Very often, we hear large companies and industry leaders talking about their ‘need’ or ‘desire’ to disrupt. A buzzword gaining traction over the past two years, leaders are panicking about the impact of disruption to their company and are trying to think outside of the box, be on the forefront when it comes to disruption and try to disrupt their own industry themselves. In fact, in 2015 62% of CEO’s in a global survey by PwC expressed concern about the impact of disruption in their industry.
The huge struggle is, for the most profitable and largest businesses, any attempts to disrupt an industry have to be balanced. Leaders need to recognise their own attempts at disruption have the ability to bring their entire business model crashing to its knees, in a spectacular fashion. Half a century ago, the life expectancy of a firm in the Fortune 500 was around 75 years. Now it’s less than 15 years and declining even further per Peggy Noonan, a Wall Street columnist.
It’s the smaller companies and start ups that are nimble and agile, that have been forced to become leaders in disruption in order to give their technology, ideas and innovative concepts a chance at survival. They have a need and a commitment to take an established industry, turn it on it’s head and create a new series of norms.
In the world of design thinking, disruption is often an idea that gets discussed and is tossed mainly around by the major players, and here’s the truth:
Large companies simply cannot disrupt
In any sector and any industry, the larger and the more established a business is, their ability to disrupt their industry dramatically decreases. Disruption, by definition, involves undercutting or working around the competitive advantages and profit margins of incumbents. The bulk of their profit and investment lies within current industry best practice and in order to disrupt there would be a need to completely overhaul and shift everything as they know it.
They would lose focus on the current customers, suppliers and existing activity, with all energy and focus moving to disruption and innovation being the sole focal points. This is the case with leading multinational and technology company Intel who has missed two important disruptive trends over the past decade, the shift from desktop to mobile their main issue, and thus, in 2016, has laid off 12,000 people, approximately 11% of their company.
It’s a Catch 22. There’s an understanding that without the ability to disrupt, the chance to survive drastically reduces. However, in order to disrupt, you need to completely disregard the very same processes that created a successful and profitable business in the first place and turn against the industry and services on which you built your product. Too little, much too late for 74% of incumbent businesses who react to unfolding disruption two years after its occurrence argues Kai Riemer, Associate Professor at the Digital Disruption Research Group at the University of Sydney Business School.
Disruption: the big company’s big nightmare
Disruption is what bad dreams are made of for large companies and their leaders. In fact, since 2000 alone, 52% of companies in the Fortune 500 have either gone bankrupt, been acquired or ceased to exist, all because of disruption. It’s a daunting prospect for management, who rose the ranks of the corporate ladder based on their ability to deliver results with the current business model and its practices. The bureaucratic structure that characterises large companies operating in the current marketplace restricts the change, proving further the inability of these companies and teams to disrupt their markets.
Unlike start-ups, who can innovate, chop and change at the drop of a hat, and pivot easily to respond to emerging trends in the industry, there is too much on the line for big companies to disrupt their industry. Less than 3 percent of the world’s population had a mobile phone twenty years ago; now two-thirds of the world’s population are equipped with one, and one-third humans are able to communicate on the Internet.
Disruptions and advances in technology allow businesses such as WhatsApp to start and gain scale quickly, with little capital. Entrepreneurs and start-ups now take over over large, established businesses. The rapid pace of technological adoption and innovation is shortening the life cycle of large companies, that struggle to innovate, and forcing executives to make decisions and commit resources much more quickly, which is a virtually impossible feat.
In the case of ‘disrupt or be disrupted’, there’s no such thing as accidental disruption. Their hand is forced by the start ups they are disrupted by, and their role turns into one of defence, ensuring they hold their territory and retain their market share, reputation and brand as best they can.
Those who pose the threat to the market have minimal or nothing to lose, and are free to attack. In fact, by 2020 more than 30% of Fortune500 will consist of companies’ unknown at the beginning of the century, a prediction from Professor Foster of Yale University.
Which brings us to the issue of management and executives, and their aversion to risk. While many leaders understand the need to disrupt and the purpose of disruption, middle management are the most averse to change. It’s a scary concept, particularly when staff and teams are so comfortable with the current flow of business. Risk aversion is the biggest killer of change in large, successful companies. No risk, no change, no disruption. Large companies can’t respond to innovation because of the risk aversion that exists within the management team.
Management asks, ‘Why do I need to change, if what we’re doing is working?’ because if you don’t move, and potentially disrupt your business model by introducing changes that respond to the requirements of the modern market, someone else will, and it won’t see the company survive.
Large companies don’t always have the ability to disrupt, but they can weather the storm of disruption. Organisations can defend themselves from certain levels of disruption, by meticulously maintaining their current, loyal consumer base or by offering a somewhat ‘premium’ service or product to counteract the disruption.
Those organisations that are loved by their customers are least likely to suffer from large scale disruption. When the key disruptors are there to satisfy a market niche or offer goods and services at a lower price, larger companies can use the fresh ideas and trends in the market in conjunction with their current offering to provide a seemingly superior product or service for the customer.
The magic of being an industry and market leader is the ability to use size and audience in order to influence future trends and prepare for the inevitable industry-shift ahead. Future-casting is just one technique that allows companies to predict models of disruption set to unsettle an industry, a valuable tool when you recognise the inability of big companies to disrupt the industry themselves.
In fact, by highlighting the models of disruption, organisations have the tools to potentially influence the future trends, or avoid them altogether. A breath of fresh air to the industry does not always have to be a negative prospect for larger organisations.
What do large companies do about disruption?
Although large companies can’t be the disruptors, they can remain somewhat innovative and reactive by responding to industry trends and disruptions which solidifies and prepares the company for a world of trend changes and movement. Or rather, using the size to respond directly to a disruptive attack and change.
Response tactics of companies reacting to disruption in 2015 found that 32% of successful companies launched services that mimicked those of a disruptive competitor. These companies had the size, the customer base, all they needed was to respond with a product/service change that mimicked that of the disruptor.
Attempting to disrupt, but struggling to succeed, is the likely outcome for large companies moving into the future. For those that are living in fear of potential disruption, it’s time to take stock and understand you will not be able to disrupt yourself. When this is accepted, take your size and strength and use it to focus on your influence and audience and how you can be the master of changing and shifting your own future.
Laurence Crew has over 15 years of industry experience, with a diverse background in customer experience research and strategy, service design, product design and commercialisation whilst also being a pioneer in designing online experiences.