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The Business Disease Without A Cure: Big Bang Disruption

Feb 22 2014, 3:06pm CST | by

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The Business Disease Without A Cure: Big Bang Disruption

One of the most important business books to come along in a while is Big Bang Disruption: Strategy in the Age of Devastating Innovation by Larry Downes and Paul Nunes (Penguin, 2014). The book identifies the phenomenon of Big Bang Disruption as a new and lethal disease that kills businesses through large-scale fast-paced innovation that can go global all at once.

I talked with Paul Nunes last week about his new book and asked him flat out, “Is your book the solution to Big Bang Disruption?” His answer was both frank and chilling: “No. Realistically there is no solution.”

What’s alarming about Big Bang Disruption is the pace and the scale of it. By contrast, traditional disruption— the innovator’s dilemma, which was outlined by Clayton Christensen back in 1997—is a dangerous disease, but it happens slowly and operates step by step. With Big Bang Disruption, entire product lines or whole markets can be obliterated as customers defect en masse and flock to a product or service that is better, cheaper, quicker, smaller, more personalized and convenient all at once. Disrupters can come out of nowhere and go global very rapidly.

Last month, I offered a detailed review of the book in this column, including an account of the “four stages” of Big Bang Disruption” and the “twelve rules” that the book proposes for dealing with it.

Here’s my interview last week with Paul Nunes.

SD: When Big Bang Disruption can happen so quickly and on such a large scale, can it be predicted or defended against?

PN: The strategic management issue we identify in the book is the need for executives to understand the Big Bang Disruption phenomenon and then to address it through the four stages and accompanying rules. In a relatively short book, we attempted to lay out enough in the way of concrete detail and advice so that executives could start to attack a very complex and potentially devastating problem for them and the companies they lead. But see more on this below.

SD:  Are the twelve rules that you lay out in your book “the solution” to the problem of Big Bang Disruption?

PN:  No. Realistically there is no solution to the problem. What we are advocating is gaining an understanding of the new realities of the market, and transforming your organization to better align with those realities. We have “rules” because we see those activities as essential changes for companies hoping to survive, to become companies that can sustain Big Bang Disruptions in their industries, and even to create a few of their own. But it is too early to say there is a surefire way to protect your company.

SD: Exactly how fast is Big Bang Disruption? Can it really happen “in an instant”?

PN: In trying to demonstrate the relevance and importance of this phenomenon, we demonstrated Big Bang Disruption in a large number of intentionally diverse industries. Each industry of course has its own history and set of factors that determine the pace of change it can experience, so the timing of a Big Bang Disruption can and does vary. In a software industry, where there is zero cost of additional production, we would stand by what might seem like a hyperbolic “in an instant” statement.

But consider the timeline of the game application Flappy Bird. It went through 8 months of incubation, then Big Bang…and it was over in a month.

Or consider the 5-year history of $19 billion acquisition WhatsApp. Is five years an instant? Probably only if you consider the Gutenberg press happened almost 500 years ago, but we maybe should have been clearer about those relativities.

The chart below helps show just how fast ad revenues disappeared for newspapers. If you have been in the industry for 40 plus years, nothing you have seen in your lifetime in that industry looks like online advertising, a form of competition from outside the industry that happened to be better and cheaper (and more customer intimate) at the same time.

 

SD: The conventional wisdom in business strategy is that a firm must choose among three basic options: offer products that are either (a) better or (b) cheaper than those of their competitors or (c) customized to a narrow market segment. Your book argues that this way of thinking—strategy itself—is being disrupted. What does the new strategic function look like?

PN: The first point is that there is now only one strategic function: be the best. You must strive to be the lowest cost provider of all the elements of value the customer seeks, and be able to provide that in a customer intimate way.

Now, “the best” is a tough thing to know, let alone to be. And, in today’s world of “near perfect market information” and social media, the best quickly becomes a function of social consensus, not objective reality. That is why we say marketing’s main function has shifted from selling to creating social consensus. Trying to guess, intelligently or otherwise, what will be considered the best by a market is probably a fool’s errand. The market will tell you what’s best, when they decide in a “wisdom of crowds” sort of way, with some response to influencers of course.

In that environment, you are better off to experiment constantly and in the market, learning and sensing, and creating a wealth of options, rather than trying to determine “best” a priori, at least so long as you can afford to do that. In industries like software, where the cost of experimentation and revision is low, that is truer than some others, but sites like Kickstarter have demonstrated how you can experiment with offers of all sorts of products that you haven’t even created.

That’s why we say market experimentation is necessary. That doesn’t mean, however, you don’t have to have a strategy, or can’t win with a single shot. By learning from the experiments of others, and timing cost trends perfectly, you can create a Big Bang Disruption like Kindle. So there are different ways of discovering and creating the learnings of experimentation, and of creating social consensus.

SD: Do we have any good examples of firms successfully coping with, and defending against, Big Bang Disruption in the singularity phase, when nothing much seems to be happening, but in fact the seeds of Big Bang Disruption are being planted?

