S T U D Y U NIT

Digital Disruption
In this study unit

DIGITAL ENTERPRISE

DIGITAL DISRUPTION

SURVIVING DIGITAL DISRUPTION

1 Introduction
In the first two study units of this topic, we dealt with information and information
systems. As we are living in a digital age, in this section, we will provide you with
information about digital disruption to help you to obtain a better understanding of the
digital evolution.
Evidently, the nature of business today is changing, with bits replacing atoms, online
replacing face-to-face and virtual superseding physical. The World Economic Forum
(WEF) calls this change the Fourth Industrial Revolution (4IR). According to them, it will
fundamentally alter the way we live, work and relate to one another. On the other hand,
according to Forbes, most of us know this shift as the ‘digital transformation’ and
recognise that it reshapes every aspect of business. Thus, the role of information
technology (IT) within larger organisations requires a fundamental rethinking.
In the past, IT’s role was clear: its function was to support the business. Now, IT is the
business. This is because IT was expected to develop applications to help divisions such
as sales, finance and operations perform their duties. Today, IT infuses the products
and services that make up the digital economy and is a core component of these
offerings. Moreover, IT must be part of the team that creates and takes them to market.
In short, IT must undergo its own digital transformation to support the largest business
transformation in decades.
Acknowledging and accepting that technology will increasingly change and disrupt the
ways in which society, organisations and therefore the finance function operate, will be
an important part of a finance professional’s skill set (Golden 2021).
2 The digital enterprise

In the 21st century, there has been unprecedented growth in the use and availability of
technologies upon which to base a business model. Organisations have always relied
on technology to innovate and improve productivity; the Industrial Revolution, which
started around 1760, was just such an example. However, the rate at which this is
happening has accelerated enormously in recent years.
Consumers are increasingly willing to buy goods and services through digital channels,
as the role players of the music industry (e.g., Spotify), TV (Netflix, Showmax), goods
(Takealot, etc.), and travel can demonstrate. (In fact, it is estimated that the majority of
flights are now booked online). This acceleration in the use of technology presents
opportunities and threats for all organisations, perhaps at differing speeds. The business
that is ‘born digital’ has an inevitable advantage in some respects, as its proposition is
challenging the status quo. For example, compare Uber with an established taxi operator
– they have fundamentally different business models. Uber shows that technology can
be put at the forefront of operations to reduce costs and offers a very different proposition
that customers find appealing. So, identifying that new proposition based on technology
is an opportunity – all the entrepreneur has to do, is bring IT successfully into play.
Businesses that have been established for a long time may see technology as a threat,
as newly formed organisations ‘disrupt’ their industry. However, technology should also
be a potential opportunity, a chance to introduce new revenue streams, augment
existing offerings or reduce costs.
So, established businesses can adapt through successfully identifying how technology
can add to competitive advantage; it is not just newly created organisations that should
be thinking about being digital. Indeed, a failure on the part of management to view their
organisation as becoming a digital enterprise may be disastrous – adopting the mind-
set of ‘what has worked in the past will always work in the future’ is blinkered, at best.
Admittedly, new start-ups tend to move at a much faster speed and can innovate what
is proposed to the customer very quickly, whereas established organisations have a
history, culture, and systems, amongst other things, which means that moving at such
speed simply is not possible. But in the modern business environment, all organisations
need to consider the need to become, to some degree at least, a digital enterprise.

3 Digital disruption
As previously mentioned, in today’s business environment, many industries are
experiencing change at an increasingly rapid rate, and one of the fundamental drivers
of such change is digital transformation. Digital disruption is a new ordinary. The ascent
of distributed computing has shaken up the whole IT industry. Everything – from the
Internet of Things to huge information systems and man-made brainpower – is being
applied to improve procedures and create new client support choices. As this
advancement emerges, so are new cybersecurity dangers which, if not handled wisely,
can bring about loss of income-producing capacity and noteworthy notoriety harm
(Sono, Soddhono, Mailana, Putra & Shofii 2020). Traditional business models are being
re-examined as use of technological advances enables organisations to challenge the
status quo and create value in new ways.
Two features are shared by all the above-mentioned companies – they have become
incredibly valuable in terms of market capitalisation in an astonishingly short space of
time; and they have had a profound impact on the businesses that were already present
in their industries. What is it about these businesses which has allowed them to change
enormously how their industries work and the ways in which they deliver value? How
might organisations in other industries learn lessons from the disruptors mentioned
above and other similarly successful companies? In addition, how might that impact
those in senior finance roles? To a great extent, the answers to these questions lie in
the use of disruptive technology. Disruptive technology relates to instances where
technology is used to fundamentally change and ‘disrupt’ the existing business model in
an industry.

