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Strategy and leadership for a disruptive world

Advances in technologies such as artificial intelligence, robotics, nanotechnology and biotechnology have the potential to disrupt the rules of the game for every industry.

Challengers with big dreams, new tools and a "can do" attitude are creating new sources of value, changing the face of competition and disrupting the foundations on which our industries and institutions are built.

To prepare your business for the changes ahead you need to adopt a fresh approach to strategy and leadership, and be ready to disrupt your business before someone else does it for you.

Let disrupt it help set you on the right track to the future.

The industries plagued by the most uncertainty

The concept of industry uncertainty is increasingly topical in a world where executives are struggling to assess how real the threat of disruption really is for their business model and industry.

A couple of weeks back a team led by professors from BYU published an article in the Harvard Business Review Blog pages identifying two key drivers of industry uncertainty and ranking a number of industries on the uncertainty scale.  

The authors make a handful of key points right up front:

  1. New competitors are hitting the market at an unprecedented rate
  2. Although uncertainty is accelerating, it isn’t affecting all industries the same way
  3. There are two primary types of uncertainty — demand uncertainty (will customers buy your product?) and technological uncertainty (can we make a desirable solution?)
  4. How much uncertainty your industry faces depends on the interaction of the two.

Their primary tool of analysis is a 2x2 matrix with the following features:

  • The horizontal axis plots each industry based on technological uncertainty, measured as the average R&D expenditures as a percentage of sales in the industry over the past ten years.
  • The vertical axis plots each industry’s demand uncertainty, measured as an equal weighting of industry revenue volatility, or change, over the past 10 years and percentage of firms in the industry that entered or exited during that same time period. 

The 2x2 provides a structured approach to thinking about uncertainty and a great starting point for beginning a conversation about the levels of uncertainty within an industry.

While it's a very useful framework, the reality is that it would be dangerous for business leaders to draw too much comfort from the results that it produces.  That's because the framework appears to suffer from the same limitation that plagues so many of the analytic tools used by strategists and business leaders.  

The limitation is the generally unstated assumption that the bounds of an industry are well defined (usually by reference to a set of competitors who look similar and deliver products and services that look similar to each other) and stable and that all relevant innovation will take place within the bounds of that industry.  

This assumption overlooks the fact that industries themselves are in a constant state of evolution.  Forces such as exponential technological change and democratisation of innovation are driving an increase in the rate of industry evolution and covergence.  That in turn is blurring the boundaries of industries and requiring a complete rethink of the nature of competition.

Experience is increasingly showing that disruptive threats emerge from outside industries as traditionally defined.  A focus on the level of technological uncertainty within the encyclopedia industry as measured by the level of R&D spend of firms like World Book or Funk & Wagnells would have been of no use at all to Encyclopedia Britannica in assessing the technological threat posed by Encarta or Wikipedia.

Similarly the street directory printing business might well have concluded that it was relatively stable had it used this framework to assess the level of R&D expenditure by traditional map makers as a proxy for technological uncertainty.  Garmin, Google, Apple and others have largely killed demand for printed street directories yet my guess is that no-one in that industry would have had them on their list of competitors ten to fifteen years ago.

Any assessment of industry uncertainty needs to go beyond just identifying those who look like the traditional industry incumbent or provide the same products and services as the traditional industry incumbent.  It needs to include those organisations, often from very different industries, who have the capabilities and competencies necessary to deliver the same utility, fill the same need or solve the same problem as the traditional players in the industry as traditionally defined.

Is the framework outlined by the BYU team useful.  The answer is emphatically yes.  But it needs to be used as the starting point for an assessment of uncertainty rather than the end point in the discussion.  To be fair, the authors specifically note that the framework provides a "baseline" level of uncertainty.  That's important because the thing that most creates an environment of disruption is the element of surprise and there are few better ways to be surprised than to mis-specify the bounds of your "industry" and the list of organisations with which you are competing.


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