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The Disruptive Effects of Digital Business Models

Companies have a choice: they can digitally disrupt themselves or they can wait for a competitor to do it for them.

 

Digital transformation is required

Cisco’s executive chairman John Chambers predicts that:

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40% of global companies will be crushed under the pressure to undergo digital transformation,

while 30% will make the transformation successfully.

Organizations today need to figure out how to add or change to a digital business model without damaging their existing business or customer base so much that they don’t survive the transition.

 


 

Netflix’s rocky transition


section2In 2011, when Netflix infamously tried to get customers to switch from DVDs to streaming video by suddenly
hiking prices 60% for plans that combined the two, the company lost 800,000 customers and its market capitalization plummeted 75%.

 

Sources: “Netflix Market Value Shrivels” (The New York Times, October 25, 2011)
and “
3M and Netflix Disappoint” (CNNMoney.com, October 25, 2011)

 


 

Right strategy, wrong timing

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Netflix was right to prioritize the digital offering – the company is now worth three times what it was in 2011. Its error was in trying to make the shift too abruptly.

 


 

Know when and how to introduce the digital business model

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When the digital strategy is clearly seen as superior to the existing business model, it makes sense to pursue further disruption immediately. However, if there’s any question about how it might be received, companies need to introduce the digital offering gradually to keep pace with its maturation and its perception in the market.

 


 

download arrowTo learn more about how to disrupt your business without destroying it, read the in-depth report Digital Disruption: When to Cook the Golden Goose.

 

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