Digital Transformation. Always Disruptive? Charting New Paths with Innovation.
Date:February 29, 2024
Date:February 29, 2024
The business environment and the global markets today have given rise to opportunities like never before. Successful organizations- big and small, have taken advantage of these opportunities to grow further or to uproot established players. Broadly speaking, successful innovation is determined by three key factors: Business Models, Technology and Products (including services).
It is a common misconception that all kinds of innovations have to be “Disruptive” to be successful. ‘Disruptive Innovation’, as coined by the legendary late Clayton Christensen, is a process whereby a smaller company with fewer resources can successfully challenge established incumbents.
How do they do it?
1. Almost all of the entrant companies start serving low-end of the market, left open by the incumbents who only serve the profitable customers. Over time, when the entrants start providing quality products to the mainstream customers at lower cost and if proven, they also target the high-end customers – becoming a “disruptive innovator” by dethroning the incumbent.
2. The second one is by creating a market where none exists.
Sounds simple, isn’t it! It is but – not easy! As per one study, only 6% of companies are truly disruptive as per the above definition!
So, a pertinent question is- should every company be only running after disruptive innovation?
The answer is a resounding No! Most of the successful companies follow “Sustained Innovation” – continuously improving products, improving processes and doing incremental improvements in business model- all to strengthen their relationships to existing customers
An added question is what is the role of Digital Transformation in both kinds of innovations? Or as the term indicates, does transforming an organization digitally only lead to disruption?
Well, let’s understand the true and demystified meaning of Digital Transformation!
It means changing an organization to capture market opportunities enabled by digital technology.
So here we look at the play of Digital Transformation in both disruptive and sustained innovation
Digital Transformation in the context of
| Digital Transformation on Disruptive Innovation | Digital Transformation on Sustained Innovation |
|---|---|
| Radically disrupts value proposition- a new entrant focuses on the business model and an innovative low-priced model to disrupt e.g. Netflix | The core value proposition remains the same- digital transformation helps to serve the known needs of customers e.g. Uber is not disruptive but provides for the same set of customers who take taxi to ride |
| Disrupts the reach to the customers- online reach, door-to-door delivery, city-front based warehousing and AI-based customer preference selection e.g.- e-com providers giving same day delivery |
Offline reach enhanced with online tools and analytics of customer preferences and stocks; conversely, online retail enhanced with offline tryout and samples |
| Digital Transformation to be disruptive requires a technology based platform and an ecosystem e.g.- Apple connecting App Developers to the phone users; e-com providers like Pingduoduo in China connecting buyers to make their own groups online to gain bargaining power and higher sales |
Uses digital tools improves operations, customer experience, transparency and value |
A Powerful Model for Digital Transformation
Few pertinent questions arise as we go along.
- So how does one go about this kind of transformation?
- What if an established incumbent wants to “defend” its market from disruptive entrants? Or wants to be a disruptor in a domain of other established players?
- Does an entrant start by thinking they want to be a disruptor by design or does it occur by chance?
Questions like the one above are put to test in a framework of Strategic Dimensions before developing into a detailed Business Strategy
Strategic Dimensions
| Key factors | Why we exist | Whom do we serve | What’s our core value | What do we sell | What’s my competition | What’s my capability |
|---|---|---|---|---|---|---|
| How to sustain | How do I provide for additional value-add to my customers? | How do I improve my processes using digital tools? | Can I “reach” my customers faster? | How to add to my product? How to add to my service? | Do I know my competitors’ moves? | What’s my org culture? How do my employees and leadership look at Digital? |
| How to disrupt | What’s the purpose of our existence? | Who are my customers? | What problem am I solving for my customer? | Am I a product seller? Or service provider? Or a Solution provider? |
Who is my competition? Who does my customers think? | How to build a lean org around my “core”? |
Sustained innovation comes from understanding the needs and demands of customers in the existing markets and then making changes in products and services to satisfy predicted needs of the future. Sustaining innovation is focussed on providing enhancements, value-adds and improving the current system and processes to make the organization more responsive to evolving needs of the target market.
On the other hand, disruption can create new business models which are different from the mainstream models already pursued by incumbents. Disruptive innovation focusses on changing things fundamentally from ground-up, could be riskier as organizations attempt to tread on the unbeaten path.
The aim of a successful digital transformation strategy should be to lay down a clear transformation roadmap with result-oriented KPIs in place based on the short-term as well as long-term goals of an organization. Answering key questions from the ‘strategic dimensions framework’ could help organizations decide whether to go for sustained or disruptive innovation. Such an approach towards digital transformation not only helps businesses stay competitive in today’s dynamic world but also serves as a guidebook to stay relevant in the unforeseen world of tomorrow.
