The Mechanics of Disruption — how Digital Transformation is shaking established industries

As human civilizations started emerging along river beds thousands of years ago, businesses started to emerge. Since then, the driving purpose behind businesses has remained unchanged: to create value. For the vast majority of human history, rules remained unchanged. Companies emerged, had a stable, but long, lifetime, and ended. In the recent times, however, the businesses that had been operating for decades without major problems have been disrupted by new entrants before they could even notice.

What has changed? A lot of people are now agreeing that in the age of digital, the companies that leverage technology are disrupting established, old ways of doing business. Therefore, it is not a matter of whether you will be disrupted — it’s a matter of when. No industry will be immune to the recent trends, and therefore, companies must maintain a delicate balance of exploration and exploitation (more on this in coming stories).

Digital transformation, then, is the integration of digital technologies across all areas of business to create more value. No matter the size of your business — Digital transformation can, and will, work for almost every business.

Giants such as Xerox and Nokia were driven out of business by newer players or newer technologies. Netflix made the DVD rental business obsolete. Uber disrupted the cab business by changing the business process altogether. I could go on about the examples of failures and successes and you would get bored.

The Exponential Increase in Technology

20 years ago, we used to watch color television for our entertainment, used brick-sized phones for telecommunication, and called a cab to avail its services. Today, we have social media, Netflix, YouTube, and several other options for entertainment, phones that fit on the palm of our hands that have more compute power than was used to put man on moon, and instant ride hailing, delivery, and sharing applications.

The human mind finds it difficult to comprehend exponential change, yet, this is exactly what has happened with technology. There are three key underlying laws that can explain this:

1. Moore’s law — processing power doubles every 18 months.
2. Butter’s law — communication speed doubles every 9 months.
3. Kryder’s law — storage capacity doubles every 13 months.

Therefore, your network providers are not getting more generous when they offer you more speed for the same price as time goes on, and neither are storage manufacturers when they offer bigger storage for the same price. What this means for businesses is that technology is getting cheaper, and that too, exponentially.

Tech geeks might be the first ones to jump out of their seats and point out that actually, all of these laws have been broken since their initial hypotheses due to some inherent limitations slowing them down. I believe that these are temporary hurdles. For example, when we shift to Quantum Computing, the problem of transistor density will be solved.

Deconstruction of Value Delivery Chains

So we now know that technology getting really cheap made it possible for businesses to profitably leverage it to increase the value they were providing, but that does not explain how incumbent players were driven out and disrupted by new businesses in these past few decades.

The answer lies in the deconstruction of value delivery chains. In the early 20th century, telecommunication industry operated on a traditional, vertically stacked structure. The Bell industries (now AT&T) completely dominated the whole value chain in USA from physically wiring the homes, manufacturing the handsets, and providing the network services.

Then, thanks to anti-trust laws and long legal battles, it became possible to own different handsets, and eventually, use different service providers. Today, consumers have a choice from a variety of phone manufacturers, service providers, and internet providers. On each step of the value chain, new players are emerging, competing, and cooperating. WhatsApp and Zoom are disrupting the whole telecommunication industry at the moment, but at the same time, driving their revenues through data usage.

All this was made possible due to cheap, fast, and easy access to information. Traditionally, most of the business’ core competencies revolved around efficient information accumulation, exchange, and processing. Digital technology has broken down these barriers through widespread availability of information.

As an example, a small startup can now look for different suppliers and manufacturers on an online auction site just as efficiently as a large corporation. Additionally, both have the same platforms to sell their products online. Getting access to shelf space at retailers used to be one of the biggest hurdles for goods manufacturing businesses.

The Solow Computer Paradox — Is Digital Transformation really helping?

“You can see the computer age everywhere but in the productivity statistics.”

When I first read this quote, I laughed out loud. Most of the readers here might relate to the loss of productivity digital technology has caused in the form of distractions. However, this quote was first attributed to the economist and author Robert Solow in 1987 — long before the social media age.

If we look at the numbers, between 1980 and 2015, the investment into information technology increased by a factor of 20 while the global GDP has barely increased 3x. You can find complete books on this very topic, but for our discussion, I will keep my argument really simple.

I learnt in one of my college classes at IBA that GDP is a very narrow measure of progress. If I weigh the overall impact of technology in my life, I would see the picture more clearly. I can now keep in touch with my loved ones across the world and see them in real time. I have access to a seemingly infinite library of knowledge at my fingertips. I can work from my home.

In an organizational context, models that took months to create are now being created via computer-aided design (CAD) in days. Prototypes that took months are built in hours due to additive manufacturing (one of the tools of transformation). These time savings can increase the efficiency of businesses and employees can get more quality time to spend with their families.

What are some of the Tools of Transformation?

I have been compiling a list of all the practical tools that can help businesses transform digitally. The following is a list, in no particular order, of what I think are some of the useful tools of digital transformation. The list is not exhaustive and I would love my readers to give me feedback on including or excluding some of the tools!

• Cloud
• Internet of things
• Additive Manufacturing
• Design Thinking
• Modern Workplace
• Cyber Security
• Artificial Intelligence
• Quantum Computing
• Blockchain
• Data and Analytics
• Digital Twins
• Two-Speed IT
• Transmedia Storytelling
• Agile
• Digital Marketing

The purpose of this publication, Tools of Transformation, is to empower the audience with a set of tools to be able to disrupt their industries before they get disrupted. In the following weeks, I intend to dive deeper into each of these Tools of Transformation. Follow the publication and stay tuned!