Disruption - 5 Things You Need To Know

Everyone's heard of disruption, but not everyone stops to think about exactly what it is and exactly how it works. And if you know these things, then you're best positioned to avoid disruption, disrupt, or take advantage of your disruptors. Here's 5 things I'd like to make sure you know. First of all, is it important? Yes, I think everyone believes it is. But let me share a few facts with you. Of the Fortune 500 companies on that list from 60 years ago, how many of them have gone bankrupt, disappeared, been purchased, or just dropped off the list? 90%. The S&P 500 list over the next 10 years, how many of them are expected to go? 50%. According to a study by Credit Suisse, the lifespan of an S&P 500 company is now less than 20 years. Pretty dramatic. So what company leaders are trying to do today is to run today's business and build tomorrow's. This is called the dual transformation problem. And yeah, it is as hard as driving your car while trying to change the tires. And that's why today's leaders need creative sidekicks, innovation centers, and super good consultants. All right, first of all, this is number 1 out of 5. What is disruption? All right, it's an innovation that shakes up an industry or creates a new industry. Now, it is not radical innovation, it is not something super high-tech, super amazing. It may be super amazing and radical, but unless it creates a new industry for people who have not been served today or not well served. It's not disruption. Instead of creating a new industry, you could just shake up today's industry. And that's what— when disruptors win over incumbents because they are structured to do things a certain way, and the disruptors come in and change the rules of the game. So please keep that definition in mind. Why was this such amazing research that came out of the Harvard Business School from Clay Christensen? Not only was Clay amazing himself, but he also came up with a brilliant question. Why do successful companies fail? For his Harvard doctorate research, he studied the disk drive industries. Industry. This is kind of like the fruit flies of the business world because those companies come up with a technology, grow a business, and then a new technology or another player comes in and they're gone. And he found that this is not restricted to the disk drive industry. He realized this was what was— had been happening and would happen more during our lifetime. To all industries. So the original question was a great one. Brilliant guy. Why do successful companies fail? The answer he came up with was even more revolutionary. Because they did nothing wrong. Successful big incumbent companies were doing what they were designed to do. And because they did that, very efficiently, very at scale. They developed resources, processes, and profit models that were really hard to change. You know, it's like, it's like a speedboat disruptor versus a supertanker. Okay, so in some circumstances, the supertanker is going to win. It's big, and it's going forward. But If you have a whole bunch of speedboats, they can move in another direction. And this, the supertanker can beach, it can go ashore. All right. Thing number 2, I want to make sure you know. When does it happen? Okay, it does not happen when a new disruptive technology is created. It happens because of industry conditions when an industry is ripe. Okay, an industry is ripe for disruption when customers are overserved and pay too high a price for what it is they really want. And a lot of people can't even be part of the market because they can't afford it. So If a technology becomes very, very stable, then the basis of competition and value creation does change, and the strategy a company should follow changes. And what happens is companies are trained and designed to go up the value-added chain and attack— not attack, but try to do businesses business in ways that are more and more and more profitable. They move up the market. So when an industry is charging people for incredible, fabulous, very expensive products, you're going to find a disruptor entering at the bottom, giving people an inferior product at the bottom of the market cheaply, and, and bring people into the market. And then the disruptor is going to eat its way up. Now let me not skip ahead too much. So let me give you an example. It used to be that if you're a big family and everybody's got to go somewhere and you're not living in a city with fabulous public transportation, each person has to have a car to get around. But what do cars do most of the time? They sleep in the garage. They're expensive to buy, to maintain, to feed with petrol there and insurance, etc., etc. It's a really expensive way to get around. What people really want is just a ride. So that's why Uber and later Grab and Gojek and Ola and all these were so disruptive. They were giving people what they really wanted at a super, super, super cheap price. To drive from one place to another, you don't really need to spend all that money on a car. Why don't you just spend money on a ride? Okay, number 3. So how does it work? Well, yes, you guessed it. As I mentioned, the opportunity is not at the top of the market where existing business leaders are trained to look and move their companies. The opportunity is at the bottom with non-customers and overserved customers. And strategists will help corporations look at the lifetime value of a customer and say, you know, this segment isn't really one you want. You want those high-value customers who are going to spend a lot. Okay, but that's not where