The disruption reality – how are organizations actually reacting?
Disruption is among us and few organizations and industries can escape it. An Economist Intelligence Unit report shows that the only real choice for those wishing to thrive is to embrace disruption
EY on disruption, inspired by The Economist Disrupters series
New research into disruption by the Economist Intelligence Unit shows just how much disruptive innovations are affecting companies world-wide.
In the latest installment of The Economist Disrupters program, supported by EY, The Economist Intelligence Unit executive report asked 1,000 senior decision-makers from across three global industries how disruption is re-shaping their business, the threats and opportunities it brings, and how they are responding.
So what questions should your organization be asking itself to thrive in the age of disruption?
1. Can you see disruption coming?
Of the executives surveyed, most believe their organizations are being reactive rather than proactive when it comes to disruption. But fortunately, most organizations are starting to rise to the challenge by recognizing that disruption can come from anywhere and that they need to prepare. What does your organization need to do to seize the upside of disruption?
a) Don’t fear it, hunt it
- Despite the great promises disruption could bring, most companies still fear it. The report revealed six in ten executives believe their senior management see disruption as a threat rather than an opportunity to seize. The same number of executives also say their organizations are reacting to disruptive forces, rather than being the ones to drive or be ahead of the game.
- Given the rapid pace of change, this wait-and-see approach could prove fatal. Organizations must push themselves to embrace disruption as an opportunity. Fortunately, many organizations are doing so. Over 60% are investing financially in a disruption strategy, and the same number have either created, or consider creating, a new role to focus exclusively on disruption.
b) Know that technology isn’t the greatest disruption driver
- Technology is a great enabler of disruption, but it is not itself the greatest underlying driver – despite the accepted wisdom of most people. The EIU report discovered that regulatory changes are viewed by 29.3% executives as the single greatest driver of disruption, particularly by those in the heavily regulated financial sector.
- Changing customer behavior is seen as the second greatest driver by 26.4% of executives – though it is first among healthcare respondents – while the third greatest driver is red tape and bureaucracy at 21.8%. Although technology is only seen as the fourth biggest disruption driver at 21.4%, it does nevertheless heavily influence regulatory reviews and stimulate new customer behavior patterns.
c) Don’t forget the older generation
- Possibly at their own peril, businesses focus too much attention on younger generations of customers for signs of future trends. However, the EIU report found that the so-called ‘silver market,’ those over 60, are more likely to have disruptive potential. Healthcare executives are particularly aware of this, with 86% believing the older generation will be a greater source of disruption than emergent technologies such as the Internet of Things and data analytics.
2. Are you looking outside your industry?
As disruption challenges the status quo of organizations, industries are beginning to converge, and this is impacting upon business models. What does your business need to do to prepare for convergence?
a) Partnership models can prepare you for disruption
- With disruption driving rapid change in the business world, businesses are increasingly turning to partnerships, including strategic alliances, consortia and large firms collaborating with challengers. The EIU found that 31.9% of organizations had formed a strategic alliance with a company in their industry, while 25.8% had partnered up with one outside of their industry. Furthermore, 21.1% have engaged with disruptive start-ups as part of a formal corporate venturing program, revealing their resolve to accept and embrace disruption.
b) Be ready and willing to change your business model
- With business leaders increasingly seeking cross-industry partnerships, there will be inevitable changes to established business models. This trend is already causing disruption in financial services, due to the disruptive innovation of fintechs. It is also visible in healthcare where both incumbents and start-ups are harnessing big data and consumer technologies to improve patient care and solve medical challenges. This convergence will likely bring disruption to the energy industry, which has largely escaped it so far, with new business models such as small-scale power distribution and renewable energy products.
3. Is your organization communicating its purpose clearly?
The clear articulation of a resonating purpose plays an important role in driving an organizational culture of disruptive innovation. Employees in innovative companies actually want to continuously and actively innovate – they need not be forced by their job requirements and obligations. Their passion is nurtured through a strong, believable and clearly stated organizational purpose – one that creates greater engagement than purely economic ones. Money alone can only motivate employees so much.
Though internal competitions, ‘deep work’ spaces and material incentives all positively contribute to fostering a culture of disruptive innovation, the ability of management to articulate a clear purpose does so even more. Most executives value the potential of purpose for nurturing innovation as 61.4% believe having a purpose, one that includes both commercial and social goals, makes an organization more innovative.
4. Are you fighting complacency?
Executives must overcome their cognitive biases and recognize that all industries will eventually be disrupted to some degree or another. And those organizations who actually understand the need to prepare and adapt must recognize there is no one-size-fits-all solution for dealing with disruption.
There is no fool-proof technology-enabled business model or product that will definitely disrupt your rivals – nor is there any guaranteed method for an incumbent market leader to fend off usurpers.
Immediate business successes, which are no guarantee of future ones, should not lead to complacency. Disruption will not forgive those organizations, even successful ones, that become relaxed and complacent. The undeniable reality of disruption means even the most entrenched organization and industry will continually need to be on guard and ready to adapt.