Now, Snap Your­self Into It

Dis­rup­tion isn’t just a buzz­word. If you don’t dis­rupt your own busi­ness, some­one else will

The Economic Times - - Breaking Ideas - Rita McGrath & M Muneer

Not too long ago, a lead­ing In­dian telco ap­proached one of us to de­liver a key­note ad­dress. The brief: to mo­ti­vate ex­ec­u­tives in the wake of red­den­ing bot­tom­lines and im­mi­nent lay­offs in­duced by the ‘Jio ef­fect’. We mar­velled at how lethar­gic th­ese lead­ing tel­cos had be­come, even though they were cog­nisant of the Jio launch a year ear­lier.

What is vis­i­ble, clearly, is the in­ep­ti­tude of In­dian com­pa­nies to lead dis­rup­tion from in­side out. While all the ex­ist­ing play­ers imag­ined Jio to com­mence a price war, they were struck by a dis­rup­tive vi­cis­si­tude in the unit of busi­ness it­self.

Dis­rup­tion is ev­ery­where. From tele­com to re­tail, fi­nan­cial ser­vices to IT, and pharma to travel. Take, BFSI (bank­ing, fi­nan­cial ser­vices and in­sur­ance). With the reg­u­la­tory thrust for bet­ter liq­uid­ity and digi­ti­sa­tion post-de­mon­eti­sa­tion, fi­nan­cial in­sti­tu­tions need to think dif­fer­ently now more than ever.

The sec­tor is also see­ing in­cur­sions into its tra­di­tional busi­nesses by new en­trants of­fer­ing ser­vices that are ei­ther cheaper or de­liv­ered dif­fer­ently. Pay­ments, share-trad­ing, money man­age­ment, forex and in­vest­ments are all see­ing the im­pact. From Bit­coin and Paytm to BHIM (Bharat In­ter­face for Money) and Freecharge, In­dia is fol­low­ing the world.

Dis­rup­tion is at its ev­ery­day best in an­other in­dus­try: travel. Tech­nol­ogy is mak­ing it eas­ier for trav­ellers to get in­for­ma­tion, com­pare prices and make their own ar­range­ments. Thi- rd-party ad­vice sites such as TripAd­vi­sor, Yelp and Za­gat make and break busi­nesses: a few bad re­views can rad­i­cally trim busi­ness. At the same time, new en­trants such as Airbnb, Uber and Lyft have the po­ten­tial to re­place to­day’s mid­dle­men at the cen­tre of the most crit­i­cal trans­ac­tions.

In the de­vel­oped world, there is a con­tin­ual de­cline in ROA (re­turn on as­sets) in the last 40 years. The ‘top­ple rate’ — a mea­sure of the rate at which com­pa­nies lose their lead­er­ship po­si­tions — has in­creased by 39%. Share buy­back and stock in­cen­tives are cre­at­ing ‘prof­it­less pros­per­ity’ in which ex­ec­u­tives and in­vestors reap rich rewards, while cor­po­ra­tions are hol­low­ing out ba­sic ca­pa­bil­i­ties.

The ten­ure of com­pa­nies on the S&P 500 has de­clined from 61years in 1958 to 18 in 2012. Two decades from now, 75% of the S&P 500 com­pa­nies will have turned over. Com­pany lead­ers un­der­stand they need to in­no­vate and adapt, but they seem to be stum­bling on just how to make this hap­pen.

To­mor­row is An­other Day

Most com­pa­nies in In­dia stick to a busi­ness model and ex­e­cute against it re­peat­edly, although shod­dily. Worse, they pay only lip ser­vice to cor­po­rate en­trepreneur­ship in find­ing ‘tran­sient ad­van­tages’, while their em­ploy­ees con­tinue to ig­nore com­pe­ti­tion from other in­dus­tries, the need to man­age both cycli­cal and struc­tural changes, and ob­tain early warn­ings and make de­ci­sions faster.