The two largest growth sectors for disruptive technology are health services and
financial services. According to Khan, Khan, Hameed and Zada (2021), recent studies
have found that disruptive technologies such as financial technology (commonly known
as Fintech) have the potential to overturn existing business models and overthrow
incumbents. These have demonstrated that newly emerging digital platforms financing
early-stage ventures threaten traditional venture capital (VC). Fintech is, for example,
completely disrupting the traditional banking sector – long seen as a highly technical,
highly regulated industry dominated by giant banks. Fintech businesses exist which can,
amongst other things, provide investment advice, offer banking services, transfer money
internationally, provide mortgages and loans as well as exchange currency.

Fintech has the following advantages:

• better use of data – providing better understanding of their customers and giving
customers a wider choice
• a frictionless customer experience, using elements such as smartphone apps to
provide a broad and efficient range of services
• more personalisation of products/services to individual customers
• the lack of a physical presence (with associated overheads and operating costs)
• access to cheap capital to fund growth – much like when internet-based businesses
first came to prominence in the 1990s, investors want to get in on the growth
potential that Fintech offers. This gives Fintech a wide scope for raising cheap
finance in order to fund their future expansion.

There are also many examples of industries that are about to be disrupted or are in the
early stages of disruption. For example, autonomous vehicles are forecast to change
the way in which people use cars, and detailed testing has been underway in some
countries for a while. How soon before they become the ‘norm’? And what sort of impact
might it have on who is successful in the industry? Will traditional names such as Ford,
Mercedes, and Renault come up against significant competition from organisations such
as Apple, Dyson, and Alphabet (the parent company of Google)? All of these latter
names have been investing major sums in vehicle research and development.

Social, legal and economic arrangements will impact how these changes affect nation-
states. For policymakers, there will be serious dilemmas as they will have to
simultaneously nurture and support many aspects of these changes, while also
mitigating or channelling some of the outcomes so as to protect privacy, income equality,
and fair taxation (Kenney, Rouvinen & Zusman 2015).
4 Additional examples of digital disruption

a. Netflix
Netflix disrupted Blockbusters video, by focusing on DVDs instead of tapes. Today,
Netflix keeps on disrupting the status quo as a major player in the video streaming
business. On-demand viewing has turned traditional broadcasting and cable services
on their collective heads. Not only are the conventional carriers jumping on board the
video stream train, but a host of other online TV platforms has also sprung up, such as
Hulu.
b. Smartphones
When you talk about disruption technology, smartphones should not only be part of the
conversation but probably at the top of the list. Smartphones are everywhere today and
have decimated landlines and payphones.
c. E-mail
While the sight of the mortal person dropping mail off in your mailbox is not going away
anytime soon, it is abundantly clear that the invention of e-mail has put a deep dent in
the post office. This has replaced the hassle of writing a letter, mailing it, and waiting
several days for the recipient to get it whilst you can fire off an e-mail in a fraction of the
time.
d. Online references and encyclopaedia
No one thinks of buying bulky bound volumes and sets of encyclopaedias anymore as
they might end up being obsolete within five years, especially since logging on to
Wikipedia or other online reference sites enables one to get current information cheaper
and faster.
e. Personal computers and hand-held devices
Bulky desktop computers proliferated households and workplaces in the ‘80s and ’90s.
Although they do still exist in great numbers, their era of dominance is over.
Miniaturisation, increased processing power and the advent of wireless technology have
made desktops almost obsolete. Laptops, pads, and tablets offer everything a computer
can, but with the added advantage of mobility and convenience.

