RESEARCH REPORT

In Brief

In Brief

  • Disruption is an inescapable and growing challenge for all industries. And when companies are in the middle of it, they typically make cautious moves.
  • But, playing it safe amid disruption is very risky: US$41 trillion in enterprise value is already exposed to disruption.
  • We found that disruption is not a short-term shock; it’s a persistent battle.
  • For companies to succeed, they must take courage to boldly make their own innovation pivot.


Decoding disruption


At-home augmented reality car shopping. Silicon-based storage systems for renewable energy that can power cities even when the sun isn’t out. Smart speakers that know which products consumers need, even before they they do. The way we live today is driven by new products and processes that we scarcely could have dreamt of a mere generation ago. Consumers are demanding more personalized and flexible service. Business leaders are left to navigate an ever-changing landscape.

C-suite mentions of “disruption” during earnings calls, investor conferences, and company announcements have increased significantly over the past decade . And with it, the anxieties of executives across industries.

They’re right to be worried: Most of the 10,000 companies we analyzed—71%— are currently either in the throes of, or stand on the brink of, significant disruption (see Figure 1).

Figure 1. Most industries are either experiencing disruption or are susceptible to it.


In our previous research, we found that disruption is not completely unpredictable—good news since understanding it better makes it more manageable. Based on its current level of disruption and susceptibility to future disruption, each industry can be located in one of four distinct periods—Durability, Vulnerability, Volatility or Viability.



To learn what it really takes to make a wise pivot in the midst of disruption, listen to our conversations with leaders like Schneider Electric’s Chairman and CEO, Jean-Pascal Tricoire.

In it for the long haul


This year, we created the Disruptability Index 2.0 to understand how disruption evolved over the last decade for 18 industry sectors.

Our longitudinal research reveals that industry disruption is a persistent condition—not a short-lived explosion.

83%

of industry sectors we analyzed spent at least five years in the same period of disruption between 2011 and 2018.

Extended exposure to persistent disruption comes with serious casualties, no matter the industry. Between 2011 and 2018, 3,217 U.S. companies from across the 18 sectors went bankrupt.

Retail, which has been in the period of Volatility throughout 2011 to 2018, was hit especially hard, with 43 corporate bankruptcies recorded in 2018.

Both the Consumer Goods and Services and Retail sectors saw over a 30% increase in their level of disruption between 2011 and 2018. This was based on an almost 500% increase in the number of unique VC deals between 2011-18, with total VC funding of just under $12 billion in 2018. These are jarring stats. For the leaders living out these trends, they represent true upheaval.

Playing it safe—and
faltering


So how are leaders responding to these threats?

They’re focused on building greater resilience, with the biggest improvers being the Health and High-Tech sectors. They did this through a range of activities, from cutting operating costs to improving innovation commitment to saving for a rainy day.

Companies in High-Tech, for example, shaved on average 2.6 percentage points off their COGS/Revenue and increased the value of their cash and short-term assets by 40%. But they continued to see an increase in actual disruption, due to financial performance pressures and merciless influx of disruptors.

Why? Over time, incumbent companies have built up a reservoir of assets and routines and, unsurprisingly, they lean on those when responding to disruption, rather than staking out new terrain.

These proven, familiar strategies may have served incumbents well in the past. But they are not sufficient for prospering through persistent disruption.

There is a better path; an unconventional one that enables companies to wisely take charge of their own destiny, by courageously making what we call an innovation pivot. It’s the way to truly change (not simply protect) their position, with long-term impact in mind.


“Schneider is more than 180 years old. We started in iron and steel and now we are digital solutions for energy, using automation. What we’ve learned is that there are two kinds of pivots: the pivots you initiate, which are good for the company, and the pivots the environment imposes on you. Those are very painful. So our obsession in the past 20 years has been to anticipate, to choose our pivots and transform continuously as a company.”

Jean-Pascal Tricoire, Chairman and CEO, Schneider Electric



Omar Abbosh

Group Chief Executive, Communications, Media & Technology Group


Paul Nunes

Global Managing Director of Thought Leadership at Accenture Research


Dr. Vedrana Savic

Managing Director of Thought Leadership at Accenture Research


Michael Moore

Senior Principal, Thought Leadership at Accenture Research

MORE ON THIS TOPIC

Harness the power of disruption

Start your innovation pivot

The nature of disruption in your industry should inform, but not constrain, when and how you focus your innovation efforts.

CREATE YOUR NEXT CUTTING EDGE

Embrace new technologies to develop potentially disruptive ideas, in and outside of your current industry.