PN:  Well, I would say there are countless examples, though it is hard to know for sure from a sort of Heisenberg principle. Every incumbent that buys an early stage company changes the course of history. And those that don’t do so as well. Blockbuster had the chance to buy Netflix.  Yahoo had the chance to buy Facebook. There are countless examples.

But our best example of winning here as an incumbent is probably the winners in corporate venturing, like Citi Ventures. In the book we talk about how they found and nurtured Silver Tail, used its software, brought them to market, and then sold them for a fortune when there was little distinctive advantage for them in keeping them to themselves. That comes in the last Rule, Move to a new Singularity, but it is an important question and answer about how incumbents can win in the Singularity.

SD: Do your rules for “the big crunch” phase, when the market is collapsing rapidly, amount to “throwing in the towel”?

PN: Certainly not. Rule 9 is named expressly, Quit While You Are Ahead, not throw in the towel. In a fast changing world, hard assets have high obsolescence risk. You must be agile enough to get out of assets before you are burned by their obsolescence, or clever enough to operate without taking such risks that don’t have an appropriate risk adjusted return.

Even inventory can be a profit, and company destroying, risk. uDraw was undone by inventory it could not get rid of, Microsoft recently wrote off a billion dollars of inventory value for its surface tablets (they had the inventory on the books for more than a reasonable person would know they could sell them for). Today, companies regularly take the hit of producing too little to avoid catastrophic inventory risk.

In fact, we believe marketing has a role to play, and is part of the problem, in that they rarely want to pull the plug on anything that is selling, especially selling well. Smart companies see the coming point of saturation and “get out while the getting is good,” as they say. That’s not throwing in the towel. That’s the only way to end up net positive.

SD: In order to cope with Big Bang Disruption, do firms need to adopt a different kind of management focusing on profitably delighting customers through continuous innovation is needed?

PN: Well, we guess that firms practicing traditional management will struggle with all the rules. Phases 2 and 4 are not any easier to manage just because they seem to have a positive nature to them. What we really think is needed comes in the conclusion where we talk about a new ecosystem emerging out of new capabilities for success.

Rather than trying to win at all the stages, companies will likely need to focus on enabling portions of the cycle, and on building world class capabilities to do that. So world class assemblers will solve company’s big bang inventory shortages. Low-asset design firms will create the low cost open innovation needed to imagine next generation offerings built largely from existing components that come from a wide range of industries. Likewise other companies will focus on invention, or manufacturing, rather than the still popular integrated or partially integrated approach.

SD:  Is Big Bang Disruption itself merely a symptom of a deeper economic phase change that is transforming the global economy and an inability of big firms to cope with innovation?

PN: Well, that’s an interesting question. We wouldn’t say treating symptoms is a problem or that it mars our advice any more than saying a doctor shouldn’t advise treating a fever because the root cause is an infection. Fevers and other symptoms can and do often kill before the actual disease does. And, when one has no ability to treat the root cause, often the only and wisest course of action is to treat symptoms, limiting damage and buying the patient time to heal themselves.

But I am not sure I would say Big Bang Disruption is just a symptom of “a deeper economic phase change.”  We explain in Chapter 2 the economic causes that enable this new ability to be cheaper and better simultaneously, and we recommend in the book measuring and managing to those trends to get ahead of them.

Our second rule, Pinpoint Your Market Entry, is all about understanding and acting on a deep understanding of the economic/cost trends in your industry and in tangential ones that can become related. In short, we sought to lay out the deeper economic trends, but simply and briefly for non-specialists—although maybe we need to start thinking of a deeper dive into this; call it The Big Bang Solution.

SD: Are the analogies to earlier large-scale disruptions over the last several centuries outlined by Carlota Pérez’s marvelous book, Technological Revolutions and Financial Capital  (2002) useful in understanding what is happening with Big Bang Disruption now?

PN: Well, yes and no. Yes, in that Perez’s work is brilliant, and beautifully summarizes the transitions that happen in industries when core technologies change and are made obsolete. It is an amazing compendium of scholarship and a “must read.”

Where I think our views separate is that Perez is mostly concerned with the long cycle of economics…the fifty year waves of Kondratiev and the shorter cycles of Schumpeter. These are driven off of fundamental changes in core technologies like steel instead of iron and oil instead of coal.

I think it is an open question whether anything is likely to change that fifty year cycle because it is so closely tied to the bounded rationality of workers that have an effective fifty year life. For Big Bang Disruption, we see possible affects in industries and even sectors or niches that can and do occur regardless of the state of long term technological change. This is largely a function of digital technologies whose full affects I think are still to be seen. It is possible digital technologies could accelerate long waves, but for most business can still benefit by understanding and keeping an eye on Big Bang Disruption.

And read also:

My review of Big Bang Disruption

Carlota Perez: Technological Revolutions and Financial Capital

Navigating the phase change to the Creative Economy

Leadership of the Economic Phase Change

The best new books on the Creative Economy

_________

Steve Denning’s most recent book is: The Leader’s Guide to Radical Management (Jossey-Bass, 2010).

Follow Steve Denning on Twitter @stevedenning

Source: Forbes

 

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