.

If you simply want to optimize your current position in the value chain, your initial focus might be on employee-centered improvements (enabling the digital workplace) or on optimization of your IT infrastructure and operations (enabling an industrialized software-defined data center).

Let’s look more closely at enabling the digital workplace and how those foundational building blocks of digitally based business models can come into play. For example, wearables such as Google Glass can enable hands-free process optimization in areas like item picking in a warehouse. Recent trials such as those conducted by DHL have shown reduced error rates in the warehouse picking process and overall efficiency improvements of up to 25%.

Intelligent automation is another area of opportunity. We’re already seeing the convergence of human-machine work processes, where humans are becoming increasingly instrumented and machines are becoming increasingly connected with humans to create an optimized blend of human-machine participation and interaction.

Cognitive systems and intelligent automation techniques are reducing costs and dependence on labor-based processes and optimizing service efficiency. Advances in machine learning, expert systems and robotics are leading to automation opportunities in both virtual (software) and physical scenarios.

A relevant software-based example is the emerging role of cognitive virtual agents in the next-generation call center. These agents interface on human terms in natural language. They think, speak and learn on the job — improving business processes and making better informed decisions. A recent example is IPSoft’s Amelia technology, which is being used to transform IT operations labor mix with digital labor costing one-third of the typical human FTE cost.

Applying the next wave of technologies

The business strategies and options regarding how and where to play in the future value chain are the same strategic decisions that organizations have needed to make for decades. What’s new and different is the magnitude of potential business disruption and transformation via today’s fresh new wave of disruptive technologies.

Your strategic response to digital disruption can make use of a rich set of foundational building blocks in the form of disruptive technologies — some mature, others emerging.

Whatever your business strategy, you can select from these foundational building blocks and apply them in powerful combinations to enable your target business outcomes.