Disruption

Today every sector is challenged

Ask Kodak. Or ask Nokia. Sometimes digital disruption is spectacular, as anyone who ever bought an iPhone or downloaded Instagram can agree.

Other times, especially in the world of hard physical assets, the change is less obvious but no less profound.

The impact of digital transformation is explored in detail in a new AIMIA white paper called Digital Imperatives for Marketing available for download on the AIMIA site.

Earlier last month the Australian Financial Review ran a story based on an analysis of the impact of Airbnb on the rental markets in some of Sydney’s more tourism friendly boroughs. That report found that the Airbnb listings of entire homes exceeds the number of vacant rental properties in the city centre and the affluent eastern suburbs.

Property owners are happy, their yields are up 10 per cent in some cases. But there are losers - the real estate industry (for whom few renters or owners would normally shed a tear) but also the tenants themselves who will struggle even harder now with inventory scarcity and prices.

Another market to consider is small business financing. Traditionally controlled by the banks and mainstream financial institutions, lenders with new models such as crowd funding have entered the market.

While incumbents may dismiss these new providers, its harder for them to discount the impact of global dotcom giants like PayPal which first offered local financing facilities down under in 2014. Chinese giant Alibaba which is extending its cloud business here, says it has no such plans locally “...for the moment.” But in its home market it is a huge player. And it is easy to imagine that at some point Jack Ma will want to export that expertise.

Today every sector is challenged.

While banks find their transaction revenues under assault from new fintechs and their loan books challenged by a variety of large and small insurgents, the auto sector is dealing with the impact of digital across its whole value chain. Electricity distributors meanwhile find themselves assailed by smaller, nimble market entrants with better pricing and friendlier service models.

And other heavy industries such as manufacturing or oil and gas production are only now coming to terms with the potential opportunities from the Internet of Things – and more precisely the analytics that fall out of it.

Digital technologies are disrupting markets and transforming industries. Many incumbents were slow to appreciate both the risk and the potential of technologies like cloud computing, social media, mobility, analytics and cyber security.

Australian businesses were long considered laggards in the push to reform. The country sailed through the GFC while other economies were forced by circumstance to re-revaluate everything about how they worked.

Local and often cozy competitive market conditions lead to a dangerous complacency. But that is now changing. The message is clearly getting through. Several recent studies into the impact of digital delay reveal real problems for laggards.

For instance, a report by the Economist Intelligent Unit found;

  • 37 per cent of digital leaders report their financial performance was much higher than competitors in the past fiscal year, compared with just 11% of respondents at other companies.
  • 44 per cent of digital leaders indicate the CEO is the primary driver of IT strategy, which suggests that these companies place added emphasis on the importance of technology in achieving business goals.
  • Leaders are more often globally integrated than other companies, and are much more effective at information sharing across functions and regions.
  • Slightly more than one-quarter view digital technology as a way to keep up with new, fully digital companies, while just 10 per cent view technology as a way to surpass competitors. It is a theme which recurs in studies of digital capability. Last year Gartner came to the same conclusion noting, “The disruptive effects of digital business cannot be underestimated. To date, a limited number of product categories — music, books, photographs and newspapers — have seen their business models upended”.

“Going forward, organisational leaders in other product and service categories will also need to adapt by restructuring the workforce, eliminating obsolete roles, and finding talent that can help design systems and workflows that optimise the use of things integrated with people and business to drive new value for customers.”

And an analysis released last month by Cognizant suggested that digital laggards have surrendered over $262.5 billion in economic benefit due to their tardiness.

The authors of this third study estimated the impact of digital transformation will more than double in the next three years. While an estimated 6 per cent of revenue was driven by digital technologies in 2015, by 2018, this is expected to reach 14 per cent, representing a value of about $770 billion per year for the 2,000 companies surveyed – a total economic impact of $2.3 trillion.

AIMIA is a corporate member of the Which-50 Digital Intelligence Unit. Members contribute their expertise and insights to Which-50 for the benefit of our senior executive audience. Membership fees apply.