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Over the past few years, the concept of digital disruption has received as much or more attention than any other business topic. Given the massive changes we have seen in the media, advertising, retail, taxi services and other sectors, speculation that similar shifts will spread across the wider economy is only natural.
But are these disruptions imminent? Why have some industries been so much more disrupted than others? How, and to what extent, will each of our major industrial sectors really change? Where will Silicon Valley or its many global imitators find the next generation of mega successes?
Disruption past and present
The historical pattern couldn’t be clearer. Each major phase of IT industry progress has been led by a new generation of firms – IBM in mainframes, Digital Equipment Corp in minicomputers, Microsoft and Intel in personal computers, Apple in mobility and Google, Amazon and Facebook in the internet era. As new firms have arisen, many once-great firms have become a shell of themselves or vanished altogether.
The reason Clayton Christensen is the most famous business professor of our time is because he developed the best explanation of why new firms have so often defeated much larger rivals.
When a disruptive innovation emerges, it is usually immature, and thus incumbents easily dismiss it as a “toy” that can be safely ignored – even ridiculed. However, as the technology improves, the new approach is seen as an increasingly serious threat that must be either resisted or co-opted.
In the final stage, the once-mocked technology becomes the obvious industry norm – but by then, it is usually much too late. Personal computers, mobile phones and social media have all followed this toy/threat/obvious pattern.
However, this three-stage dynamic is not just an IT industry phenomenon. PayPal, Netflix, Skype and Uber were also once dismissed as toys, and in recent years, the number of technologies in the toy phase has risen sharply: 3D printers, digital cash, self-driving cars, smartwatches, internet TV, 3D goggles, robots, smart clothing, massively open online courses (MOOCs), drones, expert systems, do-it-yourself medical tests, the quantified self, artificial intelligence and more.
It is this proliferation of possibilities that fuels today’s sense of accelerating disruption potential.
Industry disruption varies widely by sector
The diagram above provides a sense of how industry disruption has varied so far, from dramatic transformations to almost no change at all.
Interestingly, no industry has experienced total disruption. There are still successful newspapers, recording labels, bookstores, travel agents, taxi operators, retail stores and advertising firms. The Financial Times recently sold for an impressive $1.3bn, and printed books are now holding their own against e-book competition. Super Bowl television advertising slots sell out at astronomical prices. Incumbent firms still have many strengths and advantages.
Nevertheless, our attention is inevitably drawn to the bottom half of the figure. Why have these industries changed so much less than others, and – more importantly – will these differences continue?
In our research we examined 10 major industries. Six of these are commercial – automotive, manufacturing, retail, banking, insurance and professional services – and four are quasi-public in nature.
Healthcare, electrical utilities, education and defence are a mix of private companies and public services, and this affects the nature and speed of potential disruption. Overall, the current mixed picture is expected to continue, with much depending on whether one is using a five or 10-year timeframe.
Our top-level disruption perspectives in five major industries are briefly summarised below.
The potential for disruption is strong across the entire banking industry value chain, especially in lending, payments, currency, funds transfer and financial advice. We expect increasingly fierce competition between traditional banking incumbents and emerging financial technology (fintech) players.
In contrast, insurance shows little sign of imminent change. There are very few exciting new digital insurance firms, and there is still a great deal of inertia in the system. The fact that many forms of insurance are purchased annually, and used even less frequently, seems to be a major gating factor. No one talks much about “insuretech”.
Like fintech, medical technology (medtech) is evolving rapidly, and sophisticated at-home, retail and self-administered healthcare services will significantly disaggregate much of today’s medical industry. But the big question is how well public healthcare services will adapt to these important new capabilities. Every country will need to find its own way.
Uber and various on-demand services are fundamentally disrupting the taxi business. However, their impact on the major carmakers will be modest. Electric and self-driving cars will have much greater disruptive potential, but not until the 2020s. While Silicon Valley currently has the “cartech” edge, partnerships with Detroit, Germany, Japan, Korea and eventually China will prove essential.
Smart products, robots, 3D printing and new materials have yet to alter the current advantages of high-volume, offshore manufacturing. Additionally, the internet of things (IoT) has so far proven to be more sustaining than disruptive. While we expect some significant changes, the overall level of manufacturing industry disruption for the next five years will be modest.
Detailed profiles of these five industries, as well as retail, professional services, energy, education and defence, are provided in our full research report.
As noted earlier, discussions about industry disruption need to be clear about the timeframe under consideration. While the scenarios described above can be seen as relatively modest, it is because they are focused on the changes we expect over the next five years.
But of course, from a 10 to 20-year perspective, entirely new possibilities come into play.
Biotech, nanotech, robotics, machine intelligence, printed electronics, virtual reality and synthetic food are just a few of the potentially hugely disruptive technologies that lie ahead.
Indeed, when historians look back at today’s disruptive innovation situation, they may view it as a relative lull between the huge successes of the initial internet boom (1995-2015) and the pervasive technological transformations of the 2020-2050 period.