It Pays To Disrupt, Especially In A Digital Way: But What Is Digital Disruption?


Joe McKendrick, Contributor

October 14, 2015

“Digital disrupters” have two times higher revenue growth and two and a half times higher profit growth than “mainstream” organizations.

That’s the money statement in a recent study of 1,442 enterprises released by CA Technologies, which sought to attach a value to digital disruption. It’s no small irony that CA itself is a legacy tech company that still has mainframe roots, so it looks like we’re all learning some lessons here.  Notice I put the term “digital disrupters” in quotes above — because it still isn’t clear to me who would qualify for this distinction.

The study found that digital transformation is being driven as a coordinated strategy across a majority of organizations (55 percent), with many projects underway in multiple areas of the company, including customer services, sales and marketing, and product/service development. As a result, 45 percent of respondents have already seen measurable increases in customer retention and acquisition from their digital transformation initiatives and 44 percent have seen an overall increase in revenue.

The study’s authors developed what they call a “Digital Effectiveness Index (DEI),” a measurement tool developed in partnership with Freeform Dynamics. Using this measure, a group of top-performing organizations has emerged – the digital disrupters, identified as the top 14 percent of respondents. This group is already seeing impressive business benefits of embarking on a digital transition, including increased revenue — digital disrupters have two times higher revenue growth than mainstream organizations. The digital disrupters also report two and a half times higher profit growth than the mainstream organizations.

In terms of industry groups, the strongest showing came from from telecom and financial services, firms with public sector and consumer packaged goods lagging.

So what makes an organization a “digital disrupter,” versus a group that is merely using a lot of technology? The CA study pegs digital disrupters as being software-driven, meaning that they are 3.5x more likely (than the mainstream) to recognize the importance of being a software-driven business (60% vs 17%). They are also taking up agile development in a big way (developing software in rapid iterations, working in tandem with business users),

Digital disrupters, in the survey authors’ view, also are those that are open to APIs. The study found that leaders were 2x more likely to leverage APIs for internal development (68% vs 34%), and 2.8x more likely to use APIs to enable third party apps (66% vs 24%).

Before we get all excited about the boundless opportunities that seem to pour in on digital disrupters, it’s really important to emphasize that such organizations do not succeed the way they do simply by buying lots of software and tapping into APIs when they’re not outright buying software packages. Plus, looking at digital disruption in terms of what’s going on in the data center, versus what the business is doing differently to reach and serve customers, may be too narrow a view.

In the true Clayton Christensen interpretation of disruption, disruption means building entirely new business models serving unserved and underserved markets, and pushing established players (and their less-efficient business models) upstream from there. That’s not a technology strategy; it’s a business strategy that may make use of technology in new and unexpected ways.  And, importantly, it may mean minuscule returns at first, versus the high-margin bounty established companies are reaping.

This is not to question the advantages that moving to digital enterprise offers, as explored in the CA study — and it’s a great report. But these days, moving to digital solutions, digital infrastructure, digital transactions, and a digital workplace will only help to keep you from falling behind, because everyone is making these investments, and everyone is doing it. The true digital disruptors are not just layering technology over their current businesses, they’re creating entirely new business models. They’re imagining markets that may have never existed before, or getting into businesses that would have seemed too far removed a few years prior. Consider how Netflix was able to adapt to the digital upheavals in the on-demand entertainment business, first through DVD delivery, then through online streaming. Or, just recently, it appears that PwC — originally an accounting services firm — is now pushing into digital design, the domain of creative digital design agencies. Moves not possible without technology, but business-driven moves nonetheless.

Disruption? Perhaps.  Let’s not ignore the fact that any gains made from digital disruption are also very difficult to measure as well. “Traditional metrics such as ROI do not capture the wider impact of digital investments,” state Mathieu Colas, Jerome Buvat, Subrahmanyam KVJ and Swati Nigam in a report released by Capgemini last year. “Many companies are struggling to compute ROI for digital investments, not least because these investments have wide-ranging impacts that ROIs cannot capture. For instance, proving the value of social media initiatives is notoriously difficult, as organizations try their hardest to find a link between metrics such as customer sentiment and revenue growth. CFOs rely on traditional metrics.”

With these caveats in mind, it’s worth noting the10 things the digital leaders do that are helping to set them apart, as identified by the authors of the CA survey. Also note that there’s a mix of both business and technology considerations. Again, business comes first:

  1. High emphasis on emerging digital channels to the customer
  2. Confident exploring new avenues to keep the value flowing
  3. Strong appreciation of the role of software and apps
  4. Focus on modern software development and delivery methods
  5. More coherent and collaborative approach within IT
  6. Exploitation of APIs for internal speed and efficiency
  7. Managed use of APIs to engage the developer ecosystem
  8. Use of digital to drive core business efficiency and effectiveness
  9. Conscious reallocation of resources to fund digital investments
  10. Focus on smarter management of investments to maximize ROI

This article was written by Joe McKendrick from Forbes and was legally licensed through the NewsCred publisher network.

There is 1 comment

  • What is Digital Disruption? - Boston Commons High Tech - 12/29/2015 15:11
    […] what the business is doing differently to reach and serve customers, may be too narrow a view. [23] Ok, so this was just the tip of the iceberg that was Digital Disruption: there was a load more […]

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