Har­ness­ing the Power of Dis­rup­tion

Rotman Management Magazine - - POINT OF VIEW -

busiIN THE FACE OF IN­DUS­TRY DIS­RUP­TION, ness lead­ers of­ten present them­selves with a false choice: Should they cling to the sta­bil­ity of their legacy busi­ness and risk miss­ing new op­por­tu­ni­ties? Or should they aban­don the legacy model in a proac­tive dash for the new? Find­ing the right bal­ance be­tween th­ese two ex­tremes has be­come one of the cen­tral lead­er­ship chal­lenges of our time.

The com­pa­nies that thrive amidst dis­rup­tion are able to shift with speed and con­fi­dence into new mar­kets and ac­tiv­i­ties — con­stantly re-in­vent­ing them­selves in an ef­fort to make their busi­ness rel­e­vant to the fu­ture. How­ever, in a re­cent Ac­cen­ture sur­vey of 1,440 C-level ex­ec­u­tives, we found that only six per cent of com­pa­nies have em­braced this chal­lenge de­ci­sively. For the other 94 per cent, com­mon fac­tors that pre­vent progress in­clude cap­i­tal-in­ten­sive in­fra­struc­tures, con­trac­tual agree­ments, out­dated technology and re­lent­less de­vo­tion to legacy prod­ucts, ser­vices and brands.

Our sur­vey, which spanned 11 in­dus­tries and 12 coun­tries, re­vealed that 54 per cent of large com­pa­nies op­ti­misti­cally ex­pect new busi­ness ac­tiv­ity to gen­er­ate more than half of their rev­enue within three years. In re­al­ity, around 70 per cent of com­pa­nies cur­rently gen­er­ate less than half of their rev­enues from new busi­ness ac­tiv­i­ties. We de­fine ‘new busi­ness ac­tiv­ity’ as new in­vest­ment and ven­ture ac­tiv­i­ties that tap into pre­vi­ously un­ex­plored mar­kets and of­fer­ings that the com­pany has not yet ex­plored at scale.

In our re­port, “Make Your Wise Pivot to the New” (avail­able on­line), we rec­om­mend that com­pa­nies fol­low the lead of the high-per­form­ing six per cent. We re­fer to this group as ‘Ro­ta­tion Mas­ters’, and they dif­fer sub­stan­tially from the other com­pa­nies we stud­ied, both in the per­cent­age of rev­enue they have gen­er­ated from new busi­ness ac­tiv­i­ties in re­cent years and in their fi­nan­cial per­for­mance. Most no­tably, 64 per cent of them achieved dou­ble-digit growth (above 10 per cent) in sales, while 57 per cent achieved the same growth re­sults in EBITD.

In ad­di­tion to im­pres­sive fi­nan­cial per­for­mance, th­ese com­pa­nies stand out from the pack by cre­at­ing three pre­con­di­tions to help rein­vent their or­ga­ni­za­tion.

1. Build Suf­fi­cient In­vest­ment Ca­pac­ity for Change

Ro­ta­tion Mas­ters un­der­stand the level of in­vest­ment re­quired to drive change, so they fine-tune their ex­ist­ing busi­ness ac­tiv­i­ties by re­duc­ing costs, di­vest­ing non-core busi­nesses and stream­lin­ing as­sets. It’s no sur­prise that

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