An Incumbent’s Guide To Productive Disruption

Reflections on Disruption Summit London 2018 by IBM’s Angela Bates

As I walked into a packed auditorium at 155 Bishopsgate, London, I was immediately drawn in by this year’s Disruption Summit filled with people looking to be the initiators — not one of the victims — of disruption.

After being asked to speak at the conference, I found that the term ‘Disruption’ in business was first used back in 1995 by the American scholar Clayton M. Christensen which subsequently led to his book The Innovator’s Dilemma — when new technologies cause great firms to fall.

More than 23 years later, technology has changed exponentially.

As a champion for the Big Guys, representing not only my 100+ year old employer, but also the hundreds of industry incumbents out there successfully disrupting themselves and others, I believed this was a good opportunity to deliver a message of hope.

I firmly believe that the next wave of technology, unlike the last, is going to provide an advantage to legacy companies over digital startups.

This is the moment that incumbents strike back and become the Re-Inventors!

Drawing from IBM’s annual C-Suite study, the 19th edition of research developed by the IBM Institute for Business Value in cooperation with Oxford Economics, we have collected data and insights from more than 40,000 interviews with leaders of our clients. Our clients represent some of the most well-known and respected organisations in the world. The study show us that the most successful legacy companies — 27 per cent of the companies interviewed — had some commonalities.

We classified them as the Re-inventors.

Download a copy of this report here: Download the study (354 KB)

So what do these Re-inventors do that makes them so successful in beating off waves of disruption from smaller players?

Some of the research points to actions which are very familiar to my work within IBM Digital Business Group, a business unit tasked with inserting tension into mainstreams of business. These re-inventors:

  • Dance with disruption in a coordinated, orchestrated way
  • Commit to a digital journey in order to become more customer centric
  • Work to create a collaborative, agile culture

How to DANCE WITH DISRUPTION

Evidence from the C-Suite study indicates that Re-inventors see disruption not from startups, but from other incumbents.

72 per cent of C-suite executives tell us that innovative industry incumbents lead the disruption in their industry. Even in industries with higher than average turmoil like financial services, where startups have a relatively larger presence, innovative incumbents are credited with the lion’s share of change.

Re-inventors go on the offensive and actively acquire smaller disruptors. Financial services firms have been snapping up FinTech, InsureTech and RegTech companies at record pace. In other industries,
Walmart acquired platform retailer jet.com,
Unilever acquires Dollar Shave Club
UPS bought Coyote Logistics, the “Uber of trucking.”

Disruption is dead! Long live disruption!

Back in 2010 when I launched IBM’s first programmes for Startups and investor relations in the UK  — IBM Global Entrepreneur and IBM SmartCamp pitch competitions — the pitches of tech startups to investors were littered with promises that they would be the next disruptors of industry. Fast forward eight years, and ubiquitous mobility and digital media have already shaken up the most susceptible industries. The Uber and Airbnb phenomena rolled through markets with excess capacity and eroded profits for many.

Some would-be disruptors never got past the gate. The digital giants’ dominance daunted entrepreneurial startups and the venture capital (VC) firms that fund them. The number of business startups in the United States recently reached a 40-year low. Angel and seed funding fell along with first-time financings; investment shifted to existing unicorns and late-stage deals.

Source: “Venture Pulse: Q2’17 Global analysis of venture funding.” KPMG. 2017.  “Venture Pulse: Q3’17 Global analysis of venture funding.” KPMG. 2017.  “Venture Pulse: Q4’17 Global analysis of venture funding.” KPMG. 2017.

This is not to say that legacy companies should underestimate the impact that a smaller player can make in their industry, especially those that have a genuinely innovative product, in a growing market and a strong customer centric focus. However, as disruption fatigue hits early-stage investors, now is the moment that the power to disrupt can move to incumbents.

Dance with a Kingmaker

Re-Inventors also invest in and nurture digital talent. Not just the web designers and social media gurus, but their software developers who in themselves present a new Developer Economy.

Not very long ago, developers were primarily seen as smart people who were too idiosyncratic and unsociable to have much influence. With the rise of Cloud technology and Open Source software, that’s all changed. Developers have attained a new status as the real movers and shakers who will create the future of business, and are shaping product and user experiences in new ways. They are unquestionably one of the most important assets a business has, regardless of industry.

Not convinced about the importance of software developers? Check out this blog by our Vice President of Open Source and Advocacy announcing our new digital transformation project, IBM Developer.

Digital transformation is a journey

Digital re-invention is not a heart-stopping shakeup. It’s an eye-opening opportunity with data as a company’s greatest asset.

Businesses that extract knowledge from proprietary data, and combine that with expertise built up over many years, will win. This is something that successful incumbents said they were doing — leveraging their data with Artificial Intelligence (AI) in order to become more client centric.

So how did we get here?

There have been three waves of technology that are currently coinciding:
  • Rise of Cloud — giving access to computing power and information everywhere and anywhere
  • Rise of Data — generating vast quantities of structured and unstructured data — video, text, tweets, images collected from millions of sensors and devices
  • Power of Mobile — the iPhone in my pocket now has more compute power than the old supercomputers of the 1970s
  • These three waves of technology are underpinned by the need for security and privacy

With so much information and power at our fingertips, we needed to do something to help us control and use this to help us be more productive. As an incumbent, the access you have to customer data is your greatest competitive advantage — data that startups can only dream of having access to. The answer to making all this data an incumbent’s secret weapon in the face of disruption is Artificial Intelligence.

And I don’t mean AI that replaces people. But AI that is a partnership of man and machine, helping your employees do a better job and even challenge their opinions.

A machine that can debate with you? Well, who’d have thought it was possible:

The goal of any digital re-invention project and adoption of AI technology should be to enable your organisation to become more customer centric, helping you fix those customer pain points before a startup can.

For us in IBM’s Digital Business Group,

  • We connect with software developers via advocacy (not advertising or sales) to build trust and brand preference
  • We invest in ‘New Collar’ digital talent, placing value on those with technical skills
  • We embrace startups with programmes that support collaboration, nurture partnership and co-creation
  • We commit to a digital journey by embracing AI, digital routes-to-market, all with the aim of becoming more customer centric

Disruptors should not be feared and cursed. They should be your joy, your inspiration and motivation.

But none of these actions can give you the power to initiate disruption in your own industry without creating a culture that can adapt to technological change, empowering teams focused on disruptive business projects to be successful.

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