Traditionally, incumbent companies have relied on three main competitive advantages to maintain their leadership positions over newcomers: 1) large customer bases, 2) strong brand equity, and 3) access to large amounts of inexpensive capital.

Today, however, these attributes no longer provide the protective mote needed to fend off today's agile, innovative, and risk-taking competition. Cisco's recent Digital Vortex research determined four out of 10 incumbents will be displaced in just the next five years.

Here's why.

• Large customer base-It took Wells Fargo 20 years to have 25 million online and 14 million mobile banking users. Snapchat amassed 200 million users (about the population of Brazil) in just four years. And as evidenced by WhatsApp, a large customer base is now sufficient for creating disruptive business models.

• Strong brand equity-The power and pervasiveness of social media and both stationary and mobile video cameras can destroy a brand that took years to build in literally minutes. Today, there are more than 2 billion active social media accounts. This represents about 29% of the world population. Of this total, 1.65 billion active accounts are accessed on mobile devices, which equates to 23% of the total number of people in the world.

• Easy access to large amounts of capital-Crowd funding sites and services have become commonplace, removing fast access to inexpensive capital as a competitive advantage for incumbents. Now, almost anyone or any thing can be funded through companies like Kickstarter, which just crossed$1.7 billion in funding, up from$480 million in 2013.

Plan of Action

What can incumbents do to avoid being displaced? Here are three things will enable incumbents to thrive in the Digital Vortex.

• Embrace co-creation-Digital transformation starts with a new approach to innovation. This requires you to utilize the talent cloud to find and work with people outside your organization. You must also partner with companies from multiple disciplines to co-create solutions that your customers demand. For example, if you are developing a consumer product, consider all of the industries that your target customer must experience including technology, transportation, financial services, and retail. I cover this topic in detail in my recent blog, "A New Model To Innovate in a Digital World."

• Learn the art of doing-Doing-not thinking-is the key to success in the Digital Vortex. "Doing" in this sense means utilizing new techniques such as rapid prototyping to quickly turn ideas into things that can be tested in real time with customers as an integral part of the innovation process. It also means avoiding debate about things that are illogical or based on personal opinion. Customers really do know best.

• Become swift and agile-I'm sure you're familiar with the Apple-Taylor Swift incident a few months ago. Taylor didn't like that Apple was not going to pay artists for their songs streamed during the company's three-month free trial of Apple Music. She tweeted her displeasure with the company. After some back and forth on Twitter, Apple changed its policy. This example shows both the power of social media to drive change as well as the speed and agility needed to make important decisions in days, not months and years.

How It's Done

John Hancock, the very definition of an incumbent, wanted to improve stagnating sales of its life insurance products. The company partnered with Vitality, a firm that specializes in life insurance wellness rewards programs, to create a program that offers customers a discount for healthy behavior. Participants receive a free FitBit to record their activity levels and earn "Vitality Points." At the end of each year, people can convert their points into health insurance discounts up to 15%.

According to Dr. Kevin Volpp, director of the Center for Health Incentives and Behavioral Economics at the Leonard Davis Institute, "[The program] changes the paradigm of life insurance. In some sense, it tries to change your insurance into less of a passive vehicle that pays the bills if something happens, into a more active vehicle to get people to lower their risk."

This is just the type of thinking that incumbents need to put into action to continue leading in the Digital Vortex.

The good news for incumbents is that this type of digital transformation is rapidly increasing. What examples have you seen of incumbents transforming themselves into digital businesses?