5 Elements of digital disruption

According to Golden (2021), the bottom line regarding all these new technologies is that
the nature of IT is morphing, and IT organisations need to develop new skills to prepare
for the digital world. Too many IT organisations hope that their existing staff will magically
transform themselves into a digitally enabled workforce. Other IT organisations are
under the illusion that they can hire their way to digital competence. The truth is that
neither approach will do the job. Most IT organisations will need to rely on existing staff
to implement their digital initiatives, but they do not have time to wait for magical self-
transformation. Smart IT organisations will develop a comprehensive training
programme designed to quickly build digital skills, because a digitally savvy workforce
is a bedrock of participating in today’s revolution, and IT organisations ignore staff
education at their peril. Digital disruption breaks down into four distinct elements, each
with the potential to change business ways. These are:
 a. Technology: a consistent company-wide digital culture where companies must
move as one, embracing new technology. This adoption is essential for companies
that have not gone digital yet and includes training in new digital-based skills.
b. Business: covers marketing, development, delivery, and pricing, amongst others
c. Industry: involves customers, methods, processes, and standards, amongst others
d. Society: encompasses movements, culture, and habits, amongst others

6 Areas where IT must change its game to meet the requirements of its new
role

a. A new application lifecycle

Clearly, the pace of application development needs to accelerate. Too many IT

organisations mired in heavyweight processes like Information Technology
Infrastructure Library (ITIL) find themselves unable to meet the demands of the digital
economy. To achieve agile development, both an application group that speeds up the
development and an operational group ensuring more frequent deployments, are
necessary and should be part of the new application lifecycle, along with cloud
computing and integrated business and IT collaboration. Every part of the application
lifecycle must be streamlined to achieve digital capabilities to ensure it is addressed in
its entirety. This will ensure overall improvement in speed.

b. World of Internet of Things (IoT)

Five years ago, most IT organisations targeted one client device for their applications: a
web browser. That monolithic entity started to break down with the release of the iPhone
and the rise of smartphones as primary computing devices. Today, the explosion of new
edge computing means IT organisations need to support a wide variety of devices.

c. Real-time event processing

Many IoT devices throw off data in unpredictable patterns based on the characteristics
of the environment in which they operate. This means data arrive erratically and
applications must be able to ingest and process data in real time. The new application
paradigm for this requirement is to function as a service, or more succinctly, serverless.
As the IT revolution gets bigger and bigger, applications will grow dramatically as the
category of cloud providers are all offering serverless capabilities with frameworks that
simplify delivery event data to serverless functions.

d. Data warehousing becomes machine learning

Machine learning of millions of devices and billions of events means that sorting,
structuring, and analysing data is a critical competence for IT organisations. The scale,
speed and nature of this data mean that the old approach of analytics based on the
extraction of data into a separate relational data warehouse is no longer sufficient.
Instead, the end-user drilling down into event stream data is necessary as the business
units need to respond much more rapidly to data analysis. The new approach to analysis
is called machine learning and it is based on applying algorithms to massive amounts of
data to extract patterns and make predictions. It is a very different approach to
performing analysis. This leads us back to cloud computing because only the very
 biggest cloud provider can deliver the infrastructure scale necessary for the data
volumes required by machine learning.

7 Elements to be adopted by companies that want to grow and succeed in

the face of digital disruption

These companies must consider the following:

a. Developing a consistent company-wide digital culture. The company must move as

one, embracing new technology. This approach is essential for companies that have
not gone digital yet, and must include training employees in new digital-based skills.

b. Creating new customer experience and producing unique outcomes. Disruptive

technologies bring new ways of serving customers and exciting new results.

c. Shifting from time-based decisions to data-driven decisions. Timeliness is important

but there is little benefit in being the first company in the pack to make an ill-
informed, destructive decision. Evidently, processes relating to digital disruption
have created awareness that tons of valuable, actionable data are available, and
innovative companies will take advantage of this.

d. Incorporating new technology and business models into existing services and
products. Companies that want to stay ahead of the pack and increase their market
share will embrace the new and abandon the old, or at least modify the old with
better procedures and technology.

e. Working with partners to create and innovate new procedures and policies where
teamwork is key. This ensures that everyone wins – your company, partners and
customers. This means taking advantage of the existing partnerships experience
and skills to collaborate on better business practices.

8 The top disruptive technologies in 2021

According to Golden (2021), the following five technologies will have a more significant
disruptive effect in 2022.
a. Online learning

Crises breed innovation, and there is nothing like a worldwide pandemic and its ensuing
lockdown to help inspire people to design better ways to learn online. Online education
offers students a cheaper, more convenient way of getting a degree or certification,
circumventing the expensive university system. While this industry is still evolving, online
learning is poised to threaten the traditional college learning model.

b. 3D Printing

3D printing looks like something out of a science fiction movie or TV show. But it is here
right now and gaining traction. Currently, 3D printing mainly supports established
manufacturing processes, but if the technology becomes better developed and cheaper,
we could see households having their 3D printers creating items instead of ordering
 through retailers. 3D printers are becoming increasingly sophisticated and 2022 could
be the year we see their stock rise.

