Disrupt or Be Disrupted (ET Telecom Blog Series)
Sanjay Kaul, Managing Director, Service Provider Business, Cisco India and SAARC
The Top priority for most CEOs across industries today is how to make their company a digital one. Almost every company is thinking of ways to become a digital company first and a physical company later. Digital business transformation is a journey to adopt and deploy digital technologies and business models to improve performance quantifiably. Critical is to grasp the need for change.
The second top of mind is the “Internet of everything” (IoE). As the IoE becomes a reality, every industry vertical is being forced to embrace the digital revolution and every business is transitioning to become a tech one. Sensors, monitors and data are getting digitized and revolutionizing the way health care, education, citizen services and even entertainment is delivered. Key here is the speed of change.
Digital disruption, which is the effect of digital technologies and business models on a company’s current value proposition, and its resulting market position, has the potential to overturn incumbents and reshape markets faster than perhaps any force in history. The difference between digital disruption and traditional competitive dynamics comes down to two main factors: the velocity of change and the high stakes involved. Digital disruptors innovate rapidly, and then use their innovations to gain market share and scale faster rather than clinging to predominantly physical business models.
Consider the case of WhatsApp, bought by Facebook in 2014 for a whopping $22 billion. WhatsApp’s overwhelming impact on the $100 billion global text messaging market delivers a powerful lesson in digital disruption. In addition to free text messaging, WhatsApp now allows users to make free mobile voice calls. However, Facebook is not only looking to disrupt the telecommunications industry. Having introduced person-to-person (P2P) payments via Facebook Messenger, the company is now poised to extend this service to WhatsApp’s 800 million users
WhatsApp is also testing a business model that would help Facebook challenge Google’s domination of the mobile advertising market by charging businesses for the right to contact its users directly. All this disruption comes from one innovative platform that has the seemingly simple function of allowing consumers to send messages to each other via smartphones for “free.”
In a way, WhatsApp’s success (or potential failure) leaves no question that the stakes are very high-not only for Facebook’s potential revenue, but also for the many companies WhatsApp disrupts. WhatsApp and other over-the-top (OTT) services are projected to drain global telecommunications companies of $386 billion in revenue between 2012 and 2018 from the use of OTT mobile voice calling alone.
Mobile, social media, cloud and data analytics are converging to bring about a digital disruption in communication. If a trajectory is drawn for the next 10 years, several network functions will be virtualized while cloud intelligence and data will bring down the cost of production.
Adoption of cloud technology will grow multifold in the coming years. Operators today have a clear agenda which is to virtualize their functions and move them on to the cloud. The technology will, in the long term help reduce cost of production. Cloud will also bring agility in time-to-market and time-to-service deliverables. While this technology will thrive, data analytics is another opportunity which will to help increase business efficiencies.
According to a report released by the Global Center for Digital Business Transformation (DBT Center), an initiative between Cisco and the International Institute of Management Development (IMD), digital disruption will displace approximately 40 percent of incumbent companies in each of the 12 industries studied within the next five years.
Among the 12 industries highlighted in the report, Technology Products & Services has the highest potential for disruption over the next five years. The report shows data-driven industries in general including elecommunications, Financial Services, Media & Entertainment and Retail top the disruption potential list. According to the report, these are industries that rely on technology-enabled networks to exchange digital value, including data and transactions. On average, executives from incumbent companies in all 12 industries revealed that they expect substantial change due to digital disruption, including shifts in market share within five years.
The impact of digital disruption is being felt across industries. When confronted with the specter of such disruption, companies must understand the nature of the competitive change it represents, which technologies and business models will be most disruptive, and how they themselves can address the disruption. Most business leaders expect substantial change due to digital disruption, including shifts in market share within five years.
It is not just business models that are changing, value chains and product offerings are undergoing change as well. Digitization is changing industries and increasingly blurring the lines between them. Changes start with companies being more agile, more willing to partner, and build systems and processes to accommodate that change. Combining value-cost, experience, and platform-to create disruptive new business models will bring exponential gains.
As businesses stand in the midst of digital disruption, getting success will depend on three pillars, first getting market transitions right, and obviously, digitization and the Internet of everything are at the front of that. The second is not doing the same thing for too long. Companies have to move into market adjacencies, and bring what is learned, back into their core capability. The third and the most difficult one perhaps, is for leaders to reinvent themselves - as a CIO, as a CEO and the company as a whole.