Disruption! There must be few words more likely to provoke unease among executives and investors alike. Almost universally, the term is used in the negative sense by the mainstream; its very mention associated with disturbance, upset and impediment…
Yet its incidence is on the rise, as evidenced by any number of surveys predicting the majority of listed businesses will face market disorder in the next five years — as well as a raft of statistical studies, confirming a grim toll of companies that have already succumbed.
In a business context, disruption is an innovation or intervention which changes a market pattern, creating new value chains that typically undermine the established profitability of incumbents. That’s why it’s so feared by those who might at first appear to be the most able to resist. Over the last twenty years, we’ve all witnessed, and most likely contributed to, the reshaping of once stable industries which proves these concerns are well-founded: the rise of online retail and the demise of many brick-and-mortar giants is an obvious example.
But it would be a mistake to regard the problem as particular to — or exclusively caused by — the digital and technology sectors. That’s because market disruption is ultimately a process, not a ‘thing’ — its defining characteristic is the reimagining of the status quo, with ideas that take root in niche opportunities and later come to challenge the establishment.
And here lies the critical importance of leadership in responding to what is undoubtedly one of the biggest challenges of our time. By seeing disruption in terms of method and mindset, we can regain the initiative and turn a feared externality into a constructive force for good.
The American writer and thinker Robert Pirsig (most famous for Zen and the Art of Motorcycle Maintenance) suggested that all systems evolve their worth in two distinct ways. Firstly, through periods of “static quality”, in which they work to maximize the efficiency and productivity of established processes. And secondly, through occasional periods of “dynamic quality” in which that order is radically disrupted and new norms are established. These step-changes, he claimed, are invariably sparked by the mavericks, shamans and outsiders who see things through a different lens.
The consequences for senior leaders are far from simple to address. How do we best manage these two dynamics, embracing the need for change without destroying the value of what we already have? And how do we balance the need for experience and incremental efficiency, with the innovation and fresh thinking that’s essential for a future we can’t yet see?
It’s important though to recognize that not all disruption is revolutionary, or even of the sort typified by internet start-ups, where not to be first is to be last . Over the next decade, developments such as Big Data, Artificial Intelligence and Environmentalism will move more slowly but, in the long run, they are likely to cause even greater transformations across many more sectors. Consider, for example, the potential impact of 5G and the Internet of Things, not only on manufacturing but on customer experience, data analytics, education, connectivity…
Historically, large organizations have sought to embed and extend that phase of their life-cycle which provides the most stable and durable profits leveraging their dominance to curtail change and deter new market entrants. That’s understandable, but the problem — especially as markets become more dynamic — is that a reluctance to innovate becomes a long-term vulnerability when the barriers to entry fall. The recent rise of app-based or digital banks offering simpler and unstuffy services to younger consumers, are a topical example of how the retail banking industry was caught short — and is now racing to catch up.
Hence encouraging innovation, even in the stable times, is critical to avoiding complacency, and to my mind, one of the most essential values and behaviors for an organization to embrace. It’s often said that new entrants don’t require the same returns or have the same shareholder expectations as established players. That may be true, but innovation is, at least in relative terms, much more costly and existentially risky for those start-ups. For established players to be paralyzed by the desire to protect their maximal profit point, is both ironic and a dereliction of their longer-term duties to shareholders.
Leaders must step up here, making the case for sustainability through change’ and allowing space for their organizational mavericks and shamans. By definition, these will be few, and indeed it can be harmful to have too many at the top table, but listening and more importantly paying attention to more radical perspectives is critical to staying ahead of the disruption curve.
So too is staying agile. Innovation seldom proceeds in giant leaps or eureka like epiphanies. Most times it requires adaptive thinking, which might mean going one way today and another tomorrow. The role of leaders is to create the mindset that drives this forward, showing a willingness to alter direction in the face of new evidence. Humility, listening, and most of all, a meritocratic culture in which the best ideas win, are among the foundations of the constructive disruption that leaders have a responsibility to foster.
As with so many of today’s leadership challenges, I believe the most effective response to the threats and opportunities we face, lies in the values our organizations live by. A vision and reward system that’s based on stasis will neither inspire or sustain — nor will it attract the talent that rightly expects greater trust in the devolved expertise of the organization. One of the hardest judgments calls for all leaders is to know when to cede their expertise and authority to others. When faced with market disruption it is never truer that the skills and qualities which got us to where we are, will not be sufficient for where we need to go.
I don’t want to imply that the solutions are straightforward. The reason for the hard toll of business failures is not only that market leaders have the most to lose. It’s also because the strategic alternatives require imagination, courage and the support of all stakeholders in what is inevitably a less than certain outcome. What’s clear, however, is that a failure to embrace evolving realities, even when those threats may not appear urgent, will ultimately lead to a greater and more harmful disconnect. In the future, we must break with the expectation that equates stability with value, and instead accept that disruption is now part of business as usual.