When the next wave of digital disruption strikes, where will we see the greatest impact? New research from IMD’s Global Center for Digital Business Transformation suggests digitization will overturn incumbents and reshape markets with the greatest speed in three particular sectors: technology products and services, education, and financial services.
IMD’s Digital Vortex 2023 is the latest in a series of biennial studies that began in 2015. It is based on a survey of almost 650 senior business leaders in markets around the globe, each of whom shared their insights into how and where digital disruption is likely to strike next. Based on these views, we have been able to pinpoint the sectors closest to the digital vortex.
While the disruptive threat of technology to other sectors has been a consistent theme of the Digital Vortex studies, strikingly, this year’s study is the first in which technology products and services has been regarded as the sector most likely to see disruption.
There are a number of potential explanations for this. Certainly, the rise of generative artificial intelligence (AI) appears to be a factor. It’s not only that OpenAI’s ChatGPT is the first product or service to have reached 100m active users within two months of launch, remarkable though that is. Even more significant for the sector itself is that generative AI has come to be seen as challenging traditional models and methods in areas that go far beyond content generation.
In this context, many technologists believe that the leading players in generative AI have the potential to become new AI operating systems. These will underpin a range of new products and services – likely provided by a wave of new companies, as well as incumbents – just as smartphones have enabled businesses such as Uber, Just Eat, and the social media giants.
Another driver of disruption in the technology sector is the growing regulatory focus on the largest businesses. The determination of regulators across the world to limit the expansion of Big Tech is evident in anti-trust reforms, as well as in areas such as data protection. Such initiatives play to the strengths of smaller, more nimble players in the technology sector, including new entrants.
In second place in the Digital Vortex 2023 study is the education sector. As with technology products and services, the sector is perceived as significantly more vulnerable to disruption than it was two years ago (in the 2021 research, it ranked only sixth).
In this case, it is the transformative effects of the COVID-19 crisis that are driving disruption. For many years, academics and edtech entrepreneurs have talked about the potential of technology to transform education but, before the pandemic, that change was relatively sluggish. When COVID-19 broke out, however, adoption of new technologies became a matter of urgency, with educators scrambling to put in place effective online-learning structures.
Accordingly, many education providers are excited by the potential of digital technologies. A key aspect of this potential is the ability to democratize education by offering course access to a much wider range of learners, equipping them to participate in the digital economy.
Tools such as augmented and virtual reality (AR and VR) are also increasingly part of the educational offering. Data-analytics tools are allowing a more closely tailored learning experience, while cloud-based tools enable education providers to scale up and down, efficiently and effectively.
Similarly, the financial-services sector is regarded as especially ripe for digital disruption, particularly considering the recent streak of banking failures in the U.S. and Europe. Regulators are stepping in to support the financial system, while continuing to support innovation. In the UK, for example, the Financial Conduct Authority’s (FCA) Regulatory Sandbox facility provides fintechs and other innovators with the freedom to explore new technology applications in a controlled environment, with official support in ensuring those new innovations can be brought to market in compliant fashion.
The open banking revolution taking place across Europe is also a significant factor here. Banks are now required to share customer data (where customers give permission), giving rise to a new generation of products and services aimed at meeting very specific customer needs.
None of which is to say that digital disruption will not continue at pace in other sectors. Media and entertainment, for example, was seen as the sector most vulnerable to disruption in 2021, but has fallen to seventh place in 2023, as industry consolidation and transformation reach a more mature phase.
In the retail sector, the massive shift to ecommerce prompted by the pandemic has naturally slowed as restrictions have been lifted and consumer patterns have normalized. This is reflected in its slipping to sixth place from second in 2021. Nevertheless, as in the media sector, transformation is ongoing. Could VR make it easier for shoppers to buy clothes remotely, for example? How do data and analytics tools enable retailers to attract more traffic – and to convert those browsers into buyers?
It is important to emphasize that, even in sectors where the research suggests businesses are more insulated from the digital storm, disruption is still taking place.
In energy and utilities, for example – which is bottom-ranked for the third time in the past four studies – climate-change imperative underpins the disruptive imperative. The pace of change may be slower, particularly in areas of the industry that rely on significant physical assets, but digital transformation in areas such as energy management has become an important theme.
Similarly, in manufacturing (another consistently low-ranked sector), disruption is under way in a host of areas. The advance of the internet of things (IoT), for example, is prompting manufacturers to rethink their business models. Customers increasingly want to move from capex to opex models, requiring manufacturers to lease them always-connected assets that are perpetually maintained and regularly renewed.
In real estate, meanwhile – third from bottom in the Digital Vortex 2023 study, the same position as it occupied in 2021 – digital disruption is being felt everywhere from smart buildings and digital twins to the use of blockchain in property transactions. As with the other sectors at the bottom end of this latest study, digital transformation is both ongoing and widespread.
Indeed, the takeaway from Digital Vortex 2023 is not that some sectors are prone to digital disruption while others are not. While some sectors are inevitably showing a steeper disruption curve than others at any given moment, every sector in this study is experiencing a shift. In each case, digital technologies are changing the value chain – and in a meaningful way.
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