The concept of ‘change management’ has become increasingly popular in the past few years, taking firm hold in both the vocabulary and the subconscious of business leaders the world over. As a consequence, all the stakeholders in the economic process appear to have a somewhat nebulous notion that things will be different in the future. A 2016 World Economic Forum report already highlighted how new skills and competencies that didn’t exist ten or five years ago were emerging incredibly fast on the market. The study also predicted that 65% of children enrolling into primary school today would be taking up professions that are yet to be invented.
We are all aware, as consumers and as private citizens, that the future will look nothing like the present. This is because, on the one hand, the idea of ‘progress’ has been a defining element of modernity ever since the Enlightenment, but also because we are witnessing an unparalleled acceleration in technological innovation. But do we really understand what this means and what the consequences are for our economy?
Perhaps not, because there don’t appear to be many businesses taking the time to truly analyze the concept of ‘disruption’, thus losing sight of its profound implications in terms of change management and growth.
What is ‘disruption’? Why we must take the time to understand it
Is it a new phenomenon? The warning sign of major upheavals to come? A buzzword from the sunny shores of California that simply frames the current situation within the flow of innovation cycles? Or again an acceleration of what Schumpeter dubbed the ‘creative destruction’ phenomenon in liberal economies?
A 2017 report by Crédit Suisse highlights that the average lifespan of S&P 500 companies went from 60 years in the 1950s to less than 20 years today. The report cites the disruptive force of technology as the main cause of this trend, arguing that “disruption is nothing new, but the speed, complexity and global nature of it is”.
Companies were always mortal, of course, but their lifespan is now shorter as a consequence of disruption. Even through change is nothing new, one could argue that this is, in fact, a new phenomenon altogether: what we are witnessing is a clear qualitative leap rather than the simple acceleration of a known trend. Disruption must be taken seriously, because it has profound implications for businesses, and not only for their short-term growth: their very survival depends on becoming agile and resilient in a constantly changing environment.
Disruption revolutionizes traditional market competition dynamics
In 2017, the French Ministry of Finance published a report on Artificial Intelligence (AI), estimating that no less than one third of all tasks performed in 60% of current jobs could be automated in the next 20 to 40 years. The report goes as far as considering AI and its wide-reaching implications ‘a 4th Industrial Revolution’. Consider also that, according to the French Office for National Statistics, in 2014 the tertiary sector (the service industry) already accounted for more than 75% of all jobs in the country.
What do these figures mean? In all probability, Artificial Intelligence will do to the service industry what robotization did to the manufacturing industry: it will automate all tasks with a low added value. Intelligent robots could even help automate entire sectors such as customer support services – it is not difficult, even today, to imagine how these functions could be entirely taken over by chatbots or virtual assistants.
Whether we are talking about digital transformation, Artificial Intelligence or blockchain, disruption is a serious issue that simply cannot be ignored, and all the more so for large groups. As we shall see, it is precisely the oldest, least agile companies, the ones that are more invested (both literally and figuratively) in the old technologies and old management models, that are most vulnerable to the consequences of disruption.
When change becomes disruption
Let’s consider, for instance, digital transformation: it can be a powerful growth lever for businesses, but when this transformation is not anticipated at large scale within an industry, that is when we witness disruption. In practice, this translates into traditional market players being replaced by smaller, more agile players that were able to capitalize on the latest technological innovations. Disruption is the large-scale manifestation of the so-called ‘latecomer advantage’: traditional players see their market share attacked by new businesses that don’t necessarily innovate in terms of the nature of the service itself, or the benefits it provides, but in terms of how the service is delivered.
A classic example is that of intermediation platforms such as AirBnB for instance, that digitalize and improve customer experience, reduce costs for users by cutting out intermediaries, and provide instant performance ratings for each service provider thanks to an internal review system. When offered a simpler, cheaper service with similar safety and quality standards, consumers won’t hesitate to choose. Meanwhile, traditional players, constrained by ageing technologies, rigid corporate models and high overhead costs, find themselves under siege in their own market – or even doomed to obsolescence in the long-term – by companies that were not born in the same environment as them, and that don’t play by the same rules.
We could therefore define ‘disruption’ as a new player entering a given market segment by capitalizing on recent technological innovations, thus obliterating traditional market competition dynamics.
Strategy vs. Tactics: towards a new, organic business model
Disruption heralds a new model of competition, making the traditional marketing dichotomy of price differentiation vs. product discrimination obsolete. It cancels out the advantages gained from traditional business strategies, permanently affecting businesses’ growth potential, and jeopardizing their very survival.
Disruption erases the long-term prospect of competition in a stable market environment. For instance, in Porter’s seminal ‘5 Forces Framework’, businesses within a given sector are in competition to achieve market dominance, and their struggle plays out across 5 different dimensions:
- Buyer power
- Supplier power
- Threat of substitution
- Threat of new entry
- Competitive rivalry
Disruption touches all five components of the traditional market strategy equation, invalidating each and every single one of them. When a market is disrupted, it’s the very rules that change, the entire environment is transformed, and old market strategy pillars become irrelevant.
In an increasingly volatile and complex environment, companies should reconsider the benefits of a tactical approach: they need to be agile enough to adapt to changes in their environment in real time, seizing opportunities as they present themselves. This is at odds with long-term strategy, which involves planning within a stable context.
This requires a real cultural shift for businesses and business leaders alike. Future leaders face an environment where the pace of innovation is so fast that flexibility will have to be built into the very core of every business model. A company’s competitiveness will depend on its flexibility, on its ability to create value in a state of permanent flux.
We are transitioning from a ‘mechanical’ business model, based on an over-arching strategy whose implementation is controlled and cascaded down the organization (with managers functioning merely as cogs in the machinery), to a more organic model: it’s less about complying with strict rules and more about giving meaning to collective action, mobilizing collective energies in order for the company to constantly adapt and transform, to perform and continue to grow.
‘Open companies’: internalizing disruption
In order to survive and remain competitive, businesses must increasingly resort to external skills and competencies, because these too are constantly evolving. The companies of the future will, in turn, incubate and support start-ups within their sector to develop new products or services. They will collaborate with a growing pool of external talent on specific projects. They will rely on consultants not so much to help outline their business strategy, but rather in a co-development framework to access skills and technologies that are not part of their core expertise.
But there’s more: businesses should even be capable of conceiving and rolling out products or services that will, in fact, directly compete with their current offering. It’s not difficult to see how this would generate tension internally, because different business units would be pitched against each other within the same company. Imagine, for instance, a prestigious business or engineering school with several campuses around the world, deciding to launch a fully online distance-learning service to compete with the likes of OpenClassrooms. It goes without saying that this would meet with a lot of resistance internally, because this new service may well ‘cannibalize’ their existing market share. Yet, this would be a healthy market exercise, and a necessary one for the institution to be able to constantly reinvent itself.
To remain competitive on the market, companies should therefore strive to compete even with themselves, disrupting their own models. In short, to fuel growth, businesses must internalize disruption while at the same time relying on a pool of ad-hoc skills and competencies for each project, over and over again, without ever ‘settling’. What is left, then, for businesses to keep? They will retain ownership of their user data, of their intellectual property, and above all, their reason to exist and their company culture, which will guarantee their ability to perform and compete in this new agile, endlessly disrupted world.