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Managing Digital Disruption

When your industry changes, you need to aswell

28Jan

Digital disruption, disruptive innovation, innovative tech disruption, disruptive digital innovation. We live in an age of disruption, or at least, an age in which the word is used a lot, some would say to excess.

While the word only seems to have been popularized recently, authors have been writing about disruption to industries caused by technological change for nearly forty years. In the late 1970s, Dick Foster, then a management consultant at McKinsey, argued that well-run market leaders often failed when the dominant technology in a market shifted abruptly, rendering all the expertise that they had built up irrelevant. Foster labelled these moments ‘technological discontinuities’.

It was Clayton M Christensen who really coined the phrase ’disruptor’ in a business context, developing Foster’s argument further in his book, The Innovator's Dilemma. Christensen wrote that entrenched companies went out of business when they didn’t recognize the threat from a new company, when they failed to appreciate the willingness of consumers to forgo premium quality, attentiveness and incremental improvements in favor of the low cost and convenience the startup’s product was offering.

One example Foster noted was electronic cash registers. They grew from 10% of the market in 1972 to 90% just four years later. NCR, which had long established itself as the leading manufacturer of cash registers, failed to prepare and adapt, resulting in huge losses and mass layoffs. Many companies have since failed to learn the lessons from these. Fifty-two percent of the firms that made up the Fortune 500 at the turn of the millennium have now gone because they failed to make the digital shift. The iPhone alone managed to kill off 27 business models, from the flashlight to the camera.

Foster’s 1986 book, Innovation: The Attacker’s Advantage, offered some help for dealing with industry disruption, however. The first step he noted is simply being aware of the possibility of a technological shift. This is certainly still true, and it is important to keep abreast of any technologies that could impact the industry you are in. But what Foster and Christensen could not really have appreciated was the sheer speed at which consumers would adopt new technology in the internet age, and how quickly society would change. In today’s globalized world, technology has shrunk and consumers want everything in real time because they have the capabilities to get it. People carry in their pockets what would have required a significant portion of space to house just a short time ago. Smartphones and apps now allow brands to reach their consumers instantly, and businesses can garner information about their customers that force them to change their processes on a near daily basis. Digital disruption is now more than just about anticipating a technology shift. It’s about transforming to a digital business model, and developing a culture of digital DNA.

One obvious example of a disruptor entering the market and tearing chunks out of the incumbents is Uber. Uber's ability to change prices based on real-time demand and their ratings has completely changed the car hire industry. One company that has adapted well to this shift is UK taxi firm, Addison Lee, which has dealt with Uber’s rise by developing its own technology and building its App, as opposed to trying to compete on price or changing its service.

For such industry stalwarts to successfully battle young tech companies intruding on their space, they need to invest heavily in bringing in the right talent and skill sets to deal with change, both to help them predict it and to adapt. In the information age, this usually means getting people in who can analyze and leverage the vast amount of data at their disposal. Having a good view of the data not only helps companies see how the market is changing, it also enables them to take the risks inherent in predicting how technological advances will effect them.

Walmart is another to have successfully shifted from a logistics company to a technology company. The retail giant recognized that customers today want greater personalization, and set out to use every tool at their disposal to provide it. The main goal for many of Walmart’s customers is convenience, with mobile devices and new digital channels constantly arising that enable this. Walmart was one of the first to recognize that home delivery was the way that the market was heading. Home delivery, however, has still not been perfected by any means, and there is still significant space for new models and technologies to change the market for the better. As technology grows and things like the IoT develop, it could theoretically reach a point where sensors and cameras in the home enable you to let a Walmart delivery person into your home remotely while watching them from your phone, put the necessary food in the fridge/freezer, watch them exit, and finally lock up again when they leave.

Another thing incumbent firms have to recognize is that often newcomers to the market can do the job better than them, and they must partner with such firms rather than fighting them. Banking is an industry in which many of the larger firms have been successful in doing this, joining forces with FinTech companies to improve their service so they don’t get left behind. Many tech startups in recent years have also chosen to sell themselves to giants like Google or Amazon, who have the kind of innovation culture that they feel is better placed to enable them to disrupt. To bring such partners in to the fold requires that you show them you are the best option to facilitate their growth, and this means building a culture in which digital innovation is really encouraged and risk taking promoted.

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