Firms Need To Be Quick To Digital Disruption A New Aussie Report Warns

Disruption from “disruptive intermediaries” such as iTunes, Uber and Airbnb often emerge slowly, yet incumbent firms do not respond swiftly enough, according to a report prepared by the University of Sydney Business School and Capgemini Australia.

The report titled Digital Disruptive Intermediaries; finding new digital opportunities by disrupting established business models, looks at the ways in which new operators are exploiting digital information to disrupt the Australian business landscape by challenging established models and changing the way that value is created or distributed.

“More often than not, people in established companies are aware of emerging technologies and how these may impact on their organisations, however due to conventional business structures and the evolving market conditions that foster disruption, response to these changes can be slow and difficult to manage,” said the University of Sydney Business School’s Associate Professor, Kai Riemer.

The Report identifies eight different disruptive archetypes, their different business functions, how they innovate and disrupt various markets and what this disruption means for established companies.
It reveals how Digital Disruptive Intermediaries are transforming the way value is generated by reorganising the allocation of supply and demand through the use of information and not the control of physical assets.

Intermediaries are service providers that function in between two parties and add value to the transaction for all involved. Driven by the convergence of technology trends such as the Web 2.0, mobile devices and the app economy, Digital Disruptive Intermediaries create new services and networks that capitalise on existing market inefficiencies.

For example, businesses that fall under the Content Hub archetype, like iTunes or Netflix, are acting as intermediaries between content owners and digital consumers, upsetting incumbent businesses in industries such as music, books, film, media and TV, where there is no longer the need for a physical ‘middle man’.

Similarly, disrupters under the Matchers archetype, such as Airbnb and Uber, are creating digital offerings that re-organise the allocation of services to customers in innovative ways, thus disrupting existing market allocation mechanisms that traditional businesses in the hospitality or transport sectors are used to working with.

The report further explores ways that Digital Disruptive Intermediaries are able to exploit inefficiencies and inadequacies in existing industries and identifies a range of market conditions that favour digital disruption.

For example, highly fragmented markets with many small suppliers or providers have significantly higher transaction costs for customers, which opens the door for new digital intermediaries to add value. Similarly, many markets have built out inefficient structures, through regulation or otherwise, whereby actors are able to monopolise customer access to services. Digital Disruptive Intermediaries find opportunities in breaking open these structures, enabling new players to enter these markets, which threatens incumbent business models.

“For established businesses, this means they need to react with a greater sense of urgency and view Digital Disruption as an opportunity as opposed to a threat – whilst defending is a strategy, it’s not one that will protect them from the market disruption. Businesses need to gain a thorough understanding of how Digital Disruptive Intermediaries change the flow of value in markets and, through this, uncover vulnerabilities and opportunities. It’s through this that businesses will gain an understanding of where they are prone to disruption and where the opportunities are,” said Ben Gilchriest, from Capgemini’s Digital Innovation practice, “With the identification of the eight archetypes outlined in the report and associated recommendations on how to respond to them, established businesses can gain a more in-depth understanding of how their current business models need to be adapted.”

“In Australia, we are seeing the emergence of content hubs such as Presto, Stan and most recently international penetrant Netflix, who are evolving their business models in line with digital disruption to ensure relevance of their service. Their current challenge is to gain market share in digital services to stay ahead of the competition, added Dorus van den Biezenbos, Head of Digital Customer Experience, Capgemini Australia & New Zealand.

“Ironically, for incumbent businesses it is often their in-built adversity to risk that presents the biggest risk in the face of disruption,” added Associate Professor, Kai Riemer as a warning to traditional businesses, “In a time of rapid and unpredictable change, it is better to be a part of the disruption than a part of history.”

The Digital Disruptive Intermediaries report, the latest research from the Australian Digital Transformation Lab will add local analysis and domain specific insights to provide companies with a robust framework to deliver value from their digital transformation programs. The report complements Capgemini’s global, joint research collaboration with the MIT Centre for Digital Business which examines how companies around the world are managing and benefitting from digital transformation and the best practices involved.

If you’re keen on disruption, make sure you head to Daze of Disruption in May. Check it out here.