This post marks the second ‘track’ in my Digital Disruption Playlist. In the third, I’ll take on the challenges of digital transformation. Stay tuned.
In today’s global, complex, diverse and fast-moving business world, it’s difficult to find any one thing that a majority of CEOs agree on. And yet, a Dell survey of 4,000 senior business leaders succeeded. Their research found 78% of C-level decision makers believe digital startups will pose a threat to their organization now or in the near future.
Is that a rational fear? How many ‘disruptors’ can you name? Netflix, Amazon, Uber, and Airbnb immediately come to mind. And the ‘disrupted’ are also well known – Kodak, Blockbuster, Barnes & Noble, Tower Records, Wang… You can probably recall a handful of others. But is the list long enough to cause executive suites to lose sleep and spend billions of dollars? Should the risk and/or the potential of digital disruption warrant a prominent place on every CEO’s agenda?
In analyzing the tenure of S&P 500 companies, I hoped I might find an answer to these questions. The S&P 500 began tracking stocks in 1923. Economists have long considered it a bellwether of the U.S. economy, and a leading indicator of business cycles. I hypothesized that the amount of churn in membership would serve as an indicator of business disruption. For example, if three companies were replaced in one year, and ten businesses in the next, then disruption was increasing. An innovation consulting firm called Innosight had already gathered the data I was looking for:
· In 1958 the average tenure of an S&P 500 company was 61 years;
· By 1980, it narrowed to 35 years;
· Today, it’s 18 years;
· And by 2027, if current churn rates continue, 75% of the current S&P 500 will be replaced.
Evidently, businesses are being disrupted. And the pace of disruption is increasing. But where is it coming from?
I found the answer in research conducted by CB Insights, who created a telling Market Map landscape of companies across a wide range of industries. A Market Map lists a company’s products and services, and then identifies all the startups that are attacking each one of them. Every example shows what happens when a company ‘unbundles’ their products and services. There will be dozens of well-funded startups, each experimenting with a new business model, with a team that is working around the clock, dedicated to disrupting one small segment of that company’s business. Disruption does not have to come hard and fast, like Uber and Airbnb. More often it comes as death by a thousand cuts.
There is a wealth of supporting data here. Dell’s survey of business leaders also reveals that 62% have already seen new competitors enter the market as a result of the emergence of digital technology. Gartner adds that 125,000 large organizations are now launching digital business initiatives, and that CEOs expect their digital revenue to increase by more than 80% by 2020. Digital disruption is real. CEOs’ fear of digital startups is rational. Responsible business executives can no longer adopt the “Don’t Worry, Be Happy” attitude.
Once this disruptive reality is confronted, how should CEOs respond? Reportedly, 63% did by appointing a Chief Innovation Officer, or a VP of Digital Disruption. I interviewed 20 newly anointed innovation executives, and found:
· None had clear goals or defined objectives;
· None had yet to find a business sponsor;
· None controlled a budget large enough to even begin to explore a new initiative; and,
· All of them agreed, “We have no clear path to follow to create a new vision.”
No goals. No sponsor. No funds. No clear path to developing a vision. Appointing a Chief Innovation Officer, alone, is not a sufficient strategy. It’s simply kicking the digital disruption can down the road.
CEOs also responded by initiating a formal digital transformation initiative of some form. Forbes Insights[5] surveyed 573 global business leaders and found 90% of them did just that. But Forbes goes on to say the majority (84%) of these programs have failed to generate the desired results.
This reminds me of the beginning of the mobile technology wave. In 2010-2011, most large enterprises developed a mobile strategy. In many instances, CEOs acted because they felt pressured by their boards, customers and employees to ‘do something.’ Creating a mobile strategy checked the I’m-doing-something block, while avoiding the investments, risks, massive changes and long-term focus characteristic of true business transformation. Some enterprises skipped the strategy phase altogether. Instead they ‘innovated’ by conducting experiments, and proofs-of-concept. These ‘Random Acts of Mobile’ rarely generated any real business benefits.
Other CEOs were intrigued by the potential of mobile as a platform to run their business, and potentially transform the way it’s conducted. They defined clear objectives, made the required investments, and successfully executed the projects that emerged. Two examples of getting it right:
· Panera transformed its in-store experience and launched a highly profitable catering business. That led to their acquisition by JAB for $7.5B.
· The ‘patent cliff’ that lay ahead for its Abilify schizophrenia drug created a tremendous sense of urgency for Otsuka Pharmaceutical. Their leadership believed that even though the drug would become generic, they could create a smart pill to differentiate Abilify from low-priced competitors. In November 2017, the FDA approved Abilify MyCite as the first trackable digital medicine.
Deciding to be a digital disruptor requires unwavering leadership and a tremendous amount of courage. A CEO must be willing to commit to significant investments, embrace change and risk failure — even when the business impacts may not be fully felt until their successor is in place. No wonder it’s so easy to kick the digital disruption can down the road.
To summarize, four easy rules to follow to become a victim of digital disruption:
1. Don’t Worry. Be Happy. Business disruption is real and it’s accelerating. It seldom comes hard and fast, like Uber. Instead, it targets segments of a company’s products and services, and presents itself as death by a thousand cuts. CEOs can decide to be either a disruptor or a defender. Both strategies are viable. Both require unbundling an enterprise’s products and services, and exploring how innovation can impact each.
2. If We Launch a Formal Program, Innovation will Come. In 84% of cases, these initiatives fail. Take a reactive, near-sighted approach if you’d like to make like the unsuccessful majority.
3. Kick the Can Down the Road. Appoint a VP of Innovation or a VP of Digital Disruption without defining goals or objectives, assigning a business sponsor, or providing sufficient funding.
4. Approach Business Transformation as a Random Act of Innovation. It’s a safe bet you won’t transform your business with a suggestion box complete with t-shirt prizes for ‘winning’ ideas. And it’s not about an innovation lab tucked away in the corner, equipped with a foosball table and free snacks, either. It’s about being one of the CEOs who understands the long-term focus, investment, patience, focus and commitment that success in digital disruption demands.
Business transformation is hard work. In my next blog, ‘Times They Are A-Changin’, I’ll explain why.