Digital "intermediaries" are changing the unwritten rules for doing business across a range of industries, meaning they often fly under the radar of existing players until it's too late.
A new report by the Australian Digital Transformation Lab – a joint venture between the University of Sydney Business School and Capgemini Australia – attempts to shed light on how incumbents respond to the realisation that they are being disrupted.
Associate Professor Kai Riemer from the Business School told Information Age that early signs of disruption could be hard for incumbents to spot.
"Many of the digital disruptors that we've looked at don't actually own any physical assets. They don't deliver the actual [end] service [to customers]," Riemer said.
Rather, the disruptors acted as a type of digital intermediary, "matching transport to customers" in the case of ride-sharing service Uber or "tenants to spare rooms" as with Airbnb.
"The established industry might dismiss this as just being a website that channels people or matches them, but once you realise this is actually about owning the customer relationship and appropriating money or fees from this exercise then it becomes quite a significant disruption," Riemer said.
Once things reached that point, incumbents may find it difficult to recover – and some won't.
"Recent history is replete with examples of bigger business being outsmarted and outmanoeuvred by upstarts that simply did a better job of predicting how consumer behaviour was changing and using new technologies to respond to a market need," Westpac's retail and business banking group executive Jason Yetton told a Trans Tasman Business Circle event.
Although existing players in an industry are able to innovate, they often do so within the boundaries of how they understand the mechanics of that industry.
"Usually industries have a certain understanding of themselves - the products, what customers value, how business is being done and how they can move forward," Riemer said.
"[An] incumbent will innovate or evolve what they're doing on the background of what they understand the industry to be.
"What is so disruptive about digital intermediaries is that they change the rules by which the industry operates and therefore the understanding of what counts as products and services.
"They change the very assumptions on which the industry is built - which is why disruption is often hard to see for the incumbents because it challenges tacit assumptions that are usually not questioned."
Riemer raised Airbnb as an example – a company he believes "challenges the very notion of what counts as hospitality" – and what the accommodation industry sees as its product.
"That's a radical change to what that industry took as normal and as their product and service," he said.
Such disruption is "out of scope" – and forces traditional players that may not have seen a rising competitor to react.
"You actually have to learn to play a new game because the disruptors change the rules," Riemer said. "That's the best I can do to describe what is happening there."
If you can't beat them...
Possible reactions by an incumbent to the emergence of a disruptor in their industry may include seeking to invest in it – or even to buy it out.
Riemer is unconvinced that the acquisitive path will produce the right sort of outcomes for either party.
"In my view it's problematic insofar as they still have to acquire the capability of understanding the disruption and treating the disruption as a new way of doing business," he said.
If the incumbent was unable to take on board that knowledge, it ran the risk stifling and depriving its acquisition of the oxygen to innovate that made it attractive in the first place, he added.
Although a number of factors that impact a company's capacity to innovate – such as R&D incentives, education standards and infrastructure accessibility – Westpac's Jason Yetton confirms that it ultimately comes down to company culture.
"We shouldn't forget that a big part of it also comes down mindset," he said.
"Knowing what the vision is, believing in it and being encouraged to act upon it – a 'can do' culture."