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Disruptions and Disruptors Are

Reshaping the Digital Landscape
Published 17 August 2016 - ID G00308591 - 15 min read

ARCHIVED This research is provided for historical perspective; portions may not reflect current
conditions.

By Analysts Daryl Plummer, David Smith, David Yockelson

Supporting Key Initiative is Succeeding With Semiconductor-Based Technology

Many companies are undergoing a transformation to digital capabilities that

can lead to a fundamental shift in business realities. Business unit leaders in
end-user organizations must learn to benefit from a leap in value by creating or
leveraging digital disruption.

More on This Topic

This is part of an in-depth collection of research. See the collection:
■ Digital Disruption and the New Disruptors: Recognize, Prioritize and Respond — A Gartner Trend
Insight Report

Overview
Key Findings
■ Disruption causes a fundamental shift in behaviors and expectations, no matter what is being
disrupted.
■ Disruptors do not always lead in capturing market share after a disruption has taken hold.

■ Disruptions and fads are not the same. Fads normally do not lead to long-term leadership, while
disruptions open the door to multiple opportunities.

■ Disruption is an effect that must be nurtured and tracked through specific elements of
disruption.

■ Disruption in one area does not imply disruption in all areas.

Recommendations
Business unit leaders in end-user organizations should:

■ Scan relevant markets for changing patterns in customer or partner behavior that might
indicate a coming disruption, and use this information to make proper planning decisions.

■ Use scale, reach and richness of a digital disruption to prioritize actions related to shifts caused
by the disruption.

■ Create threshold measures for disruption (for example, in customer behavior and new
processes) to help avoid treating fads as disruptions, lest they lead to dead-end offerings and
projects.

■ Decide early on how you will respond to a disruption — join it or fight it. Either way, you require a
strategy.

Analysis
The single largest change facing enterprises and technology providers alike in 2016 is digital
disruption. The idea of disruption can be encouraging if you stand to gain from a crumbling of the
normal order in the landscape on which you operate, or frightening if you would continue to benefit
from the status quo. Business unit leaders in end-user organizations are coming around to the
notion that disruption will become the norm as the flip from the predigital universe to the digital
universe occupies our strategic thinking for years to come (see "Vendors Must Become Bimodal
to Survive the Flip to Digital Business" (https://www.gartner.com/document/code/276132?
ref=grbody&refval=3415317) ).

Disruption Versus Disruptor

When considering how digital transformation is changing the world, it is useful to point out
differences associated with both disruptions that are happening and the disruptors causing them.
While the notion of being a disruptor hinges on the notion of how we define disruption implicitly, it
does not guarantee that a digital disruptor will be successful living with the disruption it causes.
That is because disruption can have consequences — many of which a disruptor may not be in the
best position to take advantage. First to market does not guarantee first to money, a lesson taught
by the disruptive manufacturers in China. In addition, digital transformation itself can be quite
disruptive, but not lead to the status of disruptor. The fact that disruption is happening in your
organization does not imply it will be a shift embraced in a wider context.

So, What Is Digital Disruption?

A simplistic statement would be that it is an effect of change. But more than that, it is an effect of
change caused by use of digital capabilities, channels or assets. This effect is important to the
notion that digital disruption is not confined to just a technology or a simple change. It is more. Let
us define digital disruption as:

An effect that changes the fundamental expectations and behaviors in a

culture, market, industry or process that is caused by, or expressed
through, digital capabilities, channels or assets.

It is important to note that digital disruption is largely nonlinear, meaning it is not an incremental
progression of capability. Disruption acts like a stepfunction on a graph, where change is seen as
a leap from the norm. That change will affect the structure of an entire ecosystem and is
frequently associated with introduction of digital technologies or capabilities.

