Digital Disruption – myths and realities
7 Nov 2017 04:32 PM
Blog posted by: Julian Birkinshaw – Professor of Strategy and Entrepreneurship, London Business School, 07 November 2017.
What are the myths and realities about digital disruption? AXELOS attended the recent British Quality Foundation event, Digital Disruption – is it business as usual, and this is a summary of London Business School professor, Julian Birkinshaw’s analysis of current digital disruption thinking:
Digital disruption is about new business models in existing industries, playing by a different set of rules and potentially undermining existing profits of incumbent companies.
Among the world’s top ten listed companies, seven of them are “platform companies” (e.g. Apple, Google, Facebook) which have increasing returns to scale and are able to create new sources of value. All of them are disruptors.
But what are the myths about digital disruption?
Myth 1: Every industry faces disruption
Most business leaders expect their business and sector to be disrupted. However, the process takes time: in 2015 Anthony Jenkins (then CEO) of Barclays predicted disruption (calling it an “Uber moment”) for the bank. In 2017, he had to backtrack, calling it a “pre-Uber moment” ahead of five years of change.
So, you have to be cautious about overstating disruption and there needs to be real, genuine evidence of it.
Myth 2: Established firms don’t see the iceberg coming and get into trouble
Big companies have people observing the “iceberg” coming. For example, Kodak invented the first digital camera and were smart enough to see digital coming!
At Nokia there were teams of people working on touch screen technology. They missed the boat, but not because they weren’t aware. In 2010, the year that Apple sold 40m iPhones, Nokia sold 453m phones and it was still business as usual.
Myth 3: Established firms don’t invest in digital activities and capabilities
Kodak had invested £5bn in digital activities by the mid-1990s, though it ultimately failed.
ToysRUs, which recently filed for bankruptcy, did a deal with Amazon in the early noughties for online selling.
The key point is that the biggest challenge and barrier to transformation is lack of commitment, not capability.
Building the mindset and capacity to adapt
How should organizations operate in a fast-changing business environment?
Fight complexity with simplicity. Control and over-engineering of systems can get in the way.
Adhocracy versus bureaucracy and meritocracy
An “Adhocracy” is an organization that is privileging action: just do something, experiment and figure out how the market responds. On the basis of that you understand it better.
Examples include the birth of the Apple Mac; more recently ING Bank has used agile/ad hoc principles with cross-functional teams of agile workers.
Adapting to disruption is about understanding the different organizing models for companies. Probably, most companies will have a combination of models (bureaucracy, meritocracy and adhocracy).
But with a move from the Industrial Age through the Information Age and onto the Agile Age brings an emphasis on agility, intuition and decisiveness (the Adhocracy) and the behaviours needed are:
- Fast response
Leaders must set direction, provide a safe place in which people can experiment and make decisions that are sometimes giant leaps of faith into new areas of business.