Digital Disruption is reshaping the business world, challenging established business models and making many time-tested formulas for success obsolete. If old business models are obsolete, then where are the new, emergent business models coming from? This paper looks to the start-up community to see what large enterprises can learn from the successful, repeatable digital business models these companies have created. Based on extensive research we explore and define these models and how incumbent businesses can apply them to gain a market advantage.
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Authors
Ben Gilchriest, Martim Teixeira (Capgemini North America Digital Innovation)
Kai Riemer, Uri Gal, Jakob Hamann (The University of Sydney Business School)
Contact
Ben Gilchriest,
ben.gilchriest@capgemini.com
A/Prof Kai Riemer,
kai.riemer@sydney.edu.au
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Table of Contents
Disrupting old business models to unlock new
digital opportunities
Understanding Vulnerabilities
Characteristics of Digital Disruptive Intermediaries (DDI)
Digital Disruption: Finding the Advantage
Key Findings of the Report
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Digital Disruption not only alters the way we do business, but also how we understand the world,
technologies, products and markets.
It is key to understand the mechanics by which Digital Disruptive Intermediaries (DDIs) change the value
flow in markets to uncover vulnerabilities and new opportunities in your business.
The current wave of emerging technologies are so disruptive because they both transform the way value
is generated and change our thinking and understanding of how a market operates.
DDIs change the allocation of supply and demand by exploiting the flow of information, not the control of
physical assets. Not only does this make them disruptive, it means they can grow extremely rapidly.
To prepare, incumbent businesses need to think systemically and experiment and innovate using digital
technologies that are outside of their current, established business structures.
The biggest threat to incumbent businesses is their adversity to risk which prevents them from reacting
even when disruptive change is upon them.
4. 4 Digital Disruptive Intermediaries: Looking to start-ups to find innovative digital business models
Digital Disruption is
reshaping the business
world, challenging
established business
models and making
many time-tested
formulas for success
obsolete.
What is Digital Disruption?
Unpredictably and unstoppably, Digital
Disruption is reshaping the business
world, challenging established business
models and making many time-tested
formulas for success obsolete. In
broad terms, Digital Disruption refers to
advancements in digital technologies
that occur at a pace and magnitude that
disrupt established ways of creating
value within or across markets, social
interactions, and more generally, our
understanding and thinking. In other
words, Digital Disruption not only alters
the way we do business, but also how
we understand the world, technologies,
products and markets.
For example, consider Uber. With its
mobile app now available in more than
250 cities around the world, Uber is
disrupting the taxi market through its
superior management of information.
By using digital technology to match
the supply of available drivers with the
demand of passengers, Uber is able to
outperform established taxi companies
in ways that are faster, easier and more
cost-effective for both passengers and
drivers. In creating this new business
model, Uber has also built a digital
platform that it can re-direct and apply in
other industries. In fact, Uber has already
jumped into the logistics and food-
delivery markets. Along the way, Uber
has collected – and continues to build --
a wealth of valuable data, such as traffic
patterns and passenger demand cycles.
With all of this information at hand, Uber
is not only positioned to disrupt even
more industries, but also to evolve the
very business model it created. For
example, in the future, it’s conceivable
that Uber could use this data to setup a
fleet of driverless vehicles that will provide
many of the same pickup and delivery
services that it performs now.
Another example is iTunes, which
disrupted the entire supply chain of the
music industry by replacing physical
products (albums, cassettes and CDs)
with digital music downloads – and as
result, transformed the ways that people
buy, listen to and share music. With the
emergence of Spotify, Pandora, Apple
Music and other on-demand music
services, disruption continues to reshape
the entertainment industry – transforming
the relationship between artists, recording
companies and customers and redefining
how music is owned, delivered and
consumed.
The Perpetual Disruption of DDIs
As the Uber and iTunes examples
illustrate, Digital Disruption is more than
a one-off phenomenon. These type
of digitally-driven companies don’t just
disrupt a market and then pause, allowing
established competitors to catch up.
Instead, they begin by transforming the
industries they disrupt, and then they
evolve the very nature of the disruption
they created.
For established companies, the lesson
should be clear: They cannot afford to
sit back and watch disruption take place
in other industries before taking action
in theirs. It’s quite possible for digitally-
driven companies to quickly shift their
business models from one industry
to become formidable competitors in
another market. Consider this: Though
it started out as a transport-booking
company, Uber needed just a few short
months to evolve its business model to
offer an effective logistics service – and
now it’s competing within a new industry
against such stalwarts as FedEx, UPS
and DHL.
