Filed under: News
Jan 7 2014, 3:46pm CST | by Forbes
“Address books, video cameras, pagers, wristwatches, maps, books, travel games, flashlights, home telephones, dictation recorders, cash registers, Walkmen, Day-Timers, alarm clocks, answering machines, yellow pages, wallets, keys, phrase books, transistor radios, personal digital assistants, dashboard navigation systems, remote controls, airline ticket counters, newspapers and magazines, directory assistance, travel and insurance agents, restaurant guides and pocket calculators.”
What do all these products have in common? They have been victims of big bang disruption, as Larry Downes and Paul Nunes explain in their stimulating new book, Big Bang Disruption: Strategy in the Age of Devastating Innovation (Penguin, 2014). Big bang disruption is large-scale fast-paced innovation that can disrupt stable businesses very rapidly.
The strength of the book is to document what is known about the ongoing phenomenon of fast-paced large-scale disruption and the book gives many vivid examples. The book is less compelling in terms of what businesses should do about the problem in part because the writing is marred by the occasional overstatement and in part because big bang disruption is itself merely a symptom of a deeper economic phase change that is transforming the global economy.
The book contrasts big bang disruption with the disruption, as outlined by Clayton Christensen in 1997 in The Innovator’s Dilemma, which was deadly but slow. Mature firms were undone, not by known competitors but by upstarts, who offered cheap alternatives to their products, first unobtrusively attracting low-value customers, and steadily moving upmarket to steal away high-value customers. If firms were alert, and took the necessary steps, they could defend against it.
With big bang disruption, entire product lines—whole markets—can be rapidly obliterated as customers defect en masse and flock to a product that is better, cheaper, quicker, smaller, more personalized and convenient all at once. Disrupters can come out of nowhere and go global very rapidly. Disruption can happen so quickly and on such a large scale that it is hard to predict or defend against.
The book gives many striking examples, like the physical navigation devices installed in cars that used to cost thousands of dollars. The prices of these devices kept steadily coming down. But then came Google Maps, which was at once cheaper (i.e. free), better (i.e. more accurate and up to date), more convenient (i.e. it was portable) and more personalized (i.e. linked to all the other things on your mobile phone), all at once. Guess what happened to the market for physical navigation devices? It was all but obliterated as around hundred million users downloaded Google Maps in the first year. A year later, that number had doubled.
Because over a billion people around the world have mobile devices, computers can become aware of breakthroughs immediately. “Marketing is led not from above, but by the users themselves who drive much of the buzz.” And the overwhelming advantage of large corporations that own massive physical distribution channels can be circumvented digitally.
The result? According to the authors: disaster for many existing businesses and business models. The book explains how a variety of seemingly traditional industries, like cars, air conditioners or sleep clinics are being affected.
If Christensen’s disruption from below was scary, big bang disruption can be downright terrifying.
The book offers a helpful conceptual framework for thinking about big bang disruption based on four phases: (a) singularity; (b) big bang; (c) big crunch; and (d) entropy. Striking features of the graphic include the length of the period of singularity (i.e. experimentation), the shortness of the exploitation period (the big bang itself) and the rapid decline or big crunch, which can be almost as steep as the big bang.
Nevertheless some questions remain.
Exactly how rapidly does Big Bang Disruption happen? The book offers several different characterizations. In one place, the authors assert—unrealistically—that it can happen “in an instant.” In another place, we have the more balanced statement: “Where disruptive innovations may have once take a decade or more to transform the affected industry, our research shows that time frame has compressed to half that time—and continues to shrink.” Elsewhere we are told that the disruption can happen “in months or days” or “in record time.”
The tendency towards occasional rhetorical overstatement about the speed and scope of disruption undermines the serious message that the book elsewhere conveys. Disruption can be relatively rapid, but the examples show that it is far from instantaneous.
What is the scope of the phenomenon? “Every industry is now at risk,” the authors write. “No industry will be left unscathed, no supply chain left unscrambled, no strategic plan left unraveled. That’s because one way or the other, every business is a digital business.” Is this really true?
Most of the most striking examples come—so far—from the use of programmable smartphones. The authors argue that the phenomenon is going to be much broader.
“As the computing revolution continues to insinuate itself into every corner of our lives, Big Bang Disrupters are starting to appear in every industry. Outside of computing, exponential growth is also visible… in stem cell research, renewable energy, human genomics fiber optics, LEDs, and robotics. In material science alone, impressive breakthroughs in water splitting, super-capacitors, photonics, thermo-electrics, and energy storage materials… each with the potential for exponential growth…”
The disruptions are not affecting merely obscure corners of the economy:
“Drive down any downtown street and look at the empty storefronts. Many of them were occupied by bookstores, camera retailers and film processors, office supply shops, post offices, travel agencies and big box electronics and appliance sellers.”
Some critics suggest that the analysis is insufficiently granular to understand different industries and company models. For instance, German small and medium scale enterprises have not been greatly disrupted by big bang disruption, in part because they are in highly specialized industry segments that are not easy to disrupt. Other sectors or geographic regions have escaped as a result of being protected by government regulation. Clearly business models that can be transformed with digital technology are the most vulnerable.
