Digitization is rewriting the rules of competition

December 27, 2015 Torben Rick


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Digitization is rewriting the rules of competition, with incumbent companies most at risk of being left behind

Digitization often lowers entry barriers, causing long-established boundaries between sectors to tumble. At the same time, the “plug and play” nature of digital assets causes value chains to dis-aggregate, creating openings for focused, fast-moving competitors. New market entrants often scale up rapidly at lower cost than legacy players can, and returns may grow rapidly as more customers join the network.

Digitization is the single biggest trend affecting every company. It challenges every company to think about the drivers of value creation and capture as well as modes of differentiation beyond familiar dimensions of cost and quality. Digital capabilities increasingly will determine which companies create or lose value.

In technology, small fish – almost always – eat big fish

 

Digitization is rewriting the rules of competition

A swarm of new tech businesses eating away businesses

Digital technologies create near-perfect transparency, making it easy to compare prices, service levels, and product performance. Consumers can switch among digital retailers, brands, and services with just a few clicks or finger swipes. This dynamic can commoditize products and services as consumers demand comparable features and simple interactions.

Digital dynamics often undermine barriers to entry and long-standing sources of product differentiation. Web-based service providers in telecommunications or banking, can now tap markets without having to build distribution networks of offices and local agents.

Digitization isn’t a one-stop journey. A case in point is music, where the model has shifted from selling CDs and then MP3s to subscription models, like Spotify or Tidal. Today, software and mobile technology allow consumers to have access, just when they need it, to the things they used to have to buy and hold.

The big question

The big question is whether traditional companies can move fast enough to get ahead of the wave of change – or at the very least ride it.

 

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Torben Rick
Digitization is rewriting the rules of competition

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