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Digital Disruption: Sounds Like Just Another Buzzword—Until it Happens (Part 2)

Roland Alston, Appian
April 11, 2019

Mike Wade, Professor of Innovation and Strategy at IMD, Lausanne, Switzerland

(This is the final installment of our two-part series featuring Mike Wade@mwade100, author ofDigital Vortex: How Today's Market Leaders Can Beat Disruptive Competitors at Their Own GameandOrchestrating Transformation.Read part 1 here.)

In this episode,Wade reveals what it takes for successful companies to become even more successful, and it all starts with building agility to anticipate threats, sense opportunities and take advantage of disruption before your rivals do.

The internet is full of stories about digital disruption overturning incumbents and reshaping markets faster than anyone ever imagined.That's because disruption is relentless. It's so relentless thatC-Suite execs believe that approximately 40% of incumbents in 12 industries will be displaced by digital disruption by 2020.

So says a recent study by the Global Center for Digital Business Transformation (DBT) But here's the thing. Although senior execs fear digital disruption as an existential threat, disruption failed to make the cut as a board-level priority for about 45% percent of companies surveyed by DBT.

"We found executive-level indifference even in vulnerable industries such as hospitality/travel and telecommunications which have been rocked by disruption for over a decade," says Mike Wade, DBT Director and Professor of Innovation and Strategy at IMD, an independent business school in Lausanne, Switzerland. Other big takeaways from the DBT study:

    • 43% of companies have not acknowledged the risk of digital disruption or geared up to prepare for it

    • Nearly a third are taking a "wait and see" approach,

    • The velocity of digital disruption means that less than one-third of companies will succeed with a "fast follower" approach

    • Only 25% are taking a proactive approach to dealing with digital disruption

Beware, the Digital Vortex

"Think of the impact of digital disruption as a vortex," says Wade. "A vortex exerts a rotational force that draws everything that surrounds it into its center."

"The Digital Vortex is the inevitable movement of industries toward a digital center' where business models, offerings, and value chains are digitized to the maximum extent possible."

"As industries move toward the center of the Digital Vortex," says Wade, "things that inhibit competitive advantage (such as manual, paper-based processes) are digitized to deliver customer value in new ways and create disruptive new business models and explosive growth."

But here's the big question: Is your organization prepared to face down the existential threat of digital disruption? If not, this is probably a good time to do something about it.

In this Digital Masters interview, Wade explains how to build agility to anticipate threats, sense opportunities and take advantage of disruption before your rivals do. He also schools us on the urgency of challenging assumptions that worked in the past and rethinking traditional ways of delivering value to customers.

Hope you enjoy the conversation.

Appian:To pick up on your point about how AI will impact workforce, there's a big debate going on about whether the digital revolution will create more net new jobs than it replaces. Where do you come down on that?

Wade: Yeah, that's an interesting debate. I think the optimist have a strong case. If you look back 100 years at the time when two-thirds of jobs globally were in agriculture. And you said that in 100 years only 6% of all jobs will be agriculture, you would think that there would be mass unemployment.But that didn't happen.

We replaced jobs lost in agriculture with other things that are essentially knowledge work. So, I think there's a case to be made that we've always managed to replace jobs with something new.

Machines Can't Manage Emotions, But...

Appian:But will that change with AI and machine learning?

Wade: You could say that there's no reason to believe that what has happened historically won't change today.But I actually think it will change. There are three general categories of what we as humans can do. The first category is physical labor. Well, that battle is lost. Generally speaking, we can't do physical work as predictably as machines. We don't have the stamina, strength and the precision of machines. We've replaced many of those jobs with cognitive jobs because we were smarter than machines. But as machines get better at cognitive work, we're going to lose those jobs too.

Appian: So, what else is there?

Wade: Well I think it's our emotions and our ability to empathize and the kind of consciousness that we have and machines don't. And there are two things that concern me. First, there are not a lot of jobs that require creativity and emotional intelligence. There are some but not enough to replace jobs lost to disruption of cognitive work.

And the second thing is that I'm not totally convinced that machines can't figure out how to manage emotions. I don't see that as a barrier to stopping them, especially with the rapid evolution of intelligent machines. So, I think I come down on the side of the pessimists. And maybe that's just because I can't imagine where all the new jobs will come from.

Customers: "Amazon Can Do This, Why Can't You?"