the disruption is happening. And all their focus is focused at the top of the market while the disruptors are coming at the bottom. Now, because they are looking up, not down, if you're a disruptor, corporates will leave you alone. And you come in and then you eat your way up following the same management techniques, guidelines, and etc. that we management professors have taught you. Uh, sorry about that. Now, here's a, a point to note. Your focus as a startup really should be a 10 times improvement, not just 10%. Okay, because as a rinky-dink little startup, nobody's going to trust you and want to try out your product. As a matter of fact, they're concerned with their own— customers are concerned with their own problems. They already have a way of doing things. They just want to get on with their day. You've got to do it. You've got to do what they're doing 10 times better. Also, to get them to trust you instead of an incumbent, there's got to be a reason to try you out. So focus on the disruption, disruptive innovation, at the— not just at the bottom of the market, but something that does what people need done, the job to be done, 10 times better than they're doing it today, then that will motivate them to change. All right, here's another option: open innovation. You can find out a lot more about it. And with open innovation, what companies are trying to do is to leverage the advantages of being a big incumbent You've got a customer base, brand, money, distribution chain, all that stuff with the speed, flexibility, and creativity of a startup. Sometimes that, that meshing works, sometimes it doesn't. But it is another option, and we can talk more about that later. All right, number 4: disruptive versus sustaining innovations. Who's going to win the game? Now, remember, a disruptive innovation is one that comes in at the bottom of the market, and generally it's the startup that wins. A sustaining innovation is one that helps you make money in the way you're already designed to make money. So with no real change in the business model, processes, resources, and using the capital and resources and distribution chain and brand and customer base of the existing corporation. Yeah, this is where the incumbents will generally win. So when you're considering, as a corporate or a startup, a particular innovation, ask yourself, is it disruptive or or not, and who is generally best poised to win. This is why it's important for you to understand the definition carefully. So if this thing you want to do is going to shake up the industry or create a new industry, then generally the startup will win. If it's not, generally the incumbent will win. So please set yourself up from the beginning to win. Um, beautiful example of disruption actually is IBM. How many other tech companies do you know of that have been around over a century? Did they face disruption? Yeah, you bet they did. They started off in mainframes, but then came mini computers and then PCs. And then cloud services. And then they realized there's all these startups that are doing well, and they want their customers not just to be big corporates, but startups who are taking over the Fortune 500. And now they're actually the biggest design thinking consultancy in the world. These are very, very different businesses, and they have survived by running them as different businesses. When they went from mainframe to mini, they realized that, you know, the mainframe required, you know, it was a multimillion-dollar sale of a custom device. They had consultants in blue suits, expensive white shirts, ties, all the rest. And they would learn about the customer's business, design a computer system for them. It, it would take months and months and months and months to go through the sales cycle, and then they get a piece of that multimillion-dollar pie. Now, minis come along, and an SME can buy a mini computer and run the business on that. Can you have these very expensive tech guys and consultative salespeople working on a small enterprise and spend at least 6 months making a sale and custom design the whole thing for a small enterprise? No, the economics just don't work. So they realized they had to spin that off as a separate business. Yes, they still use the overarching brand of IBM because it could Conveys trust. Nobody ever got fired for hiring IBM. And they had to— then they hired salespeople without a jacket and a suit, but, you know, nice white shirt, short sleeves, tie, knows about the tech, and sets things up so a small business person can do some of the work themselves. Quick sales cycle. It's all done differently. And yada, yada, yada with all the other businesses. So big incumbents find it hard to break out of their RPPs. They can do so, but I'll give you some implications and guidance later. So the resources being the technology, the people, the products, et cetera, those can change. That's the easiest to change. Processes are kind of hard to change in an organization if you've ever tried to do change management. Or digital transformation. The hardest thing to change actually is the profit formula. It's easy conceptually, but you will have to convince a lot of leaders in the company to change the way they do business and have done business successfully, which is tied to their bonuses, their future, etc. It's very hard to do. Also, a disruption will often eat up part of the existing businesses. So everybody who's going to get eaten up and damaged by the new disruption is going to fight it and kill it. So again, set your disruption up as a different business. Now, number 5: deliberate versus