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January 08, 2014
De-capitalizing digital disruption
By: Mark McDonald

Disruption is a popular topic among executives and consultants alike. Fear drives the majority of the conversation, with companies seeing themselves as the object of disruption rather than the subject creating disruption. It seems for most of us, we are on the receiving end of disruption. Disruption should be the catalyst for business change because disruption itself indicates changing conditions that place you on the wrong end of the trend.

But how much disruption does it take?

The answer is difficult to quantify but easier to explain.

Disruption with a capital “D”

The business media see disruption as a big deal with technology upsetting 20% or more of revenues in an industry. Technology has shifted revenues in industries like music and publishing. Such significant shifts are seen as the litmus test for other industries and the degree of technology disruption we should expect. So as ‘software eats the world’ it would destroy current industry leaders replacing them with a collection of over the top digital start-ups and consolidated incumbent players providing basic infrastructure.

Disruption with a capital D feeds media attention but it also reduces executive attenuation to the challenges and opportunities created by digital technology. Saying that today’s leaders will disappear tomorrow may sell papers, blog posts and media stories but it can be hard to translate into board room decisions.

Big “D” disruption seems like so much FUD (fear, uncertainty, and doubt) to infidel companies. Future predictions of digital doom grate against current operational realities. It is hard to see a major multi-billion dollar business going away even when you’re working hard to achieve current plans and make earnings forecasts. Disconnects between future industry catastrophe and individual capability drives skepticism, slows responsiveness and curtails innovation. It is not a lack of vision, but rather a lack of connection at play when the industry talks about big D disruption.

Lower the case to make a place for digital disruption

It is hard to connect the flood that will end the world with a few raindrops or thunderstorms that fit within the current context. That is why preaching Disruption is more often the domain of thought leaders and industry pundits rather than the business practitioners. Practitioners see disruption differently, more immediately and fundamentally in smaller terms that directly connect with current realities and plans. They de-capitalize disruption to re-energize the organization for change.

This point came to light in a discussion regarding CEO expectations and the level of disruption that required a leadership response. The discussion centered on how small disruption could be used to elicit a response. The answer would surprise you – it’s not the twenty plus percent mentioned above, but rather 2-3%. That is disruption occurs when a competitor (new or old) is able to take away 2 or 3% of revenues or requires systemically cutting prices to retain planned business.

Two to three percent of revenues does not sound like much, but it’s enough to upset business plans and stakeholder commitments. The observation that a competitor creates that disruption is the amplifying condition. If one person can upset our plans to that degree, then it is possible for others to do the same. 2% become 4% then 6% when just three competitors adopt new business practices and offers. That’s real money and a real challenge.

Changing disruption’s capitalization clarifies digital business realities

It takes nothing to dismiss future digital disruption in the face of achieving business plans and supporting earnings. When that happens it is easy to say that ‘we are ok’ and disruption is for the other guys. Such thinking is common before the fall as Jim Collins pointed out in his book “How the Mighty Fall”. The trick is to change the frame of reference and look for signs of lower case disruption by thinking about the following:

  • What are the sources of future accretive growth? Growth that comes organically rather than through mergers, acquisitions, price increases or the like?

  • Who are my future customers? Where will they come from? Would they even recognize themselves as my customers?

  • Who is the hot competitor? The one everyone is talking about. Are they growing faster than we are? Why is their growth faster than ours?

  • Is there a part of the business plan that is falling behind? Have we abandoned past market segments because we no longer believe they are profitable or growth opportunities? If so, then who is entering those same segments – who is getting those dollars that we are walking away from?

  • Are we raising service levels faster than we are raising prices? Why? Who is creating the need for expanded experiences and services?

  • Are we accelerating future sales into the current period in order to make today’s plan? Have discounting, promotion, marketing or other incentive costs risen without corresponding growth results?

These questions are illustrative of the introspection required to identify the places where you may be losing 2 – 3% of revenue or results to find the lower case disruption that drives action. Waiting until the industry dislocates everyone puts you in the same boat as everyone. Backing away from the macro and understanding the micro implications of digital just might make this change more meaningful and in a way that fosters a competitive response.

Another way to think about it is this… by the time the platform is burning; it may be too late to recover.

Find the individual sparks, the 2 -3 % disruptions. Understand them, their dynamics and their impact. Avoid stamping them out, blotting them with incentives or declaring the market dead.

Then kindle your own sparks, target 2-3% of revenue of your competition, adjacent industry, other opportunity etc. Create your own disruption.

Lower-case disruption to be sure, that way they will never see you coming.

Which is truly disruptive.

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