Before offerings like Uber and iTunes
existed, few could have predicted
the sweeping changes they would
bring to their respective markets. Yet,
gradually and often inconspicuously,
these changes occurred -- challenging
established business models and working
practices along the way. These examples
illustrate the dichotomy of Digital
Disruption, which can be seen as both a
threat and an opportunity. On one hand,
the changes associated with new digital
technologies are unfolding at a pace and
scale that are destabilizing – and often,
invalidating – many existing ways of doing
business. On the other hand, digital
technologies are creating opportunities
for entrepreneurial-minded companies to
scorn the status quo and out compete
traditional businesses in a wide range of
industries.
What does this mean for you and your
company?
Much has been written about this and
what is clear is that Digital Disruption
cannot be ignored. However, what does
this mean for you and your company?
If you recognize the disruption and the
potential impact on your business, what’s
next? Moreover, whilst Uber, iTunes,
AirBnB and others are interesting case
studies to demonstrate a model it is
highly probable that your company is not
a start-up and that these cases don’t
relate to your industry or company, so
how is this relevant to you?
This report is designed to help answer
these questions by describing the
mechanisms by which some “born
digital” companies, the Digital Disruptive
Intermediaries (DDIs) disrupt markets
and what this means for the 90-plus
percent of the economy that does not do
technology for a living.
Disrupting old business models to
unlock new digital opportunities
5. 5Digital Disruptive Intermediaries: Looking to start-ups to find innovative digital business models
Understanding Vulnerabilities
Some DDIs innovate to create entirely new business models that simply weren’t
possible in the pre-digital age. Others exploit inefficiencies in existing industries,
typically by using information in novel ways. Whatever the case may be, these
market conditions favor DDIs.
Market Fragmentation
Fragmented markets are those with many
small players. This makes it difficult
for customers to research, compare
and access the products and services
the many companies provide. DDIs
capitalize on this by becoming a single
point of access for customers, cataloging
services and streamlining accessibility to
the offerings of multiple providers.
Inefficiency of Existing Monopolies and
Structures
Most often due to regulation, some
industries have few, if any, competitors
in their respective markets. As a result,
they tend to be conservative in providing
access to customers who want to
receive product and service information
or to provide feedback. However,
these industries are increasingly ripe
for disruption as DDIs find ways to use
digital technologies to change the flow of
information – invariably with the customer
in mind.
Information Richness and Lack of
Transparency
In some industries, products are complex
and rich in information – especially
in terms of features, options and
prices – making it all but impossible for
consumers to make “apples-to-apples”
product comparisons. DDIs cut through
this lack of transparency by offering
structured comparison and filtering
tools designed to help customers make
informed buying decisions.
Convenience Limitations of Physical
Channels
Many physical distribution channels,
especially those in the retail industry,
are being disrupted by DDIs that
aggregate and present information in
ways that significantly increase customer
convenience. Digital stores, which
allow shopping from home, are a prime
example.
Lack of Market Access
Small businesses and individuals have
typically struggled to enter markets
dominated by large enterprises. DDIs
are taking advantage of this by setting
up digital platforms on which small
businesses collectively market their
products and services to a much wider
audience.
High Variations in Service Quality
In many service industries, particularly the
travel, restaurant, financial planning and
home repair sectors, service quality varies
greatly, creating uncertainty and risk
among potential customers. DDIs help
by gathering and presenting information
from existing customers to help inform
new customers’ buying decisions.
Consider if any of these conditions apply
to your market. If so, what does this mean
for your company?
6. 6
Characteristics of Digital
Disruptive Intermediaries (DDIs)
A vast majority of DDIs today are “born
digital” companies, however, what truly
sets them apart is not their starting point
but how they use digital technology and
information in their business model.
Typically, DDIs do not own any assets and
change the dynamics and distribution
of value in established markets by
being superior at managing information.
Without assets – Uber owns no cars,
AirBnB owns no real estate, iTunes does
not produce music – they are able to
scale rapidly, create novel services and
quickly adjust their business models to
ultimately gain a significant competitive
advantage.
Based on extensive market research,
we have identified eleven ways in which
DDI’s manage information to create an
advantage (see Figure 1).
Based on the research we found that
DDIs combine these functions to create
new business models and disrupt
markets. For example, AirBnB and Uber
have primarily combined Intent Casting
and Channeling Actors functions to
disrupt their respective industries to
efficiently and easily match supply with
demand. Since then, multiple start-
ups from dog walking to baby sitting
have looked to replicate their success
by combining these DDI functions and
applying them to new markets.
Figure 1: Typical DDI functions
Function Explanation
Cataloguing
Providing a comprehensive and structured way for customers to view products, services,
or content from multiple sources in one place.
Bundling
Combining products, services, or content from multiple suppliers into new packages for
customers.
Reordering or Filtering
Enabling customers to interact with, reorder or filter structured lists of products, content
and services, so they can find a suitable offering.
Ranking & Recommending
Using algorithms to rank-order products, content or services, based on certain criteria
(e.g. quality) or to provide personalized recommendations for customers.
Delivering Delivering digital content by way of downloads, online streaming or via a mobile app.