emergent strategy. What is that I really wish I had known before I switched from Accenture corporate strategy to being an entrepreneur? So with corporate strategy, you have a lot of well-established tools and techniques and very importantly, data. You know how the business has run in the past. And you can use that information and your deep understanding— as deep as possible— of customers and existing markets and existing technologies, yada yada, um, to project your future and make some plans to march towards that. Now, when you're in a disruptive entrepreneurial startup type situation, you don't necessarily know what you're going to wind up selling, how much it's going to cost, uh, exactly how many people are going to buy it. And you have no data on the market, there may not be a market. Basically, you don't have any data, and you're guessing. So what you do is experiment. And whether it's very consciously or kind of subconsciously, you put something out, whether you're doing prototypes with design thinking or MVP, minimum viable product, testing things out in the marketplace, you test something You gather the data, you set the strategy going forward. You may continue with that thing. You may turn a little left or right. You may totally pivot. But your strategy is emergent. It emerges from your actions and your experiments, as opposed to a deliberate strategy where you say, we'll take these resources and move that way. A very big thing that Clay wanted to make sure everybody knows is you must have profits before you scale. Now, this may sound obvious when you're sitting around talking about it. But companies do pressure managers of new products and services and new business lines to get it out there, get it out there, go on, come on, we have that deliberate strategy schedule that we've set. And you gotta, you've got to launch it whether it's ready or not. So people wind up launching stuff that is not profitable, not quite right, not really cooked into the marketplace. And every experiment and every mistake they make becomes big and costly. Hundreds of millions of dollars have gone into these big costly mistakes. So it means don't pressure your people quite so much into launching before they have a product, a service, a business model that really works, because you're going to be scaling up your losses, not scaling up your profits. Okay, actually, there's 3 more things in— just in case you want to know. First of all, is technology inherently disruptive? No, it's not. Artificial intelligence, robotic process automation, machine learning— these things have been around for a really long time. Those of us who've been in computer science remember. For example, this thing of working virtually with global teams from your home, That was my doctorate research 25 years ago. We had an enormous opportunity with computers, information technology, and communications technology to globalize not just production, which is now global—pieces are sent all over the world and people assemble everything everywhere. But to globalize and instantize work. But we never really had a reason to do it. The opportunity was there, but the push wasn't there until COVID. So you're now using technologies that have been around a very long time. The technology is not inherently disruptive. What is disruptive is what you do with it. You're solving a big need that causes people to change. And you have a business model and a design that makes it impactful. All right. Does my product, my new product, have to be superior? Actually, no. And it makes sense when you think about how disruption works. If you're coming in at the bottom of the market, then no, your product actually should be inferior and cheaper to make it accessible to more people. And then you eat your way up. Even things like the iPod. iPod was lampooned when it first came out as inferior to the technology existing at the time. Less memory, slower, this, that, and the other. But it had a design that people loved. It was super, super, super easy to use. So go ahead and launch a disruption with an inferior product, but make sure you design it well to be super comfortable so people will adopt it. All right. So finally, if you're going to do that, you need to have a deep deep understanding of your customers and their needs, their wants, their jobs to be done. What is it they're trying to get done? You know, the old saying is, nobody ever walked into a hardware store really wanting a quarter-inch drill bit. They want a quarter-inch hole. And actually, they don't even want a quarter-inch hole. They want to put up bookshelves to hold books or put up a painting to enjoy or something. Find out what's really the job that your customer is trying to do and design for that and use the tech for that and create a business strategy for that and a business model. Now, that deep customer understanding in a big company, an incumbent, where does that sit? In the CEO's office? Usually it sits in customer service and tech support at the bottom of the organization. So you may find yourself needing to tie the bottom of the organization to the top of the organization that can make decisions and get initiatives going and approve things, and the outside of the organization, the customer. But you've got to integrate all these three. All right, that's it for now. It was actually 8 things that I wanted you to know, but I think you'll forgive me. As long as you go out there and have a fantastic journey, either disrupted, disrupting, or hopefully not being disrupted, but a great journey forward, building value and making life better. Bye for now.