c. Cryptocurrency

Many of us have heard talk of Bitcoin and Blockchain technology, but it does not yet
dominate everyday commerce. Note the use of the word “yet”. Cryptocurrency offers
greater security levels, something that both consumers and businesses value highly in
these days of rising cybercrime and data breaches. Digital wallets could potentially
disrupt traditional banking and even online payment services, the latter of which has
already disrupted traditional bill-paying methods.

d. Person-to-person (P2P) commerce

P2P commerce involves two individuals interacting directly without a go-between, selling
and buying goods and services to and from each other. Think of Airbnb. Although P2P
is not anywhere close to crippling the hotel and hospitality industry as yet, there are
online warnings.

e. Ride-sharing and car-sharing

While we will always need taxis, companies such as ZipCar, Lyft, and Uber have thrown
the cab industry for a loop. These services, which are cheaper, more convenient and do
not even require cash to change hands (another innovation), will likely only continue to
rise in popularity. If technology companies ever get all the kinks out of driverless car
technology, it will only add to the overall disruptive effect.

9 Surviving digital disruption

So how might management ensure that their organisations survive digital disruption and
rethink their business models so that they can thrive in a digital age? The consultancy
group Accenture wrote a report in 2015 called Accenture Technology Vision, which
highlighted five emerging trends that were shaping the digital landscape for
organisations and which business leaders should focus on in developing digital
strategies:

• The Internet of Me – users are being placed at the centre of digital experiences
through apps and services being personalised.

• Outcome economy – organisations have an increased ability to measure the

outcomes of the services that they deliver; customers are more attracted to
outcomes than just simply to products, and this is what organisations should focus
on.

• The platform (r)evolution – global platforms are becoming easier to establish and
cheaper to run. Developments such as cloud computing and mobile technology offer
huge potential for innovation and quicker delivery of next-generation services. The
rate of evolution will only increase.
 • The intelligent enterprise – using data in a smart way, enables organisations to
become more innovative and achieve higher degrees of operating efficiency.

• Workforce reimagined – whilst greater use is made of smart machines, the role of
human beings is not being removed altogether; they are simply being used in a
different way. Ways need to be identified in which man and machines can work
effectively together to create better outcomes. There are also several common
myths about digital transformation. This is understandable, given the rate of change
that has been seen in many industries over the last few years, but such impressions
need to be shown as misleading if management are to see digital transformation as
an opportunity instead of a threat.

Disruptive technologies, including big data and cloud computing, are forces impacting
business and government communities. For our collective future, alignment with the
Digital Earth (DE) Vision is recommended. Better governance and better business
represent a key foundation for sustainability and therefore should be explicit DE guiding
principles. Benefits of technological advances will manifest in business performance
improvements based on capitalising the locational attributes of corporate and
government assets, the foundation of big data. Big data, which will be dealt with in the
next study unit (study unit 6), will continue to increase as the Internet of Things and
social media converge into a new era of “huge data” (Foresman 2016).

Activity 5.1

Go to your e-tutor site and complete this activity.

Explain how machine learning can be utilised in a South African business context.
Illustrate this by way of an example.

Select one of the four elements of digital disruption and discuss how that particular
element can change the ways in which a business operates.
Go to the Discussion Forum for study unit 5 and discuss this with your fellow students.

10 Summary

In summary, in this study unit we have learnt that digital disruption is a new ordinary.
This means that in today’s business environment, many industries are experiencing
change at an increasingly rapid rate. Fundamentally, this shift is altering the way we live,
work and relate to one another, and reshaping every aspect of business. The driver of
such a change is digital transformation. In this regard, the nature of business today is
changing – with bits replacing atoms, online replacing face-to-face, and virtual
superseding the physical. Consumers are increasingly willing to buy goods and services
through digital channels. On the other hand, disruptive technologies, including big data
and cloud computing, are forces impacting business and government communities. The
two largest growth sectors for disruptive technology are in health services and financial
services. Finally, we learnt about five emerging trends that will shape the digital
landscape for organisations which business leaders should focus on in developing digital
strategy for survival. We learnt about technologies that will have a more significant
disruptive effect in 2022, including elements to be adopted by companies that want to
grow and succeed in the face of digital disruption. Ultimately, acknowledging and
accepting that technology will increasingly change and disrupt the ways in which society,
organisations and therefore the finance function operate, will be an important part of a
finance professional’s skill set.