The rem­edy to ride the dis­rup­tive wave is to mount dis­rup­tion it­self. Discovery-Driven Dis­rup­tion (DDD) is a means to scout for op­por­tu­ni­ties or ‘tran­sient ad­van­tages’ and frame op­tions. For most firms, the core busi­ness is largely about to­day’s of­fer­ings for to­day’s cus­tomers.

The idea is that ‘Plat­form Launch’, or ‘Hori­zon 2’, is to­mor­row’s po­ten­tial core busi­nesses. In the outer edges of un­cer­tainty, or ‘Hori­zon 3’, lies ‘op­tions’. Th­ese op­tions are small in­vest­ments an or­gan­i­sa­tion makes to­day that give them the right, but not the obli­ga­tion,tomake­fu­turein­vest­ments.

DDD will help firms to draw their new strat­egy play­books that will con­tin­u­ally re­con­fig­ure, en­gage and dis­en­gage in new op­por­tu­ni­ties for Hori­zon 3, al­lo­cate re­sources be­tween projects deftly as op­tions evolve, build in­no­va­tion pro­fi­ciency and en­tre­pre­neur­ial mind­set. This will also lead to man­ag­ing ca­reers of em­ploy­ees in rad­i­cally dif­fer­ent ways.

DDD uses a five-step process: cre­at­ing a cli­mate sup­port­ing con­tin­u­ous op­por­tu­nity-hunt­ing; estab­lish­ing the en­tre­pre­neur­ial frame; cre­at­ing a well-stocked op­por­tu­nity reg­is­ter; build­ing real op­tions; and driv­ing adap­tive ex­e­cu­tion.

Just as en­trepreneurs or­ches­trate op­por­tu­nity search and scale up per­son­ally, DDD will pave way for ‘in­trepreneur­ship’. The process for estab­lish­ing a frame in­volves work­ing through cer­tain ex­pec­ta­tions of var­i­ous stake­hold­ers and look­ing at what min­i­mum rev­enue and ROI tar­gets the firm will con­sider as a ma­jor win. Re­verse in­come state­ments will an­a­lyse re­sul­tant pos­si­bil­i­ties. The op­por­tu­nity reg­is­ter will in­ven­tory all new busi­ness ideas iden­ti­fied for fund­ing and it will have a rich set of pri­ori­tised items.

Real op­tions rea­son­ing in­volves mak­ing small in­vest­ments that give you the right to make a de­ci­sion later. The idea is to limit your down­side ex­po­sure un­til the up­side po­ten­tial of the op­por­tu­nity is demon­strated. In con­junc­tion with lim­it­ing risk, an op­tions ap­proach al­lows one to cre­ate fo­cus and strate­gic align­ment across a port­fo­lio of ini­tia­tives.

Com­ing Apart at the Teams

One would imag­ine a group like, say, Tata, which has been ‘ex­per­i­ment­ing’ with in­no­va­tion in mul­ti­ple ways, to lead dis­rup­tion in many in­dus­tries glob­ally. In­stead, 70% of its prof­its come just from TCS. The trou­ble is that most com­pa­nies in­vest in set­ting up in­no­va­tion teams, build­ing in­cu­ba­tion cen­tres, send­ing teams to Sil­i­con Val­ley, but don’t fol­low a seam­less ap­proach. In­stead, they ad­dress sys­temic is­sues unique to In­dia, such as risk-aver­sion, a copy-and­paste cul­ture and ju­gaad.

DDD adapts the ‘If you have to fail, fail cheap and fast’ pol­icy that en­cour­ages more dis­rup­tive ini­tia­tives at lower down­sides. Bot­tom­line: if you don’t dis­rupt your own busi­ness, some­one else will.

McGrath is pro­fes­sor, Columbia Busi­ness School, US, and Muneer is co­founder, Medici In­sti­tute

It’s al­ways worth a shot

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