Responding to digital disruptions

Often what differentiates successful companies from their competition lies in their ability to not only recognize opportunities in the present, but also foresee where things are headed in the future. These companies are able to leap over the competition and continue to thrive as leaders in their respective marketplaces. Whereas, others that choose to remain stagnant or are slow to respond and adapt to change, get left in the dust.

In 2000, a fledgling home entertainment subscription service known as “Netflix,” approached then home-video titan, Blockbuster, with a $50 million offer to be bought out and acquired. Blockbuster declined, thinking it was too “niche” a business. Fast forward to today and Netflix is now the digital media streaming leader with $8.3 billion in global revenue and 93.8 million members. On the other end, Blockbuster, at onetime worth $5 billion, officially filed for bankruptcy in 2010 and closed all of its stores in November 2013.

What was the reason behind Netflix’s explosive success and Blockbuster’s fall from grace?

Digital disruption in the form of video streaming.

Netflix saw streaming was where the future of home entertainment was headed and invested in technologies that would position themselves at the forefront of the market. Blockbuster failed to see the potential in streaming and instead remained loyal to their aging brick-and-mortar video rental model, which ultimately led to their demise.

The Netflix and Blockbuster story should be a case study for any CIO questioning the importance of being able to identify and act on potential digital disruptions. It’s even more important now as today’s digital disruptions will be virtual in nature rather than physical, meaning their effects on how businesses, industries and consumers behave and operate will be even more rapid and dramatic.

Recognize Real Digital Disruptions

This month, Gartner published a report (Gartner, Inc. “How to Recognize, Prioritize and Respond to Digital Disruption” by Janelle B. Hill & Daryl C. Plummer, 5/15/17), detailing how CIOs can pre-empt digital disruption by recognizing, prioritizing and responding to early indicators. In it, they pointed out an important tip – distinguish real digital disruptions vs. digital fads.

In today’s digital age, there is a proliferation of new technologies on the market, each one claiming to be the next big “game changer”. This makes it difficult for CIOs and executives to distinguish what’s a real disruption that will upend their business and industry, and what’s just an exciting fad, but won’t have a lasting impact. So they choose to wait and see how things play out before taking action.

Instead, CIOs should assess if a potential disruption will enact exponential changes – a key differentiator between real disruptions and fleeting fads. For instance, in the case of Netflix, video streaming changed how people viewed TV shows with entire seasons being uploaded at once, making it commonplace to binge-watch or view shows at your own pace rather than wait week-to-week for new episodes. And in addition to closing out the video rental business with its at-home convenience, Netflix forced cable companies to offer more on-demand videos and networks, like HBO and Showtime, to offer similar low-price monthly subscription models to compete.

Foster a Culture of Innovation

Another tip discussed in the report is for companies to emphasize innovation within business and IT. Oftentimes, when a digital disruption emerges, many don’t know how to respond and there is a lot of uncertainty up in the air. But, companies that have a culture of innovation are already predisposed to act accordingly and identify a response, whether it is defensive, offensive or complementary.

The report offers two simple techniques companies can use to begin moving towards a culture of innovation:

  • Challenge Assumptions: Challenge traditional ways business, customer preferences, competitors, market economics and even regulations work. Challenging them with questions about why, when, who, where and how assumptions developed can provide a basis to compare the current business context to the past. This can clarify decisions to be made about the necessary actions to be taken.
  • Wishing: Set unrealistically high targets for new value. This forces everyone in the company to find which of the current ways of doing things isn’t working. They will be more open to other possibilities and thinking outside of the box. In short, wishing lets people ignore today’s best practices, existing policies and rules, and any other limitations. While this may set unrealistic ideas in motion, some of your greatest ideas can surface as a result.

Overall, innovative companies are more adept to change and can be more nimble in the face of digital disruptions. Blockbuster lacked a culture of innovation and fell behind as video streaming and Netflix continued to rise in prominence; cable providers and TV networks acted to change; and new streaming competitors like Hulu and Amazon emerged.

If you would like to discuss more about digital disruption, digital business platforms, and how to be more agile and innovative in today’s fast-paced marketplace, then come see us at the Gartner Enterprise Architecture & Technology Innovation Summit in Orlando, Florida, May 31 – June 1, 2017!