Appian: Picking up on your observations about the human side of disruption, let's talk about how disruption will impact consumers. How do you see digital disruption affecting consumer behavior and expectations?

Wade: Well, I think consumer expectations are increasing, whether it's due to digital disruption or not. If we look at companies like Google, Facebook, Amazon and Uber, they've taken a huge interest in improving customer experience and being consumer-centric. And I think that has set the bar for everyone else. The (rising) level of service has impacted you, no matter what business you're in. Because your customers are now saying: "Hey, Amazon can do this, why can't you?"

How Legacy Companies Can Fight Back

Appian: But many of these big tech companies are providing great service at a loss.

Wade:That's true but it means better service for consumers. Amazon's a good example of that.

Appian: Before we wrap up, I wanted to ask you about an interesting statistic I saw on your website. It was that digital leaders will replace 40 percent of incumbent companies in the next five years. So, what can legacy companies do to win against that kind of disruption?

Wade: Yes, the average time a company spends on the S&P 500 is down from 60 years to less than 20 years. So, there's lots of turnover and disruption among big legacy companies. We've spent a lot of time thinking about that and collecting data and doing analysis of how traditional companies can respond to disruption.

When it comes to disruption, there's no reason that the disruptor has to be the winner. And in fact legacy companies have huge advantages. They have strong brands, good people, established customer relationships, partners, suppliers, access to capital. They typically have these and other things that disruptors don't have.

Appian: So what do they need to do?

Wade: They need to be more agile. Agility is something that we focus on a lot (at DBT). The need to be agile has increased significantly and it will increase even more over time for traditional companies. They struggle in this area.

Appian: When you talk about agility, how do you define it for non-tech execs?

Hyper-Awareness, Essential to Beating Disruption

Wade: We define agility not as one thing but as three things.The first is something we call hyper awareness about not just your immediate environment but emerging opportunities and threats. This includes competitors in adjacent industries that may enter your market. There's also hyper internal awareness or understanding what your employees are thinking and saying.

But just being aware is not enough.You have to act. So, the second part of agility is informed decision making. It's about building on decisions with information that you collect from being hyper aware. This comes from collaborating and sharing information across the organization. But, again, that's not enough. Making a decision is good but a lot of companies make decisions and nothing happens.

The Biggest Challenge: Balancing Revenue Streams

Appian: So, what's the third piece of the puzzle?

Wade: Fast execution. This is about putting decisions into action quickly. Test and learn. Finding resources and putting them where they need to go quickly. And the more you do this the more you feed hyper awareness. So this agility piece is very important for companies to be able to respond to disruption.

And my final comment is that there's a really tricky balance that traditional companies need to strike between managing the core business even if it's in decline improving the core business by driving efficiency and productivity while at the same time looking at new business models and opportunities and being more disruptive.

Appian: But how do you balance those two things?

Wade: It can be tricky. New disruptors don't have the same challenges because they typically don't have a legacy business to worry about. But traditional companies do. So balancing today's revenue and profit sources with where the money is going to come from tomorrow? That's probably the biggest challenge.

Appian: Before we wrap up, what are your expectations for 2019 and beyond. What trends are on your radar that business leaders should be focusing on?

Wade: If you look at the underlying technologies, I think some of them are over-hyped and some are under-hyped in terms of their disruptive potential. So, for example, I think blockchain is super interesting but I think it's over-hyped. The actual disruptive potential of blockchain for most companies is extremely low. It's interesting but I don't see it as fundamentally disruptive.

Get Ready. Tech Market Primed for Correction

Appian: What about AI?

Wade: AI on the other hand is absolutely going to disrupt the way companies and industries operate. So, if I were a company or organization trying to figure out where to focus, I'd definitely focus on AI. And we see this with companies like Google where Google used to be mobile first. But they don't talk about mobile first anymore. Google is all about AI first.

So, I think AI, machine learning and deep learning is probably the most disruptive technology trend for the moment. But there's a huge macro-economic thing going on that could also have a big impact. So, we must remember that it's not just about digital disruption. There are also other trends that can disrupt business and industry.

Appian: Any final thoughts?

Wade: My final thought is that the tech market is primed and ready for a correction. I don't think that realistically it can continue expanding the way that it has. And I think that (correction) will impact the broader economy. I think I'll leave it there.