When companies such as Pixar Animation Studios, DreamWorks SKG, and Industrial Light & Magic
began, they disrupted the process of creation, production and delivery of both animated and live
action feature films. The digital disruption they wrought was partly in shifting the capabilities
available in the market to produce digital rendering at speed and scale efficient enough to
displace more manual and analog means of animation. They also altered the working styles,
behaviors and talents of the artists on whom the industry depended. No longer were artistic skills
independent of some degree of technological acumen. In addition, while many still rendered to
film, it began the trend toward altering the content distribution channels to use digital delivery
rather than shipment of physical celluloid film around the world.

It is said there was a fundamental shift in the way in which animation was envisioned and
completed. That word, fundamental, is key to the definition of digital disruption. The shift is the
result and outcome, which is evidence for then looking deeper into the changed expectations and
behavior.

A fundamental shift is what differentiates a disruption from a fad. Fundamental shifts alter the
very core of value generation in a system, while a fad is a temporary and peripheral shift in
behavior. Digital rendering, digital books, digital video and digital music all typify fundamental
shifts in the way entertainment content is encapsulated. Because of a digital form of
encapsulation, the value of said content has shifted in scale (more content, produced faster), in
reach (available anytime, anywhere) and in richness (deeper context and extended depth of
consumer interaction).

Figure 1 outlines the advantages of disruption in digital content.

 Figure 1. Advantages of Disruption in Digital Content

Source: Gartner (August 2016)

In a B2B context, digital disruption happens with relationships such as solving the last-mile
problem in product delivery as Webvan tried to do. Even digital commerce efforts represent B2B
disruption as retailers use targeted marketing to create stickiness with customer purchases.

But disruption in one area (content creation, encapsulation or delivery, for example) does not imply
disruption in all areas. We still read books. We still listen to music. And, we still laugh at animation.
Disruption is an effect that can spread wide or might remain in a narrow context of a given
system. The disruption to bank branches brought about by ATMs and then by online banking has
been confined to how customers interact with their accounts, but has not changed the basic
relationship of customers to a bank. This level of disruption is not a fad since it is not a temporary
disruption. It is more akin to features added to a business or capability that bring about
incremental change. A true disruption not only will be long-lasting, but also will have more than an
incremental effect. For example, the disruption brought about by introduction of the web has
decimated print media and paper catalogs, and even restructured the way in which consumers
shop for goods and services. It seems that digital disruption is set to raise the bar on the depth of
disruption and its wide-ranging effects.

And What of Disruptors?

Returning to simplistic statements, we can say that a digital disruptor is any entity that champions
or delivers digital disruption. More formally:

Any entity that effects the shift of fundamental expectations and

behaviors in a culture, market, industry, technology or process that is
caused by, or expressed through, digital capabilities, channels or assets.

Note that this makes no judgment about whether or not the disruptor must be successful in
achieving any goals associated with the disruption. In fact, history is replete with examples of
innovators and disruptors that failed to maintain a leadership position in the resultant "new order."
The Sony Betamax, AOL, Alta Vista, Pets.com, Webvan and many others laid a path for disruption
in their space, but were all overtaken eventually by more capable offerings. This is a common
occurrence with disruption. The cause is often a mismatch between vision and ability to execute.
Simply having a disruptive idea and the ability to bring it to market does not ensure an entity can
grow that disruption in a way that allows it to maintain a leadership position. On the other hand, in
many markets, for a disruptive idea to take hold, there will be many underlying catalysts or assets
that will enable faster propulsion. When these assets are in the possession of an incumbent that
faces a threat, it can respond by either embracing the disruption, or defending with other actions.

In the digital world, Uber was preceded by services such as Hailo. Facebook was preceded by
many social networking websites such as Myspace. While many see Uber or Facebook as
disruptors, few would categorize Hailo or Myspace that way. Airbnb is challenging hotels (and
their buildings). Back in the 1990s, the rise of the outsourced manufacturing model in
semiconductors led to the foundry industry (for example, TSMC or Globalfoundaries). In energy
production, there has been a phenomenal drop in solar cell pricing driving a lot of energy
generation that impacts the gas turbine owners, as gas units tend to be turned on during peak
consumption periods. However, that is precisely when solar is the most cost-effective.

