Charting your course for surviving disruptive innovations

1 | P a g e | C h a r t i n g y o u r C o u r s e f o r S u r v i v i n g

D i s r u p t i v e I n n o v a t i o n s

By Mark Albala, InfoSight Partners

ABSTRACT

Historically, businesses could expect the lifespan of their business models to survive the planning horizon of 3 – 5 years and long term strategic planning was something you could review on a quarterly basis and revisit once a year. However, the digital economy has changed all the rules, no longer can you expect the business climate to survive for the planning horizon; typically, digital products are retooled at least twice a year. Moreover, disruptions can come from other sources than innovations, they can be the result of opportunistic and cyber-attacks, the result to your bottom line is the same.

Devising a strategy and first line of defense is mandatory for those who would rather weather the storm of disruption unscathed to the more common alternative of weathering a fire drill with uncertain outcomes. Having an early warning beacon is a central component of early detection of a disruption and corralling the necessary information to inoculate the attack. This writing will go over some of the techniques available for such an endeavor.



Introduction You have all heard it, things change more often in the digital economy, the continued onslaught of disruptive innovations is a way of doing business in the 21st century and is not going away. At the heart of the matter is, once a better mousetrap is devised, it is far easier to assemble a collection of digital products and create a weave of platforms to deliver the digital products than it is to launch similar capabilities in the non-digital world. That means that every time someone comes up with a better way of doing something you do, anywhere in the globe, they can launch a product that directly challenges your revenue base. Recent studies show you can expect retooling of digital products every 20 weeks, and no one does retooling because they like to, they do it because they are either trying to disrupt or trying to react to being disrupted.

Disruptions all have a similar characteristic, that is that they are introduced to the market in waves, with four characteristic phases, these being:

• The Discovery phase, where a disruption is discovered. Unfortunately, information flows much more freely in the digital economy, and one player in the marketplace leaves clues to the disruption throughout the market whether it affects only that one player (in the form of opportunistic and cyber-threat disruptions) or affects the market at large (in the form of innovative disruptions) and in many if not all cases, market participants will look at a disruption as a reason to react. The discovery phase covers everything up to the first reaction to the disruption thrust into the marketplace.

• The big bang, where a group of market participants react to the disruption with their own reactions, which all together influence the consumers of the market to take reaction. In most cases, the big crunch results in a collective over reaction to the disruption with several trajectories, which gets sorted out in the next phase of the wave.

• The big crunch, where the market reacts to the over reaction by pulling all the market participants back, some end up confused in a sea of turbulence, some end up overwhelmed and are consolidated out of the market and some understand the wave and ride it through the final wave cycle. Ever see a company sell an overstock of inventory at a huge discount, there is a strong chance that it was bought during a reaction to a disruption in a big bang phase and liquidated in a big crunch phase of the same disruption wave.

• The new market equilibrium, where the disruption wave dissipates into a new market equilibrium.

The retail market is one that can be watched to understand disruption waves. The leader in digital retail, Amazon, has upset Sears, Walmart, JC Penny, Macy’s Radio Shack and a host of other companies who have misread the fact that people would rather engage in retail over the internet. New entrants to the digital marketplace like Jet and others have been trying to beat Amazon at their own game.



Inspecting the disruption wave A disruption wave is the cycle that a disruption either through the introduction of an innovation or other means will have on the marketplace. Disruptions will follow four phases before resulting in a new market equilibrium, these being:

• The discovery period where a disruption is identified and market participants each individually determine their reaction to the disruption and executed their reaction plans in the marketplace.

• The big bang, which is when the individual reaction plans are thwarted on the marketplace each having an impact. Collectively, the market will react to both the disruption and the actions of the market participants. There is a window of opportunity available to market participants, actions either of insufficient magnitude or out of phase with the frequency of the disruption will have no impact on the marketplace. The big bang is a period of an instable but rapidly expanding market as market participants quickly try to benefit from the disruption.

• The big crunch, which is the period where the market has taken some action and the trajectory of the market begins to be visible. The disruptor begins to enter a mature steady state and others who have taken action during the big bang phase of the disruption either react to the new but smaller marketplace or get consolidated out of the market.