Hosting
Providing a cloud-based platform for the uploading, storage and accessing of user-
generated digital content.
Sharing Enabling sharing of digital, often user-generated, content between users.
Intent Casting
Allowing users to spell out their needs (intents) for sourcing a product, service or project
funding from other users or suppliers of the platform.
Channeling Actors
Providing the ability to select supplier-provided products, content or services and routing
customers to the supplier’s digital platform (for purchase).
Pricing functions Comparing and/or setting prices of products, content or services sourced from suppliers.
Matching Actors
Pairing customers with the right suppliers of products, content or services, often using
specialized algorithms.
Digital Disruptive Intermediaries: Looking to start-ups to find innovative digital business models
Based on extensive
market research, we have
identified eleven ways in
which Digital Disruptive
Intermediaries manage
information to create an
advantage.
8. 8 Digital Disruptive Intermediaries: Looking to start-ups to find innovative digital business models
Digital Disruption;
Finding the Advantage
Whether it’s to protect against the
market vulnerabilities or to create new
opportunities, for established companies,
embracing digital can be intimidating
and for a long time may even have been
seen as an enemy: Something to be
understood but ultimately to be avoided
when stability within your business is
seen as key to maintaining profit.
This is not to say that businesses are
not reacting to digital disruption; US
businesses invested billions of dollars in
2014, investment in ecommerce alone
was U$ 1.2bn in 2014, so changes are
being made even though there are fewer
examples of established companies
applying digital thinking to fundamentally
transform their business models. And
it is easy to see why - for decades, as
organizations have scaled, systems
have been put in place designed to
manage risk, minimize failure and ensure
consistency and compliance. Whilst these
have stood the test of time, and ensure
profitability in stable markets, ironically,
it is these concepts that now present
the greatest risk to businesses. Why?
Because they slow companies down
and prevent them from making the bold
decisions needed to continue to grow, or
maybe even survive.
This ultimately begs the question, “What
do I do next?” The answers are many, but
above all is this: understanding how Digital
Disruption will specifically impact your
market or business cannot be understood
by extrapolating into the future what you
know today. This misses the role that
innovation plays. More importantly, it
misses that as business practices change
so do our views about what counts as
meaningful and valuable, and what best
represents the right ways of performing
these business practices. What this
means is that a successful approach is
not prescriptive, or about implementing a
defined set of digital capabilities, it is an
adaptive approach, as much about people
and mindset as it is about technology.
To achieve this we recommend three things:
1. Embrace the unfolding paradigm shift in
your own business model, using the DDI
functions as a working model;
2. Empowering employees and embracing
experimentation; and,
3. Considering innovation not as a stand-
alone function but as the DDIs do, as a way
of operating the core.
Embrace the unfolding Paradigm Shift in
your Business Model
Traditionally, when companies seek ways
to be more innovative they give a cursory
glance to improvements taking place
outside their industries, tending to focus
mostly on what’s happening within their
own markets. This incremental “market-
matching” approach to innovation no longer
holds water. To effectively take advantage
of the ways in which digital technologies
allow conventional business models to
be redesigned and also respond to DDIs
demonstrated ability to swiftly dominant new
markets, established companies will need
to embrace the unfolding “paradigm shift”
engulfing many markets. Not just in how they
deliver the current business model, but the
fundamentals of how they make money and
how they connect with their customers.
A good starting point is the DDI functions
and using these to inform innovation; as
we’ve seen these are already successful
and highly repeatable. How might you
use these to create a market advantage?
What would it mean to your business if
you applied Channeling Actors or added
Ranking and Recommending to your
digital business model? Consider some car
insurance companies for example which
have chosen to introduce Pricing Functions
and Cataloguing so customers are able to
compare the price of competitors’ products
from their website. A counter-intuitive move
that takes advantage of an opportunity that
the DDI model enables to take ownership of
the unfolding disruption.
Also acknowledge that DDI-driven disruption
is already underway in your market. DDIs
may only be in its infancy right now but
should not be dismissed. Take a fresh look
to find the significant in the insignificant.
Compare what you see within your company
and your market with what’s happening
in already disrupted markets. How have
those markets changed? How did the
understanding of the industry, what counts
as the relevant product and what is relevant
to customers change? What impact would
a similar change have on your business?
Are there any small players applying DDI
functions which could disrupt your market
in the future? How might this inform your
thinking of changes you can make to get
ahead of this disruption?
Even if you don’t implement the specifics,
this exploration will help to uncover new
possibilities and reflect upon your existing
business model in new ways.
For established
companies, digital can
be intimidating and for a
long time may even have
been seen as an enemy.
9. 9
Empowering Employees and Enabling
Experimentation
Among the greatest advantages that
large enterprises have in this age of
disruption are their sizable workforces.