Also in question is whether online businesses will be able to obtain and retain a high level of trust without a direct local presence. In the US, Amazon [AMZN] has been remarkably successful in doing so; it remains to be seen whether the model will work globally.
The book argues that even those business models and sectors that appear to be currently protected may be receiving only a temporary reprieve. The protection may be lulling incumbents into a false sense of security and unpreparedness for the moment when an unexpected breakthrough in price, performance and customization occurs or when public pressure breaks down the protective regulatory barriers.
The book argues that Big Bang Disruption is “a new kind of innovation”. But how new is it? It is only in passing that book mentions Carlota Perez and her brilliant 2002 book, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages, which actually coined the term “big bang.” It notes that she made “a slightly different use of the term.”
Perez’s book is in fact useful complement to the Downes/Nunes book in pointing out that the current explosion of technology and the consequent rethinking of management are not totally new phenomena.
Perez pointed out that there have been prior waves of big bang disruptions. Some occurred in the UK with canals in the 1790s and with railways in the 1840s. Some happened in the US and elsewhere with oil and steel in the 1880s and with mass production in the 1910s-1920s and with computers in the 1980s and 1990s. Although these earlier waves of disruption were smaller in scale and slower in pace, the dynamic of what was involved is similar. As Mark Twain noted, although history doesn’t repeat itself, it does rhyme.
As I noted in a post last year, in each of these earlier disruptions, the possibilities of the new technology created irrational exuberance among investors, a runaway financial sector, an over-investment in the new technology, followed (in successful cases) by a shakeout of winners and losers, a re-focusing of the financial sector on the real economy, a rethinking of management practices to cope with the new technology and an eventual return to a stable growth path.
Perez points out that success in getting back to a stable growth path is not inevitable: countries that failed to make the necessary adjustments suffered serious economic consequences (e.g. Argentina in the 1890s; Germany and Russia in the 1930s). A failure to cope with the aftermath of big bang disruption, particularly a financial sector that remains disconnected from the real economy, can lead to long-term economic decline.
Seeing the parallels to earlier big bang disruptions can help us keep the current phenomenon in a clearer perspective. In the earlier examples, the disruption was massive as whole segments of the economy were upended, but not complete across the entire economy. In retrospect we can see that mistakes were made both in underestimating and overestimating the impact. Those who claimed that “everything will be different” were just as wrong as those who scoffed, “Nothing new here!”
The discussion of business strategy illustrates the issue of book’s insight mixed with overstatement. The authors for instance write: “Nearly everything you know about strategy and innovation has suddenly become wrong.” Is this really true?
Where the discussion has merit is in questioning the universal applicability of traditional strategic thinking built on the necessity of choice between three simple basic options. Firms were told that they had to choose between “offering products that were either better or cheaper than those of their competitors or customized to a narrow market segment. Thanks to exponential technology, Big Bang Disruptors enter the market simultaneously better and cheaper and more customized than the products and services of incumbents.”
But while traditional strategic thinking in terms of a choice among three basic options is being disrupted, what does the new strategic function look like? Conducting “random experiments” without any kind of strategic vision or direction will be a recipe for chaos.
Unlike traditional strategy that focuses on known competitors, defending against big bang disruption requires organizations to be ultra-sensitive and alert to small-scale experiments and startups even remotely related to their business, as any of these seemingly innocuous activities may become the next big bang disruption.
Even failed experiments must be studied and understood, as they may hold the key to what a successful big bang disruption will look like. Thus neither Apple’s iPod nor Amazon’s Kindle came out of nowhere. The iPod was preceded a series of portable music players, but they were heavy, with a slow interface, difficult access to downloaded music and poor battery life. Amazon’s Kindle was preceded by NuvoMedia’s Rocket eBook, the EveryBook Reader, the Librius Millenium Reader and the SoftBook Reader but they lacked storage space, battery life, and quality display technology. Apple and Amazon learned from the failures to produce the winning devices.
Rather than relying on expensive internal proprietary research, Big Bang Disruptors tend to use low-cost open-source off-the-shelf component parts and software. As a result, the cost of failure is low. Rapid learning paves the way for success.
The authors offer three “rules” for coping with the Singularity phase:
“Rule 1: Consult your truth tellers:” i.e. find people who know what’s going on out there.
However rapid success can be follow equally rapid failure.
“Rule 7: Anticipate saturation” i.e. don’t expect continued exponential growth.
“Rule 8: Shed assets before they become liabilities” i.e. take a realistic look at the value of existing assets given the probability of continuing disruption.
After succumbing to disruption to prior success, what should the firm do?
“Rule 10: Escape your own black hole” i.e. if you remain as the remaining incumbent of a business that has fallen from grace, you may continue to make some money, but beware of legacy costs, legacy customers and legacy regulation that make it harder not easier to compete.
“Rule 11: Become someone else’s components”: i.e. after succumbing to disruption, components may be more valuable than you think.
“Rule 12: Move to a new Singularity” i.e. move on to disrupt new markets.
