This blog discusses how businesses and public sector organisations seek creative ways to address and react to industry disruption. Disruption units and public-private partnerships are highlighted. We further explore the nature of innovative environments and how they can use collaboration to create self-disruption. The drivers of innovation and the theory behind them are also briefly touched upon.
When the film industry first produced motion pictures with sound in the mid- to late 1920s it created an outcry among the proponents of silent film. Cultural critics said these talkies were the “death of the international language,” the death of silent film. And musicians that traditionally accompanied silent films with their music were afraid to be put out of business. Talkies were regarded as culturally and economically harmful.
Almost a hundred years later it is no longer one force at a time that changes industries. Our world today is transforming at a more accelerating pace. Nearly every organisation can tell its own story about how it had to change as a result of disruptive forces. But unlike in the past, disruption is not perceived as a threat to established structures anymore. Instead, businesses and public sector organisations seek creative ways to utilise it—to boost organisational agility and remain competitive in an increasingly complex business environment characterised by blindspots and industry convergence. We even see festivals dedicated to disruption and disruptive innovation—this year the Ellen MacArthur Foundation partnered up with Wired Magazine and Cisco Systems to host the Disruptive Innovation Festival and the technology-news website TechCrunch organised the Disrupt Festival. All want to be better prepared for the future and avoid making the same mistakes that became the downfall of companies, which were once leaders in their respective industries, but failed to adapt to a changing world around them.
Disrupt or be disrupted?
Disrupt yourself or be disrupted by others. Harvard Business School professor Clayton Christensen, who coined the term disruptive innovation in his book The Innovator’s Dilemma 1997, and whose ideas are increasingly debated, urges caution.[i] The mantra can be misguiding, almost to the point that it turns into paranoia for established organisations. These must not overreact and dismantle still profitable businesses. Their choice is described as the innovator’s dilemma—to hold onto an existing market and do the same a bit better, or to capture new markets by embracing new developments.[ii] But why not do both? The future might belong to those that embrace both choices simultaneously. Those that use their built structures to strengthen their core businesses as well as cultivate innovation.
For Christensen and others the magic word seems to be disruption units—entirely new divisions within a company, which solely focus on seeking out growth opportunities that arise from disruption. These units can either be established as permanent divisions or temporary task forces. Their success depends on keeping them separate from the core business.[iii] The prime example of this practice might be Google X, the former subsidiary of Google, now Alphabet. Other notable examples are the Telekom Innovation Laboratories, which explore opportunities within telecommunications, and the New York Times Research and Development Group, which looks into the future of media and news.
For governments and the public sector the issue is more difficult than for the private sector. Political structures are often designed to resist deep and rapid change, “if only to prevent temporary and reversible fluctuations from having an undue influence on underlying systems,” says Mohamed A. El-Erian, Chief Economic Adviser at Allianz.[iv] The political influence of financial donors and lobby groups, which push their own agendas, and with that block small and emerging actors from breaking into a market, are an additional challenge.
To see how governments and the public sector disrupt themselves and adopt innovation we can think of them not as big bureaucratic machineries but a culmination of markets.[v] These smaller markets offer a particular service to the public—from education and health to defence—and similar to the private sector disruption can be encouraged in each of them. Take criminal justice as an example. The prison system is outdated, but we still see about one in every 100 adult Americans go to prison, costing the tax payer about US$50 billion per year. With the rise of new technologies, the US and other governments have made efforts to reduce incarceration and adopt electronic monitoring in its place. This reduces the costs per prisoner about 5.5 times.[vi] Public-private partnerships that help modernising existing infrastructure like we see with the subscription to electronic monitoring of prisoners are one way how governments and the public sector can adapt to rapid business change. Others are using outside advisors, introducing new mechanisms to strengthen inter-agency coordination, and easing the access of emerging players to a market by reducing subsidies and adjust regulations. [vii]
Disruption as a collaborative process
Disruption may also be used not to change business models but operations. This is an angle proposed by Harvard Business School professor John Kotter. [viii] Instead of disruption units, an organisation may thereby utilise volunteers that are selected from all parts of the organisation—employees, which share the drive to bring an organisation forward. These groups gain organisational knowledge, relationships, credibility and influence, and in turn are given the opportunity to make their voices heard. In this process all volunteers are equal. They are organised in a network—not a hierarchical structure that slows down the transfer of information. The key in this approach is to create an internal opposition and cultivate and practice tolerating opposing views while mitigating any fears of retaliation or discrimination.
