Q&A: The New Business Paradigm Fostered by 6 Ds of Tech Disruption

Every day, business leaders struggle to navigate in the current exponential waves of change brought on by new technologies in every industry. We are living in VUCA times, the age of the volatility, uncertainty, complexity and ambiguity, where it is difficult to decide and steer a course towards the future. Past experience has become a heavy burden for many myopic companies that do not see further of their quarterly financial statements with low incremental results, obsessed with capturing market share to their incumbents, in a zero sum. Companies are unable to envision the future outside of their boundaries, or in the worse of cases they are scary about the complexity of the future. 

That is an incremental losing game and a call for entrepreneurs’ new disruptive players who change the game, transform problems and challenges into huge opportunities. 

What is tech disruption? Why is it happening?

Tech disruption occurs when a new business model, product, service or process supported by digital innovation breaks into the status quo of traditional industry—a process that is bound to happen sooner or later as business models, products, services, and processes become digitized. Traditional industry is often more concerned with competitors and market share, growing incrementally rather than embracing outside disruptions that bring exponential impact.

Consider what happened to Kodak, who invented the digital camera, but still chose to remain focused on film, believing the quality of a digital photograph would never surpass its predecessor. What they failed to consider was that there was an infinitely larger market of customers who valued immediate image accessibility over quality. Then digital photography reached professional quality with a price that made it accessible to everyday customers. Digital cameras were even integrated into our mobile phones. Everyone stopped buying film cameras, leading to the bankruptcy of the Kodak giant.

We could think that these crises only happen in certain industries that do not evolve, and that is not the situation of our company. The fact is that those industries that have disappeared, evolved, but they did so incrementally. On the other hand, the disruptions are exponential, they occur at a breakneck speed impossible to follow with a traditional business approach. Tech disruptions can impact in any kind of industry: today, only 12% of the companies that were listed in the Fortune 500 remain from 1955. In the last two decades, 14 new companies have been incorporated each year. With this tendency, about 40% of those companies currently listed in the 500 Fortune will disappear in 10 Years. Other evidence: 6 of the 7 largest capitalization companies are digital-driven, and they did not exist before 1975. As a token of their exponentiality, their market capitalization grows between 20% and 70% annually: Apple, Alphabet (Google), Microsoft, Facebook, Amazon and Alibaba.

What are the six Ds of tech disruption, and why are they important?

At the moment, a large part of emerging technologies and sciences are supported by digitalization, and many of these are disruptive—something that is not likely to change, but rather spread. Computational power is doubling every eighteen months without cost increase, while electronic integration tends to be commoditized. This causes disruptions to cross industries and break down barriers. The paradigm of our new digital society and economy is characterized by the 6 Ds described by Salim Ismail.

Digitized.Anything that can be digitized will have exponential growth, offering twice the performance and capacity every eighteen months.

Deceptive.The early stages of digitization are deceptive because, like all exponential changes, the quality and market price curve start out flat. This hinders perception of disruptive power and exponential growth.

Disruptive. When new technologies outperform traditional ones in function and customer value, they reach new markets that are both larger and beyond the reach of the incumbents, inevitably taking clients with them. 

Demonetized. The price of technology reduces at exponential speed, often to the point of becoming free. This means there comes a time when money is no longer part of the equation. Scalability reaches practically zero cost. A good example is the music market: an almost infinite number of songs can now be downloaded per month for less than what a CD cost even ten years ago.

Dematerialized. Physical products and services are being replaced with intangible alternatives. Smartphones incorporate more and more technology for the same price. We no longer need music or video players, GPS devices or maps, libraries... Soon, smartphones will be able to take our temperature and blood pressure, and someday perhaps even diagnose diseases.

Democratized. Once something is digitized, more people have access to it. This includes people with less purchasing power in remote places.

Why are the 6 Ds important? How can I use them to lead?