What do these twelve rules amount to? Do they constitute a comprehensive solution to the challenge the book describes? In effect, is this, “Everything you need from business school in one very direct book,” as Twitter CEO Dick Costolo blurbs on the back cover?
To answer this question, it’s instructive to look at another recent book on the very same subject: The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups by Chunka Mui and Paul Carroll, which I reviewed just before Christmas. That book offers “eight rules” to deal with the challenge of massive high-speed disruptions to business models.
Step One: Think Big
Rule 1 Get the Context Right
Rule 2 Embrace Your Doomsday Scenario
Rule 3 Start with a Clean Sheet of Paper
Step Two: Start Small
Rule 4 Kill All the Finance Guys
Rule 5 Get Everyone on the Same
Step Three: Learn Fast
Rule 7 Demo, Demo, Demo, Then Demo Some More
Rule 8 Remember the Devil’s Advocate
The fact that there is only partial overlap between the “eight rules: of Mui-Carroll and the “twelve rules” of Downes-Nunes raises the question whether identifying and implementing “new rules” is really the right approach. What else is might be required?
In fact, Big Bang Disruption hints at other substantial changes in management::
“Creating and surviving Big Bang Disruptors requires substantial change throughout your organization. Every part of your business is affected—from strategic planning to marketing and sales, design and manufacturing, finance, technology, research and development—even legal.”
However the book doesn’t really spell out exactly what “strategy, marketing, sales, design, manufacturing, finance, technology, research and development” will look like in the organization that is creating or surviving Big Bang Disruption.
Similarly, what about the goal of the firm? Is coping with Big Bang Disruption compatible with an embrace of today’s still-pervasive goal of “maximizing shareholder value”? If a firm is focused mainly on meeting its quarterly profit numbers, will management really have the time, energy and capacity to cope with Big Bang Disruption? Isn’t it likely that the recommended long gestating “random experiments” will be closed down long before they come to fruition, because they are not adding to quarterly profits?
Other important questions spring to mind as one thinks about coping with Big Bang Disruption. What will the structure of the organization look like? How will work be coordinated? What values will predominate and how they do they relate to today’s values? What will communications look like? The book offers little systematic guidance on these matters.
The reality is that big bang disruption is not something that existing firms can cope with simply by adopting “new rules” whether it’s twelve, or twenty, or a hundred and twenty “new rules”. Asking a traditional hierarchical bureaucracy that is tightly focused on maximizing shareholder value to master the transformational innovation needed to cope with big bang disruption is like expecting a lizard to fly. It simply doesn’t have the capability. Flying is not in the lizard’s DNA.
The reality is that big bang disruption is a symptom of an even broader management challenge flowing from the fact that corporations are no longer at the center of the economic universe. Technology has not only enabled vast new possibilities for producers but it has also empowered customers, who have instant access to reliable information and an ability to communicate amongst each other. As a result, power in the marketplace has shifted from seller to buyer. Customers have effectively become the boss. Big bang disruption is just one of the more dramatic symptoms of this broader and deeper economic phase change: the emergence of the Creative Economy, where continuous transformational innovation is the the game being played.
Corporations can no longer prosper, as they had in the 20th Century, by efficiently producing products and services and pushing them at passive consumers. Coping with this new context lies on understanding, anticipating and meeting the needs, wants and whims of well-informed, empowered, interactive customers. Thus they must learn to do what the 20th Century organization was constitutionally incapable of accomplishing: delighting customers through continuous, disciplined, transformational innovation.
Coping with this new world means a step change in capability. It goes way beyond implementing a new set of rules. It means different ways of thinking, speaking and acting in the workplace. It means change at the level of the firm’s DNA—a shift in the very center of gravity of management.
Making this shift thus entails a great awakening. Are today’s leaders and managers aware of the need to change and ready for make the transformation? Are they ready to liberate themselves from their mental conditioning and undertake the paradigm shift in management? Can they escape the gravitational pull exerted by decades of management practices on how to think and act? Can they see that the true future and prosperity of their firm lies in thinking and acting differently? Or will they scoff at the economic phase change and the accompanying big bang disruption—“nothing new here!”?
It’s an open question whether the current leaders of large firms will have the talent and courage to make the change. It means becoming a qualitatively different kind of organization. Those organizations that make the change will flourish. Those that don’t will in due course become extinct. The choice is that thrilling and that grim.
Big Bang Disruption is a stimulating addition to management literature and a useful depiction of many examples of big bang disruption. However in terms of how firms should cope with the challenge, it should be read in conjunction with The New Killer Apps and Technological Revolutions and Financial Capital, along with more than a score of other books that describe the ongoing economic phase change and the profound management changes needed to cope with it.
And read also:
Follow Steve Denning on Twitter @stevedenning
Source: Malaysia Today
Source: Malaysia Today
Source: Malaysia Today
Source: Malaysia Today
Source: Malaysia Today
Source: Malaysia Today
Source: Malaysia Today
Source: Malaysia Today
Source: Malaysia Today
Source: Malaysia Today
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