Financial performance is often strong for incumbents that have captured winner-takes-all markets, but new entrants have their eyes on growing profits. Industries in this period also have rapid product cycles and fleet-footed customers. Staying ahead of the curve is an imperative in this period.

Surprisingly, relatively few Software & Platforms companies are investing in newer technologies such as edge and fog computing, or extended reality technologies. Less than 40% plan to adopt any of those newer technologies in the next five years.

More ambitious companies go beyond today’s proven technologies to innovate at the next frontier, where they can discover potentially disruptive ideas. Ultimately, they understand that the best way to prepare for the future is to create it.

FUND YOUR FUTURE BETS

Progressively bolster and allocate your innovation investments so you can test and turn new ideas into commercial realities faster.

Industries in this period have benefited from decades-old business models that served them well. Unsurprisingly, they aren’t prepared to let go of proven success formulas. Disruptors are kept at bay by the incumbents—for now. The relative success of companies in these industries doesn’t mean they’re invincible, though. Not if fault lines and inefficiencies are ignored.

Chemicals companies, for example, are performing strongly, with average annual revenue growth rates of 5.7% over the past five years. But investment in the future is showing signs of slowing. This comes at a time of rising threats: Unique VC deals in the industry have more than tripled, from 226 in 2011 to 691 in 2018.

Leaders in these industries focus on building a pipeline of new ideas rather than sweating their core assets. More importantly, they bolster and allocate the capital necessary to ensure they can commercialize new ideas with future potential before their competitors do.

FIND PARTNERS TO SCALE WITH

Commit to scaling new ideas with ecosystem partners who can provide access to technologies and specialized talent.

Industries in this period have the benefit of being well-established and asset-rich. And, the incumbents in these industries tend to be older than others: Sixty-four years on average, compared with just 42 for those in the Viability period.

The new entrants that do emerge initially attack incumbents at the product and service level rather than competing across the value chain. But for most, the squeeze often isn’t severe enough to inspire substantial action. Incumbents often ponder for too long and lack the risk appetite to invest in new growth ideas early. Opportunities exist for those that can see beyond short-term pressures and set their sights on creating scalable businesses that will matter tomorrow. Large companies have realized that to succeed, they need to commit to scaling new ideas with ecosystem partners who can provide access to technologies and specialized talent.

DISRUPT FROM THE INSIDE

Establish a specialized entity such as an “innovation lab” or a “digital factory” in order to bring meaningful innovation into your established business.

Industries in this period feel the pinch. Financial performance has dropped off as fault lines that developed amongst incumbents have been exploited by disruptors who are eating their market share. And there is little sign of abatement—the future looks equally difficult as inefficiencies and underinvestment in innovation are exposed. They face difficult prospects, requiring them to make radical choices in the core business.

In the Retail sector, ever-growing platform-based competition has forced some hard choices. The historically slow innovation displayed by traditional retail players is changing—$5 billion is expected to be spent on AI technology in 2019. But more than a digital veneer is needed.

A separate study we conducted found that 80% of companies in the Retail and CG&S sectors had altered their strategy as a consequence of disruption. Some of its incumbents show tenacity, while others try to do too much too soon.

Leading companies juggle the twin challenges of prolonging the lifespan of their legacy business while also investing in new areas. The former requires a restructuring that supports continual internal disruption in order to mitigate external threats.

Time for courage

No longer can companies assume that disruption is just a passing storm they need to ride out. As Bob Iger, Chairman and CEO of the Walt Disney Company, once said: “We have to be different when that storm clears. We can’t be the same”.

Responding to persistent disruption requires a radical departure from familiar strategies. Your path to repositioning starts by understanding the disruption trends: How disruptable is your industry today? How has disruption evolved in your industry over time? It takes shape when you put innovation to work in ways that enable you to set the right pace - whether you create your next cutting edge earlier than others, fund your future bets to turn new ideas into commercial reality, scale ideas faster through new partnerships or develop world-class in-house innovation capabilities.

Then your company will not only be different once the storm clears: It’ll be stronger for the next one.

Get the essentials

How leading companies invest and innovate to harness the power of disruption.

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About the authors

Omar Abbosh

Group Chief Executive, Communications, Media & Technology Group

Paul Nunes

Global Managing Director of Thought Leadership at Accenture Research

Dr. Vedrana Savic

Managing Director of Thought Leadership at Accenture Research

Michael Moore

Senior Principal, Thought Leadership at Accenture Research

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