The fourth industrial revolution as outlined by McKinsey & Company (Dobbs et al 2015), brings a whole slew of considerations to industry giants as the benefits of digital transformation, innovation, and combinatorial technological expertise become less of a desire and more of a necessity to survive. In many ways the framework of Porter’s Five Competitive Forces that Shape Strategy have been weakened in its relevance to today’s market forces and must be reworked to understand the confluence of these forces as an interdependent woven fabric that places greater weight on technological innovation more than ever before. Yet, there exist counterweights for these market forces that can be used to slowed down or inhibit disruption, for better and for worse.
Porter’s exploration of market forces deems technology and innovation as a factor and not a force. In many respects, Porter’s assertion is correct as technology alone does not sell; it requires strategy and a need for mobilization of other resources—capital, labor, skill, and networks—to be able to create profit and capture dominance. However, the shortcoming here is that within recent years and much after the publishing of his book, Porter was unable to predict the exponential growth of technological innovation and use that underrides the very foundations of present markets.To put this in perspective:
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Within 12 years alone, from 2000 to 2012, we have seen global online traffic increase 500-fold. That is why five of the ten largest US companies by market cap are horizontal platforms, who cut across value chains due to our shift to an online world and an age of connectivity. When companies take advantage of this, they can disrupt even the most traditional and restrictive markets. Take for example, Noble Iron, started by Stanford Business School alum Nabil Kassem, took advantage of the platform capability and the any-to-any business model, and disrupted the construction industry by renting and selling heavy construction equipment. As the “Netflix of Construction Equipment,” Kassem impressively built a $20 million business in the midst of a 2008 recession. His strategy was enabled by the advent of new technology, the shift of consumers to online platforms, and the ability to bypass distribution channels. We should not underestimate how capable new entrants are of bypassing distribution channels as we know that “technology allows businesses such as WhatsApp to start and gain scale with stunning speed while using little capital” (Dobbs et al 2015).
Evidently technology is a force and the only way to take full advantage of its force is through “combinatorial effect”—combining various technological tools to aid in your strategy to disrupt markets. Yet, there are “factors”, according to Porter, which I believe can inhibit these disruption. Government policy will catch up with any-to-any models to limit disruption, as was the case with TLC and Uber (TheVerge). Additionally, the platform players like Google, Facebook, and Amazon will continue to dominate due to their ability to put large resources toward R&D. And ultimately, as technological innovation effects on productivity plateau and our population ages, more importance will be placed on retaining, capturing, and keeping talent as way to stay on top of technological disruptions. The race to digitize has never been more important, and companies will face the decision to digitize or flop.