Why is this? The answer lies in the ability of a company to use its digital capabilities, channels and
assets to cement the disruption as a core value proposition of its system (or business model).
Facebook used contextual and behavioral information about its subscribers to offer more rich
capabilities to those subscribers and their communities. This is how we get content tailored to our
moods or to current events without even asking. This is how we get organization of photos and
files without having to do those tasks ourselves. Facebook went well beyond the creation of social
communities and into a depth of richness of community and individual interactions that Myspace
found difficult to match. Similarly, Uber has established a wide geographical presence suitable to
cementing its position as one of the leading transport queuing competitors. The company
services cities globally, while Hailo's presence is small by comparison. And, Uber has created a
runaway platform that attracts drivers and passengers, leveraging the capital asset of the driver's
car and cementing it as a means for individuals to join the digital revolution and make money.

So, in the end, the key success criterion of digital disruptors is not their ability to simply introduce
a disruption. Instead, it lies in the disruptors' ability to benefit from the disruption. That benefit can
be in many forms, including revenue and profit, but also other strategic goals (for example,
competition). But, they must also be careful that disruption does not beget disruption. Uber, for
instance, could be threatened by the introduction of self-driving vehicles, which would render its
community of drivers less valuable.

A digital disruptor may exist in many forms, from individual, to organization, to company. Note that
we are focusing on entities at this point, rather than technologies or the initial disruptions
themselves. Technologies are simply the mechanisms that allow a digital disruptor to create a
disruption. The introduction of an iPod was not nearly as much a disruption as was the presence
of the white earbud headphones that drove the iPod to become a worldwide icon. Without the
design and marketing of the earbuds, the iPod might have gone the way of the Zune and a host of
other MP3 players that have disrupted very little. Add to that the fact that when Apple put iTunes
on Windows, it established a countercultural and truly disruptive move that devastated the
competition — which didn't have a music store. This means that a true digital disruptor has to put
all the pieces together to cause a disruption to stick. And herein lies the secret sauce of the digital
disruptors — They realize that digital disruption is an effect that must be nurtured, not just
introduced. The iPod was followed by the iPhone, the iPad, the Apple Watch and a whole
ecosystem of digital capabilities to create an "i-life." While not the first "lifestyle" phenomenon,
Apple's i-Life has had a success level far greater than any of its competitors. Apple makes the list
of true digital disruptors.
Elements of Digital Disruption
How does one determine the effect(s) of disruption? There are overarching indicators that should
be easily identifiable when considering if a technology or approach is a disruption. At the highest
level, we are evaluating whether or not a fundamental shift has occurred among the basic
elements we've identified.

At a high level and as empirically as possible — and knowing that some metrics are less tangible
— we evaluate impacts on the following:

■ Business supply and demand related to a potential disruption

■ Technology implemented or provided, and IP created

■ Platform of new ways for buyers, suppliers and others to interact

■ Industry of vertical markets and/or business processes

■ Addressable market of customers or users and the geographic span they comprise

■ Societal effect on behavior and culture

■ Government regulations, incentives (for example, for solar) and control of a key monopoly

In considering these, we are also drawing firm distinctions among features, fads and long-lived
disruptions. One might consider a company such as WeWork, which isn't the first to provide office
space for small/transient businesses or workers, to be disruptive in the way commercial real
estate is acquired, designed and leased for optimal use. But does WeWork create a fundamental
shift in the way its market operates? We might also examine 3D TV as a short-lived fad given the
lack of response among consumers and lack of fundamental design, supply or demand changes
in TV manufacturing.

Timing
The timing of a disruption is often not obvious until it is well underway. We might be seeing one
now, as consumer interest shifts away from devices, to the interactions and content that happen
in the cloud. Our forecasts are trending down; Microsoft and Google are emphasizing cloud
services over device innovation; Amazon's Echo is a simple device that renders many tasks hands-
free through cloud services.
Market Analysis
We can then examine its impact on the markets it disrupts, in both the side of the
buyer/implementer and of the side of the creator (or, in some cases, the seller or provider of the
disruption). On the buyer/implementer side, we'll use a market impact construct (see "Taking
Advantage of the Three Phases of a Market Disruption"
(https://www.gartner.com/document/code/255827?ref=grbody&refval=3415317) and Figure 2)
that illustrates whether a disruption is additive, competitive or destructive with respect to other or
existing entrants in a market.

