A new book by researchers at the McKinsey Global Institute tackles how disruption is changing the world of business as we know it.
In their book, “No Ordinary Disruption: The Four Global Forces Breaking All The Trends,” authors and McKinsey Global Institute researchers, Richard Dobbs, James Manyika, and Jonathon Woetzel, reveal how urbanization, globalization, an aging population, and accelerating technology are forcing business leaders to reconsider virtually everything they’ve ever learned or known about the ways to plan and conduct business. When the world is moving at the speed of light while you’re still moving at the speed of sound, you’re bound to fall behind.
In the book, the authors show how quickly technology is being adopted as compared to the past. It took the radio 38 years to reach 50 million people; television, 13 years to reach that level, yet it took Facebook only one year to do the same, and Twitter a mere nine months.1 It’s not just the speed of adoption that can threaten slower-moving enterprises; it’s also the lower cost of entry along with that speed of adoption, that enables unexpected competition to arise, seemingly from nowhere (think Uber and Airbnb). So how can businesses that are used to long-term planning and traditional views of how business works succeed? The authors describe five principles that will give leaders a chance to stay on top when it comes to the “new normal” accelerated pace of technology:
- Make the most of your digital capital2 – You are undoubtedly aware of the value of your structured data (sales per unit, cost of goods, etc.), but what about unstructured data? Being able to track customer behavior patterns in real time can lead to new business opportunities. The book uses the example of Uber, which uses algorithms to determine price increases during peak demand times. Other examples are retailers who use customer buying patterns to immediately readjust pricing and quickly forecast demand. All one has to do is look at all of the M&A activity occurring, where analytics companies are being scooped up by major corporations, to understand how leaders place the right value on the importance of analytics.
- Look to exploit lower marginal costs of digital3 – Digitization is essentially the democratization of business. Small players can become major competitors overnight due to the reduction of barriers to entry, including cost, market reach, and distribution capabilities. The authors offer the example of What’sApp, the startup mobile messaging platform, bought by Facebook for $19 billion. The company reached 500 million monthly active users within five years of its launch. But the benefits of digitization that make it easier for startups to emerge can also help larger, more established enterprises as well. Expanding a company’s market reach, both in regards to geographic and demographic areas, has always been a considerable expense with a long-range ROI. But digitization and the knowledge brought on through analytics enables even the largest companies to make swift gains, if they know how to take advantage of these lower costs.
- Find new ways to monetize consumer surplus4 – Now that consumers are enjoying the lower prices of digital tools and free information that the internet provides, companies need to discover ways to monetize offerings. This is becoming a major challenge, but there are ways. One is through advertising revenues. If you have the audience that businesses want to reach, you’ll be able to realize revenues through selling that space. But some companies don’t lend themselves to this form of revenue. Paid subscriptions for online content offer another option, but that can be difficult due to the accessibility of free information on the internet. Some companies, like LinkedIn still give their members free access, but allow members to upgrade to Premium membership for a price. A third option is to monetize your big data by using that information to develop new, more relevant products, services, or content that people will be willing to pay for. The authors make it clear that no one answer is right for all businesses. Each will have to find its way. That will require the will to experiment and potentially keep changing the approach.
- Don’t wait for the dust to settle5 – We’ve all heard the phrase, “planned obsolescence.” It seems that today’s technology has made that a fact of life. Those who wait to move on implementing new technology may do so at their peril. Many established businesses are risk averse, rightfully concerned about Board and stockholder pushback, but the many successful tech companies that have thrived understand that risk is a natural part of today’s business world. One way to somewhat mitigate that risk that some large corporations have taken is to form relationships with tech startups, thus minimizing risk to the core business. Some companies, like General Electric, have created their own innovation lab, GE Garages, to promote and inspire innovation in the manufacturing sector.
- Think technology for your talent, organization, and investments6 – In order to respond to the challenges of this “new normal,” you need the most qualified staff possible and may have to rethink the traditional route of hiring from within, at least in the beginning. Some companies, according to the authors, actually buy tech start-ups to acquire their staffs. Others create an innovation and technology group within the organization that’s more agile than the traditional R&D, as was mentioned in #4 above (GE Garage). When considering investments, today’s business leaders should look to technology and digitization when considering where to put their money.
There are no guarantees that these five principals will definitely spell success, but it’s clear that in the “new normal,” not taking them into consideration can take businesses on a negative trajectory.
Read our previous blog on this very important book to learn more about the four disruptions.