The word “disruption” originally meant “rupture” or “collapse.”
Disruption in the business scene is often caused by digital technology, and is referred to as “digital disruption.”
Digital disruption is defined by the Ministry of Internal Affairs and Communications as follows in the 2021 edition of the Information and Communications White Paper.
Digital transformation can involve disruptive changes that involve not only your company but also industries and society as a whole. As a result, there are cases in which existing companies are forced to exit the market as a result of digital companies entering the market. This is called digital disruption.
In other words, digital disruption can be said to be a phenomenon that has the power to disrupt the common sense of industries and society through revolutionary changes and to change the products and services handled by entire industries.
The relationship between disruption and innovation
There are two types of innovation: disruptive innovation and sustainable innovation. Disruptive innovation refers to the sudden change in the industry structure of existing businesses through technological innovation or new ideas. By rewriting common sense in the market, the value of existing products and services will be relatively lowered, and new markets will be created. For example, by equipping vacuum cleaners with AI, one company presented a new option of leaving the cleaning to robots, completely changing the standard of value for vacuum cleaners. This trend of destroying existing common sense through innovation is called disruption. On the other hand, sustainable innovation refers to improving the value of existing products and services in accordance with customer needs. For example, automobiles achieve higher performance and lower fuel consumption through model changes. This can be said to be a typical example of sustainable innovation. Through technological reforms, we have improved engines, instrument panels, etc., and are increasing customer satisfaction.
Examples of digital disruption by industry
Digital disruption is a phenomenon that can occur at any time. Digital disruption can also achieve market leadership by realizing latent user needs. What kind of digital disruptions have occurred so far? We will explain in detail examples from each industry.
Examples of digital disruption in the automotive industry
Among the examples of digital disruption that have occurred in the automobile industry, the most notable are services such as car sharing and ride sharing that have emerged as a result of recent technological reforms and the introduction of digital technology.With the promotion of these sharing services, the need to own a car is diminishing, and an increasing number of dealers are converting their business model to car-sharing businesses.
Digital disruption in the music industry
A typical example of digital disruption in the music industry is music streaming. Up until now, the common options for listening to artists’ music were to buy or rent CDs at stores. However, with the development of digital technology, services that allow music to be distributed over the Internet were born, and this service expanded explosively. This service allows users to purchase music online without having to go to a store. Furthermore, with the birth of streaming services, the model of purchasing specific music each time has given way to a service that allows users to listen to unlimited music through a subscription (flat-rate payment type). As a result, sales of physical media, including CDs, decreased, and the nature and power of the music market changed significantly.
Digital disruption in retail
Digital disruption in the retail industry is the rise of e-commerce shops. Originally, shopping involved customers visiting retailers and selecting products.However, e-commerce shops allow you to purchase products online without having to visit a store. Additionally, in the event of an opportunity loss due to out-of-stock items, it can be expected to reduce the probability of customer defection as it requires less labor than in a physical store. Nowadays, there are an increasing number of cases in which people actually touch the products in stores, check them out, decide which products to purchase, and then purchase them on e-commerce sites where they are sold at lower prices. This is an example of a tech company entering the retail industry and achieving significant growth by creating disruptive innovation through digital disruption.
Why digital disruption occurs
Why does digital disruption occur? By understanding the reasons for this, you will be able to see what measures your company should take in the future.
shortage of human resources
One of the main reasons for digital disruption in Japan is the lack of human resources. While the labor force population is growing in emerging countries, Japan is entering a super-aging society with a declining birthrate and aging population. This suggests that Japanese companies do not have the luxury of dedicating resources to disruptive innovation. This is evidenced by the fact that Japanese companies are lagging behind in DX transformation. This challenge has made it difficult for Japanese companies to innovate, making them more susceptible to digital disruption. According to a survey by the Ministry of Internal Affairs and Communications, the number one reason for the issue of DX conversion is a lack of human resources.
In order to eliminate the impact of digital disruption, it is imperative to develop DX human resources.
Wall of the existing system
Existing systems are built to suit existing business processes, which takes away the flexibility of promoting DX, and there are cases where business processes cannot be changed.
In addition, many companies have existing systems that have become obsolete, complex, or black boxes due to long-term use, which is an obstacle to promoting DX. Due to delays in DX transformation, companies may not be able to keep up with the speed of transformation of their competitors and may become involved in digital disruption.
The purpose of DX conversion is limited to improving business efficiency.
Many companies that have brought about disruptive innovation have been working on creating new value through DX.
However, in many Japanese companies, the purpose of DX conversion is limited to improving internal business efficiency. The original purpose of DX is to transform organizations and businesses, and not just to improve business efficiency. Gaining a sustainable competitive advantage requires fundamentally reviewing business processes and adapting to the rapidly changing times.
If DX promotion is delayed, companies will not be ready to quickly and flexibly adapt to drastic changes. That is why when digital disruption occurs, it can be said that the impact on Japan will be large as a result.
innovation dilemma
Companies that create disruptive innovation disrupt existing concepts and completely change the way markets operate.
On the other hand, companies that boast a stable market share in their existing businesses are hesitant to abandon their existing businesses and transform into new ones. During that time, companies that make technological changes will grow, and those that cannot keep up will decline.
What you need to overcome digital disruption
Digital disruption has the power to reshape industries. As many companies realize DX, the next digital disruption could occur at any time.
So what does it take to overcome digital disruption?
Develop new markets
In order to overcome digital disruption, it is effective to focus on new customers and develop new markets, rather than relying on the current market and its customers.
Rather than abandoning the current market immediately, one option is to make profits in the existing market and leverage the know-how the company already has to enter another market.
Break away from legacy systems
In order to overcome digital disruption, it is also necessary to break away from legacy systems. Legacy system is a term used to refer to a system that is outdated.
Existing systems that have been adapted to your company’s services should be very easy to use. However, as the system is used, code is added to the system, making it more complex, which not only affects processing speed but also places a burden on operation and maintenance. This technical debt will also have a significant impact on the competitiveness of your business.
There is no point in continuing to use existing systems if your company loses its competitive advantage. That’s why it’s necessary to break away from legacy systems.
Understand the current situation objectively
In order to overcome digital disruption, it is necessary to always have an objective understanding of your company’s current situation based on big data.
Collect data on market trends and competitors’ movements, and evaluate your company objectively.
By assessing your company’s current situation and looking at changes within your industry, you can at least take action before digital disruption occurs.
summary
In this article, we have explained the meaning of digital disruption and examples of its occurrence.
With the promotion of DX, disruptive innovation will occur, and user convenience will increase dramatically. On the other hand, many of the innovations are start-ups with strong digital capabilities. Even if a company currently has a large market share, if it cannot respond to DX, it will eventually become involved in digital disruption. The important thing is to prepare countermeasures in advance so that your company can respond to changes when digital disruption occurs.
Let’s use this column as a reference to take measures against digital disruption.
