Today’s innovations can come out of left field, combining technologies seemingly unrelated to a company’s offerings, to achieve a dramatically better value proposition. As a result, entire product lines and whole markets are now being created and destroyed overnight.
In Accenture’s ongoing research, we have already identified this type of disruption in more than 30 industry segments. The upshot? A “big bang” of success for those who make the leap to this next level of value creation, and a disaster for incumbents, who swiftly become obsolete. But companies must learn the new shape of new product diffusion and the four stages of this curve.
The shark fin encapsulates the shift from business evolution driven by incremental technologies to big-bang disruption powered by exponential technologies. Its shape reflects the new economics of information: the declining cost of innovation, the declining cost of information and the declining cost of experimentation. Together, they have shortened and skewed the lifecycle of industry change.
Big-bang disruption demands a new approach to strategy and planning, one that is different not in degree but in kind. The nature of interactions with competitors, customers and supply-chain participants will be drastically altered. Every business function is affected. Survival depends on new leadership and new ways of thinking.
Big-bang disruption happens because experimentation has become both low-cost and low-risk, increasingly by using a wide range of new, often off-the-shelf component technologies. But it typically takes many failed attempts before the right combination is found and proven to be cost effective. And failed early experiments often lull incumbents into concluding disrupters are not ready for prime time.
Enter the truth-tellers, industry experts with profound insights into new technologies and customer behaviours, who can predict when small tremors signal imminent earthquakes.
Truth-tellers speak a strange language, one that isn’t focused on incremental change and the next quarter’s results. Finding them isn’t easy. Learning to listen to them is harder.
The big bang
A big-bang disruption, once created, enters the mass market at ultra-high speed. Instead of a predictable process of selling to discrete, sequential market segments, big-bang disrupters need worry only about two main categories of users: what we call trial users, and everybody else. In this stage, the goal is selling to everybody else — and fast.
The sudden success of big-bang disrupters is driven by easy access to market opinion, facts and comparison data, which creates something ever closer to consensus market opinion. The availability of near-perfect market information means consumers make fewer mistakes. They don’t buy a mediocre product simply because manufacturers invest in more advertising. They wait until the right version — of a smartphone, 3D television, electric car — emerges. Almost-there versions don’t sell poorly — they don’t sell at all.
Maintaining an intimate connection to trial users — the co-developers and, thanks to crowdsourcing services such as Kickstarter, co-funders — is therefore critical. Take, for example, the “smart home” initiative of consumer electronics company Belkin International. Known as WeMo, the smartphone and tablet app was designed to enable users to create specific commands for on/off switches of basic home functions and electronics, such as lights. The company solicits and publishes user ideas for commands on its website, and when commands become popular enough — such as “If The Weather Channel says the sun has set, then have WeMo switch on the lights” — Belkin integrates them into the app’s default list of commands for all WeMo users.
The big crunch
Some companies do survive and emerge in the new version of the industry in a position of greater leverage and profitability. But how? The first step requires tough-minded management, sufficiently steeped in big-bang strategy. Assets must be shed, products retired, business models allowed to sunset. Incumbents must prepare for the immediate evacuation of current markets and be ready to liquidate once-strategic assets.
Only then can they unlock the hidden value of core, often intangible, assets. Traditional accounting still leads management to concentrate on the value of hard assets rather than expertise, brands, patents and human resources. But in a fight against big-bang disruption, intangibles are often the most valuable assets incumbents have.
Industry leaders may have a hard time committing themselves fully to transformation, creating an opening for perennial second-banana incumbents to shed their assets first and take their expertise, brand and intellectual property into other industries where change is happening at a slower pace. When the film-based photo industry collapsed, it was Fujifilm Corp. and not Kodak that survived.
In entropy, the big-bang process comes full circle. A new industry has risen, waiting for pressure to build and technology to advance through a new generation of failed market experiments, signalling the start of the next shift.
Companies must look closely at the phenomenon of industry sunset. How do assets get liquidated? How do old technologies and the facilities needed to manufacture and distribute them get recycled or retired? Are financial tools available to smooth the transition, even for industries that are “too big to fail”?
In this new diversification, the successful launch of a big-bang disruption only buys you a licence to try again. And your own success becomes your biggest competitive threat. Serial big-bang disrupters effectively put themselves out of business first, before the competition, emerging as new enterprises that share the same name but often little else. Successful brand associations and truth-teller networks may be their most valuable assets.
Like Fujifilm, companies must imagine new uses in new industries for their products and, most importantly, capabilities. And, as Amazon has done, incumbents in this stage should imagine their business as a platform that provides value for a wide range of other businesses in many industries.
These ideas have only begun to touch on the details of strategy and risk management in each of the four phases. Executives must ascertain the movement of disrupters in their industries, and put in place capabilities necessary for success in a world that doesn’t play by the old rules.
• Paul Nunes is the Global Managing Director of the Accenture Institute for High Performance. This article first appeared in Ivey Business Journal.