Big companies can see with a thousand
eyes and draw on the ideas of a thousand
people. Yet management structures aren’t
always geared toward collecting and
sharing information among employees.
Now more than ever, it is critical to
encourage openness, transparency
and the free flow of information and
ideas. New social media technologies,
combined with management support,
can help bolster the dialogue. This does
not necessarily mean doing what the
masses want or what common sense
dictates, but surfacing differences in
viewpoints that will allow management
to see their industry with different
eyes – a key ingredient in seeing the
unfolding disruption.
In tandem with this is enabling space
for managed experimentation. There is
no one-size-fits-all solution for creating
a truly digital business, which means
that established companies will need
to continually test new ideas. What
you’re trying to achieve is hard, complex
and perhaps no other company has
attempted anything like it before, so
you’re bound to make some mistakes.
But rather than giving up on new ideas
and blaming individuals when their
ideas cause setbacks, work together
as a team to overcome the challenges
and find new paths to success. Any
failure is an opportunity to learn. As
Ed Catmull, President and founder of
Pixar, said “failure isn’t a necessary
evil, it’s a necessary consequence
of doing something great”. Always
remember that in the face of Digital
Disruption, the traditional focus on risk
management, failure prevention and
compliance represents the greatest risk
to your company. Not only do DDIs see
opportunities in the market sooner, they
are better equipped to take advantage
of those opportunities because they
are encouraged to experiment and are
not constrained by traditional business
attitudes about failure.
Innovation as an Operating Model
Embracing failure however does not
mean experimenting with multiple ideas
in an unstructured way with a hope that
the right one will reveal itself. It’s about
identifying and managing a set of focused
ideas through a structured process to
progress ideas on a continuous basis.
Innovation Labs have a role within this as
a focal point for innovation activities and
they act well as a mechanism to enable
ring-fenced discovery and development,
free of the broader constraints that
may exist elsewhere in the business.
However, they should not be the only
place where innovation happens. As
mentioned previously, employees need
to be engaged across the company
otherwise innovation will, at best, become
another functional silo, at worst will
begin developing ideas that don’t have
relevance. Engaging with a broad range
of people, especially those people who
are able to see challenges and identify
opportunities, is key.
Move Before you “feel the heat”
In summary a lot of companies – perhaps
even some of your competitors – are
waiting to “feel the heat” before they
react holistically to Digital Disruption.
They’re playing a dangerous game.
Why? Because in this time of inevitable
and unpredictable change – where
established companies and their ways
of doing business are being challenged,
if not disappearing altogether --
complacency can be lethal.
Now is the time to test, to prepare, to
always keep looking for opportunities –
and to be part of Digital Disruption and
not part of history.
Embracing failure does
not mean experimenting
with multiple ideas in an
unstructured way with a
hope that the right one
will reveal itself.
Digital Disruptive Intermediaries: Looking to start-ups to find innovative digital business models
10. 10 Digital Disruptive Intermediaries: Looking to start-ups to find innovative digital business models
.
Dr. Ben Gilchriest is a Principal and go-to-market lead for Capgemini’s North America Digital Innovation
practice. Ben is focused on the innovative application of emerging technologies to drive new customer
and business value. He has founded and led multiple ventures and start-ups in Europe, Australia, SE
Asia and North America. He is currently based in Los Angeles, USA.
ben.gilchriest@capgemini.com
twitter: bengilchriest
About the Authors
Martim Teixeira is a Manager within Capgemini Australia, specialised in Customer Experience
and Digital Transformation, including Strategy and Operations. Martim has an extensive consulting
experience including the Big4 and has worked on a series of engagements in Australia, Europe
and Africa.
martim.teixeira@capgemini.com
about.me:about.me/martimvt
Kai Riemer is Associate Professor and Chair of Business Information Systems at the University of
Sydney Business School. Kai’s research is focused on Enterprise Social Networking, e-Collaboration,
inter-firm networking, virtual work, and E-Commerce. He has developed methods for team
communication, enterprise social network adoption and collaborative business practices
kai.riemer@sydney.edu.au
twitter: karisyd
Uri Gal is a Senior Lecturer in the Discipline of Business Information Systems. Uri’s research takes a
social view of organisational processes in the context of the implementation and use of information
systems. He is focused on the relationships between people and technology in organisations, and
changes in work practices, organisational identities, and the introduction of new information systems
uri.gal@sydney.edu.au
Jakob Hamann is a postgraduate student of Information Systems at the University of Göttingen
(Germany) and a research visitor with the Discipline of Business Information Systems at the Universi-
ty of Sydney Business School. Jakob’s research is in the field of digital disruption. Prior to coming to
Sydney Jakob spent a year at the Universitat Autònoma de Barcelona in Spain, and as a working
student at the Cooperation Systems Centre Munich.
jakob.b.hamann@googlemail.com
11. 11
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