• Finally, the disruption dissipates into a new market equilibrium.

Turbulence at the Edges of a Disruption Wave

The disruption wave is a made up of a collection of actions from the participants in a marketplace to either defend their position in the market or opportunistically benefit from another’s misfortune who has been disrupted in some way. An example would be a company (Company A ) boasting in the media about the strength of their cyber-security capabilities and offering a bounty to anyone who could penetrate their security framework after another in the market (Company B ) was attacked. Customers who are influenced the security risk imposed on them by the misfortunes of Company B could decide to do business with Company A. Of course, there is never only two companies reacting to such a scenario, and to anyone at the edge or anyone looking in from the outside, the flurry of activity appears to be a very turbulent market. During the disruption wave, changes occur regularly and depending on the magnitude of the disruption, occur with greater frequency and associated magnitude (if the potential benefits as viewed by a market participant are higher, the risks in the actions as a reaction to the disruption are larger).

Tipping points further confuse the turbulent waters by causing disturbances in the disruption wave (Tipping points were introduced by Malcolm Gladwell in “The Tipping Point”, 1999).



Figure 1 The disruption cycle, InfoSight Partners, 2017

Devising a means to detect and monitor disruption wave

The key to surviving a disruption cycle is a mechanism devised to detect the existence of a disruption wave, determine the magnitude and scope of the disruption, understand the cycle speed of the disruption wave and harness the information necessary to react to the disruption wave in time to make a difference.

Such a mechanism is an early warning beacon. An early warning beacon is one or more algorithms (self- learning if possible so they can improve as they are used) which monitor the assumptions of the business models of the organization to detect changes in business conditions. The information monitored is not information that you will find in the core applications of the organization, but rather from three sources:

• Social media, for hints of changes in sentiment and other metrics, • Web, mobile and IOT (Internet of Things) activity logs, and • Platform logs created from the digital platforms participating in your digital commerce (i.e.,

PayPal).

In order to improve the effectiveness of an early warning beacon, one or two conditions must be met:

• The information required to react to the business conditions alerted to in an early warning beacon must be bundled in such a way that it can be consumed quickly without the need to reassemble it, extract it from warehouses or have data scientists devise models for it. In all



likelihood, the reaction time required to react to an early warning beacon will not afford the time to perform any of these reactions, which will relegate many to take a “best experience based guess” and in many cases, will be the ones liquidating their wrong or over reactions in the big bang phase of a disruption wave.

• Link the repeating conditions of an early warning beacon to a self-learning algorithm, which can react to the conditions in a predictable way, and of course, monitored throughout the disruption wave.

To create both the beacons and the algorithms that will react to the warnings posted by the beacons, a keen understanding of what information will be consumed by processes engaged to react to defend the business models and value propositions of the organization. This understanding is only obtained by mapping information, processes consuming the information and the actors executing the processes and tagging the beacons to the processes that will defend the organization. You can start with creating the maps for the beacons and then the maps for the defensive actions to respond to warnings broadcast by the beacons as an attempt to not “boil the ocean”, but eventually, a large portion of the organization will be mapped (these maps are called IPA maps or Information/Process/Actor maps, and must be maintained, especially because a portion of the business models will be altered as they represent the retooling of digital products). Typically, digital products are retooled every 20 weeks.

Influencing your chances of surviving a disruption wave

One of the key activities you may decide to do is introduce a mechanism that analyzes the chances of surviving a disruption wave and communicates to business stakeholders that their ability to weather a disruption is one of the key metrics they will be measured against. One vehicle we have used is a disruption analysis scorecard, which measures the improvement or decline in being able to weather a disruption.

Figure 2 Sample extract from the disruption wave scorecard, InfoSight Partners, 2017



About the Author Mark Albala is the President of InfoSight Partners, L.L.C. Mark has served in a variety of information strategy, architecture and governance roles and has been an influential futurist in defining ways in which information could be wielded, and has been an active advocate of the disciplines of information economics and the acceptance and management of information as an organizational asset. Mark currently serves as an advisor to companies and analysts. Mark can be reached at [email protected].

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Charting your course for surviving disruptive innovations