Why Digital Technology is disrupting your company — and how to deal with it
If you are a business leader you are probably spending a lot of time wondering how to make your business grow. At the moment digital technology seems to be the answer that everyone is looking to. There are books and conferences on every corner attracting white collars looking for answers on how they can use digital technology to make the business more efficient and their products more attractive.
I believe most of them are looking the right way, but through the wrong lense.
We all know the stories of Nokia and Sony, and how they failed to see the right technological opportunities. And we all laughed at their mistakes. Now — is the joke on us?
In this article I argue that digital technology has great disruptive potential because of its inherent features. But only if the technology is used on the right opportunities.
Folkeinvest just relaunched their technological platform Folkeinvest.no after battling with Finanstilsynet in Norway on law regulations. Folkeinvest.no is a technological platform that makes it possible for non-traditional and small investors to buy equity shares in early-phase start-ups. Finanstilsynet wanted the company shut down based on the fact that they didn’t have a license to handle share issues. The dilemma was whether it was the company itself that handled the share issues or only made the share issues possible through their technological platform, using digital technology as a basis for their business model.
The platform technology that Folkeinvest.no is using has two interesting features which is worth noticing.
- They are attracting consumers on both ends that traditionally have been viewed as unattractive (low-end consumers(1) and non-consumers(2)). On one hand it attracts start-ups at an early phase. Most start-ups at this phase have a hard time attracting the funding they need to develop their business. It is hard, or even impossible to predict the outcome of start-ups at this stage, and most of them fail. Institutional investors traditionally invest in ventures that have developed further, have unique technology that have proven to be attractive and may promise a high return of investment within a short amount of time (3). On the other hand, Folkeinvest.no attracts investors that are not traditionally considered investors, by making investing easy, cheap and available to all. The smallest amount to invest is 500 NOK and you can easily invest and navigate through an app.
- Folkeinvest.no is a self-serving platform. The start-ups are controlled digitally, and the investors make their choices based on the available information provided by the platform, through engaging in open and transparent discussions with other users in chatrooms, and in the near future; by using AI as a decision helping tool. The equity is handled digitally too. This allows the organization to remain a small administration and at the same time remaining adaptive and flexible (4).
Clayton Christensen (5) makes the argument that for traditional companies “sustaining innovations are so important and attractive that the very best sustaining companies systematically ignore disruptive threats and opportunities until the game is over”. If Christensen is right in his claim, what may happen in this case is that the traditional institutional investors will ignore Folkeinvest.no because they will not view them as a threat (and even make fun of them). And most importantly, they will not invest in the necessary technology because they will not view the marked of these types of consumers (small investors and early phase start-ups) as valuable enough. And ultimately may be disrupted byFolkeinvest.no, or its kin. Because it is cheaper, more available, and easier.
Digital technology is disruptive in its nature.Most companies though will probably use digital technology as an incremental tool, making their products a little bit better or their work processes more efficient. But if companies are looking to create growth they need to look, not only at their existing products and their existing processes. They need to innovate.
This is what Clayton Christensen describes as the innovator’s dilemma (1997). By investing in sustaining innovations, the risk profile is low because the customers are already there, — and by investing in efficiency they save money. This is of course more attractive than investing money in high risk disruptive innovations which aims for a non-existing marked, and has a large transformative, and highly uncertain, impact on the organization itself. Also when it comes to power relationships in the organizations.
What companies don’t realize is what they may be risking by only implementing digital technology on existing products and processes. The more they invest in what they already have, the harder it will be to change. It is the opposite of growth. The companies will eventually start losing margins to products or companies that have used the technology to make products that are easier, better and more available, or to change their business models into low cost models. When they realize this though, the cost may be too high, or they may have already been disrupted (6).
Digital technology has a disruptive nature (7), but it is the company’s ability to use the technology to make disruptive innovations either in products, services or in their business models, that eventually will create a healthy growth for the companies.
So, what should business leaders do?
Business leaders should spread their investments on different types of innovations, using their margins from sustainable incremental innovations to invest in developing new disruptive opportunities (8).
Christensen (2003) advices business leaders to look at two types of disruptive strategies that business leaders may use to develop disruptive products.
- They can either target non-consumption customers. To succeed, the product needs to be more affordable, simpler and more convenient.
- Or they can aim for the least attractive of the established firms’ customers by building low-cost business models that makes the product more available for a greater mass of the consumers.
Digital technology has the fascinating ability to help us with both, in a way that we have never experienced before. In its inherent features it has the ability to make products more affordable, simpler and more convenient for the consumer on one hand. On the other hand, it makes it possible for companies to build low-cost business models like platforms or eco-networks.
Digital technology actually has the potential to make a better world. It’s not a joke.