There is little evidence to link the hype of disruption in some industries with reality, according to a new paper called Lifting the lid on disruption fever. In fact, using the fear of disruption to drive the wrong kinds of changes can be dangerous to business, especially if the focus is misplaced.
Co-written by Michael Wade, Didier Bonnet and Jialu Shan at the IMD Business School, Lausanne, Switzerland, the study covers a seven-year period from 2012 to 2018 across 12 industries and is complemented by a survey of 2000 business executives.
All too often companies focus on the “disruptor”, the new high profile well-funded start-up from Silicon Valley, rather than the actual source of disruption. “It wasn’t Uber or Grab that disrupted the personal transportation industry, it was high prices, poor access and bad customer experiences, ” Bonnet told Which-50.
He says the disruption in that sector was fuelled by the application of technology to provide easy reach and access, personalised services, convenience and seamless payments, the personal transportation industry was been changed forever.
“Focus on the disruption that is occurring, not the disruptor.”
The bottom line for digital leaders, according to the authors to craft winning strategies, executives should take a more evidence-based approach to managing disruption.
In the report, the authors provide what they describe as evidence-based quantification of both “actual” disruption of industries as well as a measure of disruption “hype”.
But the key finding is that there is little evidence of any correlation between the hype around an industry disruption and actual disruption within that industry. In other words, don’t believe the hype.
According to co-author Didier Bonnet, “As the saying goes, there is ‘no smoke without fire’. “
Bonnet told Which-50, that many commentators have argued that disruption hype is often a clear symptom, or a lag indicator, of actual disruption happening in an industry.
“But is that true? Our research points to an emphatic NO. We failed to find evidence of any correlation between the hype around industry disruption and actual disruption within that industry. So, more hype does not lead to more disruption.”
The authors do not seek to reject the idea of real disruption, but rather to apply to realistic filter to the noise. According to the report, “Certainly, if a company is truly being disrupted, then ignoring its impact is not smart management. But the converse is also true. Paying lip service to the inevitability of disruption to justify unnecessary or mistimed strategic moves is also dangerous.”
They say the current fascination with disruption hides an awkward truth, we assume it is happening, but do we really know for sure? “Disruption is rarely defined and almost never measured. Equally, the influence of the hype around disruption is hard to gauge. We do not know to what extent hype is driving management action. This is worrisome as the disruption “noise level” can lead to unhealthy collective thinking and bad business decision-making.”
Bonnet told Which-50, “When an industry is over-hyped, executives risk becoming too focussed on disruptive threats and take their eyes off still-profitable lines of business.”
As a consequence, strategy becomes over focused on the exploration part of digital transformation such as digital innovation or developing new business models and this can lead to skewed investment priorities such as setting up innovation labs, start-up incubators or venture capital arms.
“Responding to hype can even lead executives to shift to new business models at the expense of harvesting the core business, or seeking partnerships and acquisition opportunities too early. Of course, these are adequate strategic moves when an industry is being truly disrupted. But, when driven by hype, the disruption “noise level” can lead to unhealthy collective thinking and bad business decision making. Timing is everything.”
The researchers also caution that while the current pandemic is certainly disruptive, it should not be confused with industry disruption. We asked Bonnet if this makes it more challenging to separate actual disruption from disruption hype?
“With the recent Covid-19 health crisis and the resulting business and economic turmoil, one could argue that disruption is everywhere. However, while a pandemic is certainly disruptive, it should not be confused with industry disruption,” he said.
Instead it is critical to understand the underlying causes of actual industry disruption.
“Of course, Covid-19 has had a seismic impact on business. One of the leitmotivs has been the acceleration of digital transformation, with many leaders claiming to have achieved in a few weeks what would have normally taken several years. Again, a cool-headed fact-based analysis is required. Indeed, we have seen a strong acceleration in the adoption of digital tools. We have seen e-commerce sales being the only game in town for a period. And we have seen profound shifts in the ways of working and employee behaviours.”
Bonnet says there is no question that these shifts will have an impact, most likely positive, on the digital transformation of organisations. “They need to be thoroughly analysed to gauge the one-time effect versus the longevity of some of these impacts on businesses. To some extent, Covid-19 has been an amplificatory of industry trends that existed well before the pandemic.”
The key point, as born out in the research though is that beyond the Covid-19 effect, the economics of industry disruption remain. “It is still critical for executives to truly understand the underlying causes of industry disruption. Covid-19 has provided us with an unprecedented social and business experiment on a global scale. Some of the (unintended) consequences will have a positive impact on digital transformation, and it needs to be factored in. But the hard work of transforming our organisations from within will not go away once we are back to some form of normality.”
Leaders can identify early signs of industry disruption by taking a more evidence-based approach to managing disruption and by keep a cool head whatever the hype around the industry, says Bonnet.
“Some early signals can be gauged from internal performance. For instance, German media giant, Axel Springer, noticed revenue pressures across its main lines of business long before it started to suffer significant drops in readership of its portfolio of newspapers and magazines.”
The key is to undertake a continuous fact-based assessment of industry performance and external competitive moves, he says.
“First, by conducting a thorough analysis of actual industry data such as aggregate revenue, profit or market share changes/gains. Second, by analysing the root-causes of disruptive shifts such as business model evolution, changes in consumer behaviour, technology innovation and others.”
The bottom line for digital leaders, according to the authors, to craft winning strategies, executives should take a more evidence-based approach to manage disruption.