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Digital disruption: 50% of Aussie economy on short fuse, 2/3rds face big bang


Disruption is not new to businesses or economies. In our own memories, we know how the arrival of stores such as Wal-mart, for example, upended small family-run stores in the neighbourhood. Or, the opening of large bookstores such as Barnes & Noble did the same to a small corner bookstore, as depicted in the movie You’ve Got Mail.

To consider how much the world has moved on since the 1998 romantic hit, starring Tom Hanks and Meg Ryan, consider this: Barnes & Noble is itself going through an upheaval. Its brick-and-mortar rival Borders has died and it faces an uncertain future against the disruption wrought by online retailers like Amazon.

Consider, then, some more 21st century battles:

Netflix vs. Blockbuster, Kodak vs. digital cameras, The New York Times vs. Google News, Nokia or BlackBerry vs. iPhone and Android, Paypal vs. banks, Ameritrade vs. Charles Schwab, Craiglist vs. classifieds, et al.

Mother of all disruptions

Of all the disruptions we have seen in history, the one being caused by digital technologies is likely the most pervasive, and, consequently, the one that is causing the biggest upheaval, too. Many might think it is already the case. After all, the Internet as a mass market channel, is nearly two decades old, even if we count its real arrival from the 1994 initial public offering of Netscape, and several businesses have gone bust on account of the digital disruption.

Still, it’s far from over.

In fact, digital disruption continues its inexorable march in many newer ways, and in many cases might even be gaining further pace. That, as much as the fact that most research has ducked estimating the “projected magnitude of disruption,” has led Deloitte to come up with a sweeping study (“Digital disruption – Short fuse, big bang?) of digital disruption on the Australian economy as a whole, not to mention individual sectors.

The consulting firm has captured the impact with smart metaphors: the “fuse” to estimate the time before the flameout, and the “bang” to measure the size of the explosion. So what they got?

Nearly 50% of the Australian economy has a short fuse, meaning it has less than three years to adapt; and two-thirds of the economy faces a potential “big bang” flameout over a period of five years. It also points out that Australia’s Internet economy is forecast to grow at twice the rate of overall GDP between now and 2016 – from $50 billion to $70 billion.

Let’s look at the details.

Short fuse, big bang – In Deloitte’s scheme of things, this is the most threatened segment of the economy. Individuals sectors here have less than three years to transform themselves or simply watch up to 50% of their business perish. The endangered sectors include finance, retail trade, professional services, and information, media and telecommunications. Six industries in this segment represent about one-third of the $1.4 trillion Australian economy.

Long fuse, big bang – This is the segment that has more time – up to five years. But it still stands to lose as much as the segment with the short fuse unless it can somehow undergo a metamorphosis. This segment, larger infrastructure sectors dominated by government and large companies, includes education, health, transport and government services. It constitutes another one-third of the Australian economy, suggesting two-thirds of the nation’s economy is threatened by the “big bang” from digital disruption.

Short fuse, small bang – This segment includes construction, wholesale trade and the hospitality industry. These sectors may lose far less than others, but have limited time to act and mitigate potential damage. Together, these sectors constitute 17% of the economy, suggesting nearly 50% of the nation is faced with a short fuse.

Long fuse, smaller bang – This is the least threatened segment in which the potential for digital technologies is limited. These include manufacturing and mining, and account for 18% of the economy.

“…digital innovations are transforming the economic landscape, far more profoundly than other big shifts in our economic history such as deregulation, oil shocks or mining booms,” said Dr. Ric Simes, a leading digital economist and director of Deloitte’s Access Economics unit.

“Digital innovations and disruptors are powerful, pervasive and have multiple indirect impacts. They reduce barriers to entry, blur category boundaries, and open doors for a new generation of entrepreneurs and smart thinkers,” he added. “At the same time, incumbent market leaders face substantial pressures which they need to manage if they are to thrive, let alone survive.”

“Digital disruption – Short fuse, big bang?” is the second in a series of papers on national issues, Building the Lucky Country – Business imperatives for a prosperous Australia. The study used data across 13 factors and 26 indicators that determine the intensity and timing of digital disruption, besides expert insights and opinions. It also offers practical advice to corporate and government leaders on how to pull together the right strategic responses to the ongoing digital disruption.

“We have to use technology intelligently to get the most out of our people and our unique assets,” said Deloitte Australia CEO Giam Swiegers, who believes that mastering digital disruption is vital to Australia’s future prosperity.

“In the digital age, being prepared for the worst and being agile and ready for the best will determine our future. This is a big issue that requires big thinking,” he added.

The Deloitte study presents three broad responses for policy makers and corporate leaders to emerge as “digital survivors”.

Recalibrate cost structures – Companies and government would need to radically rethink costs – of people, materials and overheads – to compete with digitally-powered, low-cost newcomers.

Replenish revenue streams – As traditional revenue streams are hit by digital newbies, companies need to find new sources of revenue across segments, geographies and fundamentally change business models in order to survive.

Reshape corporate strategies – Companies need to get “digital” on the agenda of their boards, and leverage business intelligence and analytics in order to succeed in the increasingly digital world.

The biggest risk facing any organisation is simply inaction, as wisely pointed out by Robert Hillard, Deloitte’s technology leader.