Figure 2. Market Impact

Source: Gartner (August 2016)

On the provider side, we look at intent — the original intent of the company. It could have many
different original intentions, but there are three main ones:

■ Reinvent an approach to solve a known or new problem. A great example of this is Apple's
introduction of the iPhone, which redefined the mobile phone (and other) experiences and
markets. It was done with the express intent to produce something better and to make money
as a result. Another example is the many digital dating services.
■ Protect an existing position in an industry. This may be in a different industry. A good example
of this is Google. Many of its disruptions are with this in mind. Android was not an attempt to
make something better and to make money, but was designed to disrupt the iPhone (and the
effect an Apple-dominated smartphone market would have on Google's advertising and other
businesses). Similar goals were driving Google's entry into web browsers (Chrome) and the
Chromebook. These were designed to thwart Microsoft's direct entry into search and
advertising, not to generate profits for Google. Another example is Kodak's development of
fundamental digital camera patents. Although Kodak failed as a digital camera manufacturer, it
reaped substantial royalties from its patents.

■ No specific goal. Serendipity. The best example of this is craigslist.org. Craig Newmark neither
set out to, nor did he profit from the resultant disruption in newspaper advertising (however, he
did profit from the later introduction of job ads). Bitcoin is a brilliant idea that is disrupting small
but important pieces of the financial system. eBay was started as a hobby feeless auction site,
but rapidly moved to a fee-based auction system.

In the first intention, the profits often flow to the disruptor. In intentions 2 and 3, revenue growth
may not be the goal, and the disruptor is happy with the market transformation. A profitless
disruptor is a powerful and dangerous force.

Actions to Take
Disruption can be unexpected, but is most often preceded by indicators. Once one begins to see
indicators of disruption, then actions can be taken to benefit from the disruption, to block it or to
respond to it to reduce negative impacts. Key skills in digital disruption are recognition skills,
prioritization of disruptive elements and strategic decision making about how to respond. Without
development of these skills, disruptions will likely come as a surprise.

Indicators of disruption include (among many others):

■ Changes in customer buying patterns

■ Rapid adoption of a new technology or capability applied in an unusual or abnormal way

■ Introduction of new processes or models of operation in an industry

■ Significant bypassing of certain technology features formerly used frequently

While there are many indicators of disruption, the strategies to respond are rather limited. One can
join the disruption, fight it or hope that it will have a minimal impact. Hope is a terrible strategy
when a company is at risk. Many companies and even industries will be decimated by digital
disruption. For example, introduction of self-driving cars will lead to a reduction in the number of
people buying cars and, thus, a massive reduction in the number of people requiring auto
insurance. Insurance companies will need to establish how shrinking numbers of customers will
be offset to survive.

Conclusion
In the end, digital disruption must be recognized, nurtured and responded to in order to benefit
from it. Some end-user organizations will find that disruption eliminates their ability to survive in
the aftermath of the disruption. To benefit, business leaders must determine how they will
respond, such as creating or leveraging digital disruption, which will ultimately help carry them into
the new world.

Recommended by the Authors

Vendors Must Become Bimodal to Survive the Flip to Digital Business
(https://www.gartner.com/document/3051118?ref=ddrec&refval=3415317)

Recommended For You

Toolkit: Digital Government Urgency, Readiness and Maturity Assessment
(https://www.gartner.com/document/3886520?ref=ddrec&refval=3415317)

By Daryl Plummer,
David Smith, David
Yockelson
RECOMMENDED BY
THE AUTHORS

Vendors Must Become

Bimodal to Survive the
Flip to Digital Business

RECOMMENDED FOR
YOU

Toolkit: Digital
Government Urgency,
Readiness and
Maturity Assessment

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