In his seminal work The Innovator's Dilemma, Clayton M Christensen argues that the process that causes great companies to fail is "disruptive innovation" driven by technology. Christensen has gone on to become something of a hero figure for the technology industry, with a tornado of disruptive forces having torn through different industries, causing permanent realignment in sectors that haven’t seen change for many years.
Christensen’s idea was that a new company invents and begins marketing an inferior product in the eyes of industry incumbents, who fail to see it as a threat because they don’t believe it would interest established customers. Customers, the incumbents believe, desire the premium quality, attentiveness and incremental improvements they offer them. This failure to appreciate the unstated needs of their customers and adapt leads to the collapse of companies.
This is currently being seen across the business spectrum on an unprecedented scale. Business is undergoing a profound change, at a pace that Christensen himself likely could not have anticipated. The nature of disruption is now different to what it was when he studied Disk Drive technology firms, driven by the amount of venture capital being pumped into new enterprises, the value of data as an asset, and the influence of Christensen’s work itself - seen as advice by his acolytes, and in some ways now self-fulfilling.
As digital technology opens new opportunities to innovate, old markets are increasingly being disrupted. Every piece of data is being digitized, and the global business landscape is becoming ever more connected. Everything that worked in the past is having to be re-evaluated in this new environment, and previously cosy arrangements are being destroyed. Deloitte Consulting’s recently released Business Trends report, titled Business Ecosystems Come of Age, subsequently uses the metaphor of ecosystems to describe the current business world. Deloitte’s report argues that the very nature of the ecosystem is changing, and is set to change further. Customers will become even more active participants, the Internet of Things will grow to upwards of 26 billion devices, and there will be a multitude of new platforms, filling functions that even current disruptors may fail to provide.
Deloitte’s report argues that businesses will have to adapt to the changing nature of ecosystems in a number of ways.
The Internet of Things is set to be a major cause of disruption. Much low-skilled work will be automated, giving way to a new staffing structure with a greater focus on workers with niche specialities, as well as more contract workers. Talent sourcing and recruitment will be irrevocably altered as a result, and freelance platforms will become more prevalent.
The IoT will also have a massive impact on supply chains, helping them to evolve into so-called ‘value webs’. These value webs span and connect entire ecosystems of suppliers and collaborators, which will be more effective, cut costs, and mitigate risk. Increased globalisation will also feed into these value webs, and firms will see value being created not only within firms, but in the rich interactions between them, creating thousands of partnerships in the process. A further trend will be that globalization combines with localization. Deloitte’s study points to Nestle´, which operates its networks according to the basic principle: ‘Centralize what must, but decentralize what you can.’ Economist Brook Adams once argued that economies tend toward centralization, and it will be a skilled balancing act for firms to fight that natural instinct.
Outside the supply chain, businesses will also depend more on collaboration in other areas. The move to contract workers will see companies share employees and talent, as well as ideas and innovations, bolstered by the advances in communication and platforms that make connecting with other companies easier. Advances in big data too mean that information is set to be traded like never before. All of this will lead to entirely new business models, ones that emphasize agility in the market place.
As the nature of business changes, so too will the way it is taught. More and more business degrees are incorporating innovation and disruption. The Deloitte study points to an increase in courses being offered in degrees with a social bent too. These are designed to suit the sort of high-achieving entrepreneurs looking to have an impact on the social sector and catalyze change, to make a difference on society as well as succeed in their field, which Deloitte notes are replacing the old type of leaders.
Platforms are set to be vital moving forward. As well as aggregation platforms, social platforms, and mobilisation platforms, there will be a fourth platform introduced in response to the dynamic and demanding environments created. Learning platforms will make work lighter for their participants, as well as grow their knowledge, accelerate performance improvement, and hone their capabilities in the process. Leader who recognize the importance of such platforms will understand that the greatest opportunity is to find the influence points that captures a larger share of the value created there. Finding them is a matter of recognizing where relationships begin to concentrate.
With innovation moving forward at such a pace, regulators are already struggling to keep up, and firms such as Uber and Airbnb are testing the boundaries of their frameworks. More important than conventional regulations now is reputational risk. Social media is such a powerful force that keeping business behaviour in line is a completely different proposition, one that is arguably far more difficult than when there was just a regulator with a list of rules. Now there is an unruly and often irrational mob of Twitter users looking to shame corporate wrongdoers for various malfeasances, often with a seemingly arbitrary level of outrage.
Deloitte’s survey implies a level of destruction, as opposed to disruption in future business trends. One case study beneficial to looking at how businesses are currently progressing when faced with such disruption is in the private car. Faced with the introduction to the market of Uber and Hailo, taxis have been up in arms as they attempt to block their perceived 'intrusion' into the sector, often citing things like their ability to avoid the same regulations that they face, despite black cabs having a range of advantages over their new competitors.
Some firms have, however, adapted to this change in the market place. One example of this is Addison Lee, which has dealt with Uber’s meteoric rise by improving its own technology and developing its App, as opposed to trying to compete on price or changing its service. In February, Addison Lee reported profits for 2014 of £33.5m, up 55%. This may be the way we see existing models cope with the influx of disruptors. Those who adapt quickly to new technology yet emphasises their point of difference and don't compromise on price will flourish, consolidating their position by buying up those who fail to do the same.