They are important because they represent the new context where executives must lead and companies compete. If they do not know against whom they compete, their efforts to maintain themselves will be useless. It's not a coincidence that the top five largest digital companies in the world are digital -which are also the five largest in market value- disrupt industries, break barriers among industries, and keep two-digit market value growth: Apple, Alphabet (Google), Microsoft, Facebook, Amazon and Alibaba. The 6 Ds describe the environment where new startups are created, developed and disrupt others. We can think of these Ds as the coordinates on a new map or a guide to go to the future. We have to know them before choosing our path. They are the opportunities that will help us reach our goal, but also the challenges that we must overcome along the way.

What do I need to know about using these 6 Ds in Japan?

As in other countries, we must consider the characteristics of culture and society, such as politics and regulations. This is especially true in a market such as Japan, where disruptions are slower to start due to the protection of the big Japanese corporate holdings (keiretsus) and domestic regulations. However, when the disruption phase arrives, it is more virulent. What may seem like a problem becomes an opportunity.

Health care, for example, is already democratized in Japan, but the cost is high. Because of the aging society, the health care industry has a big opportunity to use the 6Ds as a competitive advantage.

The key is adapting to the rhythm and expectations of growth. In the case of Japan, the change that will undoubtedly accelerate disruption is the 2020 Tokyo Olympic Games. Countries often use the Olympics to leverage change—think of the changes in Spain, China, etc.—and the Japanese government plans 2020 to be no exception.

Are these 6 Ds likely to be constant, or will they change in the future?

The 6 Ds are related to the new paradigm of digitalization and the Fourth Industrial Revolution, so it's safe to say they’re not going anywhere. We will eventually stop talking about digitization, in the same way we no longer talk about the novelty of electricity, and will probably turn our attention to the “smartization” of business models, products, services, and processes as they become autonomous through AI. Recognizing the 6 Ds can help business leaders navigate exponential growth in this uncharted new era of digitization.

Is it just about technology?

Ultimately, disruptions do not occur because of the impact of technology. Technology is the enabler. Disruptions occur because of a lack of leadership that makes the incumbents more concerned about maintaining their status with respect to their competitors. Like Kodak who rejected their own innovation because they though the entirely photo-chemistry industry was too strong to be killed by the poor quality of digital image. Their traditional industry, their market, their corporate culture, became a strong box that like a cage imprisoned them. They developed a tunnel vision that focuses on being better than their current competitors. That tunnel vision blinds incumbents from seeing the big changes around from outside of their industry.

Current leaders and organizations need to evolve to think different, rather than to pursuit to be the best, companies should become different. Because new digital leaders have big ideas, target radical solutions, are dare to do it and they made it, doesn’t matter how many times they fail on the path to success. Failure is part of the learning process as a competitive value creation.

Nowadays, the digital industry has ceased to be an industry by definition to become the economy of the future in which enabling technologies and sciences converge creating digital disruptions. We need to get businesses to think in an entirely clear, new way, without a closed framework and beyond current processes, so that organizations may be able to constantly identify new ways to apply and combine technologies to create new customer value. It is not about just thinking outside the box. Is that the box will not longer exist due to continuous disruptions.

Sources:

Diamandis, P. & Kotler, S. (2015). Goodbye Linear Thinking. Hello Exponential!Rotman Management Magazine. PDH Ventures. Simon & Schuster, Inc. Harvard Business School.

Ismail, S. (2014). Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it).New York: Diversion Books.

McGahan, A.M. (2018). Moonshots: Achieving Breakthrough Innovation in Established Organizations. Rotman Management Magazine. PDH Ventures. Simon & Schuster, Inc. Harvard Business School.

Perry, M. (2017). Fortune 500 firms 1955 v. 2017: Only 60 remain, thanks to the creative destruction that fuels economic prosperity. American Enterprise Institute. Available at: https://www.aei.org/publication/fortune-500-firms-1955-v-2017-only-12-remain-thanks-to-the-creative-destruction-that-fuels-economic-prosperity/

Thiel, P. & Blake, M. (2014). Zero to One: Notes on Startups, or How to Build the Future. New York: Crown Business.

? 2018 Jorge Calvo

An abridged version of this article was published at GLOBIS BUSINESS SCHOOL INSIGHTS