Competitive Threats Driving Digital Adaptation
While digital adaptation may evoke visions of continuous improvement and innovation-led initiatives, the real impetus behind digital adaptation is more basic – survival. 70% of B2B companies have digital adaptation projects underway in direct response to competitive threats, according to a recent poll of 300 leading business-to-business companies.
Three main sources of competitive threats are looming: those from existing companies, emerging digitally native online competitors, and overseas suppliers offering lower price points. And of these three, the biggest threat is the emerging digitally native company – the totally new player that didn’t exist yesterday. They are the smaller, niche players that can turn on a dime, or venture-backed startup operations, or even students in dorm rooms, all armed with a passion for change and the latest technology. While some of these brand new competitors may be capital-challenged, they have a major competitive advantage over established players by avoiding the expense and upkeep of legacy systems. In fact, executives participating in the research mentioned above pointed to the manpower, expense and operational risk associated with legacy systems as the number one roadblock to their digital success. Internal resistance to change came in number two.
It’s not just the shifting competitive landscape that trips up established companies aiming to digitally transform themselves. Competitive threats in the digital age are more complex and more difficult to defend against than traditional types of marketplace assault. Today, competitors can use a laser focus to take down a piece of business they find attractive, compromising profit and market share, one demographic or market slice at a time. For instance, the banking industry, which previously owned the relationship between the financial institution and the customer now sees a deluge of application-based companies shearing off its most lucrative transaction-based offerings. These competitors completely avoided the expensive real estate and extensive human resource requirements of building and maintaining a network of physical locations, which significantly lowered their operational costs.
In addition, these digitally-oriented competitors can appear unexpectedly in an industry. Imagine the surprise to the auto industry when they found that consumers were willing to forgo visiting car dealerships to purchase a car online. Several companies emerged encouraging consumers to bypass the vehicle dealership all together. These digital-only companies allow consumers to configure, price and order a new vehicle completely online – from the comfort of their homes or offices – and have the new vehicles delivered to anywhere they choose.
While each of these pure-play start-up competitors is disrupting a different sector of a different market, they share a common goal: to put the consumer back in control. B2C companies learned this lesson when, in the early days of digital, the Internet lowered the barriers to entry for new competitors. Retailers were slow to respond to consumers’ online shopping preferences and only took the threat seriously when new online-only players began to take market share from the leaders. This slow response left many market leaders reeling and caused a massive amount of physical stores to close and companies to declare bankruptcy.
It’s no longer enough for executives in any market, industry or geography to keep tabs on known sources of competition. On the digital landscape, competition can come from anywhere, which means executives need to be especially vigilant about protecting their market share. To remain successful, companies must digitally adapt to build and maintain an edge over their competitors – the traditional ones they watch regularly, as well as the emerging and digitally native startups, and, even those students in dorm rooms.
To learn more about how digital adaptation is changing more than just the way businesses compete, read our white paper, “An Introduction to Digital Adaptation.”