Digital Disruption Likely To Come From Outside Your Industry

Once upon a time, you could trust that your business was insulated from disruptive innovation because only people already in your industry had the skills and the tools to try to change your industry. Thus, McDonald's competed with Burger King, Crest competed with Colgate, and Dell competed with HP. When innovation did arise, it came from companies that had similar economics and were evaluated by Wall Street using the same criteria. That meant that competition, although fierce, stayed within fairly defined boundaries and real surprises were few.

Digital disruption will change that -- or already has, depending on your industry. Under digital disruption, any company of any size can make a play for your business. That's how the Zeo sleep monitor, a $100 device that can monitor your sleep nearly as effectively as a $3,000 sleep lab visit can, potentially disrupts research hospitals, the makers of sleep meds like Ambien and Lunesta, and eventually the insurance companies that have an interested in promoting your health. That's how Amazon is now a major competitor for TV show pilots, using its vastly different economics to justify buying shows that would normally have a narrow set of bidders among broadcast and cable networks. That's how startup software companies are building apps to insert themselves into consumers' lives in ways that bigger companies should have done first by offering menstrual cycle tracking, DIY home improvement cost estimating, and weight loss monitoring.

It's no wonder that when my colleague Corinne Munchbach and I worked on the new Forrester report Assess Your Digital Disruption Readiness Now (see her blog post about the new report here), we found that most of the executives we surveyed about their readiness for digital disruption were aware that companies outside of their industry had a better chance to exploit digital tools to disrupt their industry than companies actually in the industry.

As you can see in the figure, this is not because they don't believe there is an opportunity -- 87% of them see the opportunity for their company to do the right digital thing, but a majority of them also see how easy digital disruption is for outsiders. They're right to see it this way. Digital disruption depends on the collapse of barriers to entry that used to keep companies from entering adjacent industries. It was too costly to get into someone else's business -- there were sourcing issues, distribution relationships, not to mention the problem of achieving scale in order to benefit from economies that such scale brings. Thanks to digital tools and platforms, all of these things are now simple to achieve. 

Which makes the question of how ready you are to disrupt yourself even more important than before. That was the purpose of the report Corinne released -- it contains a detailed analysis of data showing how ready companies are. Similar analysis is available in chapter eight of my book, Digital Disruption, but for Forrester clients who need to get right to the assessment process, start with this report. For anyone, client or not, you can begin the assessment process with a five-question tool available at forrester.com/disruption. This self-assessment will assign you to one of four categories that will give you a sense of whether you are behind or ahead of the pack. 

You'll need this assessment so you can begin persuading your colleagues that the time to digitally disrupt yourselves is now. Good luck.

James McQuivey, Ph.D., is a vice president and principal analyst at Forrester and the author of the new book Digital Disruption: Unleashing the Next Wave of Innovation.