Disruption waiting for no one
Smart strategy and execution no longer enough, writes Jon Hooper
Disruption is changing the way the world works. Artificial intelligence and robotics are reinventing the workforce. Drones and driverless cars are transforming supply chains and logistics.
Three factors are driving the change: technology, accelerating globalisation and demographics — where migration and millennials are transforming workplaces, consumer behaviour and buying patterns.
Entrepreneurs are playing a critical role, seizing the opportunity to displace market leaders and legacy industries.
Using new technologies, they are replacing old business models with new, innovative products and platforms.
Disruption, of course, has long been with us. Early last century cars displaced the horse and carriage with the invention of the internal combustion engine.
But the innovation alone was not enough. It was not until assembly-line production — a new business model — that car ownership was brought to the mass market.
What’s different now is the pace of change and it is working its way into every area of our lives. Record numbers of jobs are disappearing while more work is being done on a freelance, or “gig”, basis for a portfolio of employers.
A critical factor is disintermediation — the removal of third parties, such as sales staff, between the producer and the consumer — which is destroying jobs at an unprecedented pace.
New jobs, demanding different skills, can’t be created quickly enough to replace those redundant roles. The average job tenure of a Fortune 500 chief executive has halved, from 10 years in 2000 to five years today.
Legacy industries are not standing still. Many understand that responding to disruption is the most critical strategic move their companies can make.
They recognise nobody is immune, as disruption accelerates and affects a growing number of sectors. And they understand it’s easy to underestimate the pace of change, and that smart strategy and execution are no longer enough.
As EY points out in its latest Megatrends report, “Organisations are typically structured and incentivised to focus on fulfilling the needs of their existing constituents, blinding them to disruptive opportunities which often don’t initially meet those needs.
“The strategy that got you here may not be the one you’ll need for the road ahead.”
As The Economist puts it: “The innovator’s dilemma is the difficult choice an established company faces when it has to choose between holding onto an existing market by doing the same thing a bit better, or capturing new markets by embracing new technologies and adopting new business models.” (25 January 2015).
Some established players have turned to acquisitions, buying innovative and dynamic businesses so they can remain relevant in their markets.
Globally, this is driving a big chunk of current merger and acquisition activity. It is also bringing a younger and more diverse workforce into these big, established companies.
But while they recognise disruption is a game-changer, only a handful of mature, established companies have successfully disrupted their own business models.
Notable failures include Blockbuster Video, which went bankrupt in 2010 after Netflix gained a mass following with its new way of streaming on-demand video.
In the same way, Wikipedia and Google have displaced traditional encyclopedias, personal computers displaced mainframes, and were themselves replaced by laptops and smartphones, digital cameras have replaced film and email has largely replaced traditional letter-writing.
And platforms such as Uber and Airbnb continue to challenge traditional taxi and hotel industries, car manufacturers are being disrupted by electric vehicles (and most recently, by driverless cars) while Amazon experiments with drone technology in a bid to displace traditional shipping methods, Skype displaces long-distance phone calls, iTunes puts record stores out of business, and online sites such as TradeMe and eBay steal customers from bricks-and-mortar retailers.
The development of new business models is critical to these changes.
As Megatrends puts it: “It is becoming increasingly clear that disruptive technologies and innovations are little more than the tip of the iceberg. Disruption can equally come from demographic shifts, globalisation and macroeconomic trends. And some of the biggest disrupters lurking below the surface will have impacts far beyond the business world . . . They will apply to the public sector and society at large.” Entrepreneurs are at the forefront of this change.
But recent reports, such as the World Economic Forum’s 2016 Future of Jobs, suggest we are entering a very different jobs era.
The WEF estimates a combination of technological, socioeconomic and demographic drivers will displace 5.1 million jobs across 15 major economies by 2020.
US software company Intuit predicted in 2010 that 40 per cent of American workers would be independent contractors by 2020 — a conservative estimate as platforms such as Uber and TaskRabbit (a peerto-peer household help service) were barely launched when that prediction was made.
As EY notes in Megatrends, the next wave of disruptive technology — artificial intelligence (AI), virtual reality, robotics, the internet of things and other sharing economy platforms “are poised to take labour displacement to a higher level”.
“Automation has long displaced workers in blue-collar jobs, from factory labourers to supermarket cashiers. To appreciate the scale of blue-collar disruption ahead from driverless vehicles alone, consider that driving is the single biggest occupation of US men today.”
Also at risk are jobs long considered immune from displacement by technology.
Megatrends points out that AI is putting white-collar and creative work “squarely in the crosshairs of disruption”.
For example, algorithms have displaced white-collar work in the financial sector (high-frequency trading) and are starting to do so in health care (mobile apps, robotic surgery and diagnosis by algorithm).
“They are even expanding into spaces once considered exclusively the domain of human creativity,” the report says. “Already, algorithms are writing articles indistinguishable from those written by humans and have even recently composed a musical play.” Against this backdrop, EY has released its fifth annual job creation survey. We canvassed the views of 2600 entrepreneurs in 12 major economies and their answers throw a beam of optimism into the gathering gloom.
Of those surveyed, almost six out of 10 entrepreneurs said they intended increasing their workforce in the next 12 months. That’s 59 per cent, compared with 47 per cent the previous year.
The research also shows a substantial difference between the hiring expectations of large, established companies and the entrepreneurs we surveyed.
While 72 per cent of executives surveyed in EY’s Capital Confidence Barometer this year expect the same or reduced headcount in the next 12 months, only 5 per cent of our entrepreneurs think their overall workforce will decline.
What does this all mean for established businesses? Consumer preferences, patterns and expectations are changing, driven in large part by the millennial generation.
For those in legacy businesses who want to seize the upside and disrupt their business models, the best questions to ask involve challenging long-held assumptions about what your business actually is, who your customers are and where your competitors come from.
Most important of all is to understand that time is not on your side.
Don’t under-estimate the speed of change in your industry. In a world where everything is changing, the biggest risk is standing still.
— Jon Hooper is an EY partner and the NZ director of the Entrepreneur Of The Year Awards.
In a world where everything is changing, the biggest risk is standing still. Jon Hooper (above)