Linda Hill, another Harvard Business School professor, has actually found this to be one of three characteristics shared among innovative organisations.[ix] She calls it creative abrasion—a marketplace of ideas that lets people engage in debate and discourse. Equally important to this are the two other practices, creative agility and creative resolution. The marketplace creates a wealth of ideas. These must be tested and refined in a discovery-driven learning process. That is learning by doing, and not planning. Hill describes this as “experiments are usually about learning. When you get a negative outcome, you’re still really learning something that you need to know. Pilots are often about being right. When they don’t work, someone or something is to blame”.[x] Resolution comes last. It describes the ability to combine even opposing ideas in a coherent fashion.
Note that disruption is a process—so an organisation has to make sure that opposition is constant. Many organisations effectively allow and incorporate resistance during the initial concept stages of a project, but fail to uphold such a dialogue once a project is launched or a product is rolled out. Sometimes the process is also about little gestures, like sidestepping policies or allowing employees to use their own and preferred devices at the workplace.
From innovation to execution, and back to innovation
Innovation thrives when information can flow freely and people have the opportunity to exchange ideas, learn from each other and rapidly adjust to changes. We see this best when looking at entrepreneurs and the start-up culture. In these environments people are highly networked, and loose structures and flat hierarchies ensure that decisions can be made almost on the spot.
As such companies grow, however, it seems they inevitably reach a point when scaling becomes less about innovation and more about management. Tasks have to be allocated and delegated. Suddenly a company needs a finance department to manage its resources or an administrative department to manage communication and personnel. Different projects get allocated to particular project coordinators and their subordinates. All this helps a company working more efficiently, but it also changes the environment that initially led to innovation.
What happens then? Sometimes an organisation can ride the success of an innovation for many years before the benefits peter out and its financial performance is affected. When innovation comes to a halt, though, a company faces risk of being overtaken by its competitors—it becomes susceptible to disruption. Disruptors, on the other hand, are not stuck in doing business as usual. They react to trends and new developments. Thereby they utilise what is already there. Back to movies, Netflix is a classic example of this. The movie streaming site started out as a DVD rental by post. Unlike Blockbuster, its strongest competitor at the time, Netflix thereby cared to the needs of online shoppers that did not mind shipping times. As technologies developed, though, Netflix shifted from shipping movies to streaming them online. Suddenly the service also became appealing to Blockbuster’s core audience, which wanted instant gratification, and Blockbuster failed to follow suit. In the end, Netflix took advantage of an existing infrastructure and utilised the prevalence of computers and internet connections.
Disruption is the new normal
Christensen describes disruption as “a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses”. [xi] While incumbents focus on improving their products and services for their core customers, the needs of other segments become secondary. Christensen says that disruption occurs when entrants then target those overlooked segments by delivering more suitable and often cheaper products, before moving upmarket and attracting the incumbents’ mainstream customers. Entrants may also create entirely new markets.
This notion of disruption becomes more and more contested as new tech successes do not seem to follow its pattern anymore. Disruption “no longer comes from the lower end of a market; it comes from other completely different industries,” notes for instance Vivek Wadhwa, Stanford and Duke University fellow.[xii] Uber initially tried breaking into the market of high-end limousines, then offered taxi services, and now wants to get into the delivery of groceries and medicines. Apple already disrupted the computer and music industry, and now casts an eye on health monitoring with its smartwatches. Disruption seems to occur wherever technology can be applied and becomes affordable to everyone. To stay on top, businesses and organisations need to embrace it. Many will find that they already have the tools to do so.
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[viii] Kotter, John P., “Accelerate!”, November 2012, https://hbr.org