Feature Story

Five Industries Most Vulnerable to Digital Disruption

Michael Wade

Which industries need to move fast to transform in the face of digital disruption?

Michael Wade

Digital disruption is everywhere—with the potential to reshape markets faster than perhaps any force in history.According to recent research from the Global Center for Digital Business Transformation, executives across 12 industries predict an average time to disruption of 3.1 years. This represents a dramatic rise in the rate of competitive change, as well as an unprecedented opportunity for transformation.

Which industries are likely to be the next victims of disruption? Which sectors need to be the most prepared to face agile startups with innovative business models? According to our research, here are the five industries most vulnerable to disruption:

1. Technology Products and Services

The industry we found to have the greatest potential for digital disruption between now and 2020, not surprisingly, is technology products and services. Technology innovation will continue to accelerate at an exciting and unnerving pace. This is thanks to a perfect storm of mobility, cloud, analytics, security, and a host of other technologies. Agility and rapid execution will be critical if technology companies are to drive their own disruption and respond quickly to new challenges.

2. Media and Entertainment

The sudden displacement of physical media by digital music players was just the beginning. The convergence of mobility, cloud, and video has already upended media and entertainment to a dizzying degree. Who would have thought five years ago that video streaming services would be winning Emmy Awards for original content? We expect this trend to continue as innovative disruptors release an ever-expanding array of delivery and content options.

3. Retail

In recent years, innovative online disruptors have challenged traditional retail strategies. In this climate, all retailers must think like an agile startup as they blend their physical and digital assets to provide amazing customer experiences. There is a lot for retailers to gain. Last year, the retail industry as a whole realized only 15 percent of its potential digital value according to a recent Cisco study, A Roadmap to Digital Value in the Retail Industry.

Today, innovative retailers are using sensors, location services, and analytics to provide context-aware experiences that meet customers’ specific needs at any given moment. That could be a coupon delivered via text for an item the customer is looking at, or less time waiting at the checkout stand.

4. Financial Services

Financial services companies are being disrupted by agile, online-only challengers that offer convenient, efficient services. To counter the threat, they must leverage their traditional strengths in financial advice and expertise, with convenient anytime, anywhere offerings. A great example is Nationwide, one of Britain’s largest financial institutions. Nationwide is combining the convenience and personal attention of a local branch with advice from a remote expert over Telepresence to improve the mortgage application process. This innovation has resulted in both improved efficiency and higher customer satisfaction.

5. Telecommunications

Agile startups such as WhatsApp have grown their user bases at a blistering speed, with new business models that are disrupting traditional text messaging. Beyond that, WhatsApp is now allowing users to make free mobile voice calls, further eroding the revenue and customer base of market incumbents. This example illustrates the difference between traditional competitive dynamics and digital disruption. Digital disruptors innovate rapidly and use their innovations to gain market share and scale faster than incumbents.

In each of these five industries, disruption is happening. Yet, it’s not a death knell for incumbents. Companies within these industries need to develop strategies for turning the threat of disruption into opportunity by transforming their businesses with digital processes and business models. Digital business transformation will lay the foundation for seizing new opportunities. With such transformation, market incumbents can become as agile and innovative as startups.

Michael Wade is a Professor of Innovation and Strategy at IMD and the Cisco Chair in Digital Business Transformation. His interests lie at the intersection of strategy, innovation, and digital transformation.

Kevin Delaney is Executive Editor of Connected Futures.

Digital disruption will displace 40 percent of today’s top 10 incumbents by industry over the next five years. For more information, view the full report.