Waves of Change in a Time of Disruption

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Massive disruption in the economy is making it hard for companies to survive, and even more traumatic change is coming. Companies need to be more agile and adaptive. Innovators and early adopters have a clear advantage. Yet most organizations are unable to cope with this challenge, and don’t handle change well. Integral Strategy Network helps organizations develop the skills they need to respond more constructively to emerging threats and opportunities.

Creative Destruction

Waves of innovation start small, gain strength, and crest. Then the next wave begins. Austrian economist Joseph Schumpeter called this ‘creative destruction,’ introducing the term in his book Capitalism, Socialism and Democracy (1942) to describe the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”

A series of s-curves shows how innovations succeed one another in wave after wave.

The waves are coming closer together now than they did a century ago, piling up in an onslaught of change that may soon look like a tsunami. When they occur more frequently, the economy experiences almost continuous disruption. In the extreme, companies struggle to adapt and survive.

Digital Transformation

A Forrester Research survey seeking to determine the significance of digital transformation as a driver of business strategy showed significant variation across industries. Different sectors are at different stages in adopting digital technology. Some are leaders. Others are laggards. For example 61% of telecommunications companies, 43% of utilities, 31% of healthcare organizations, and only 20% of industrial products companies have linked their strategy to digitization. Laggards still represent a large part of the economy.

Cloud computing, the Internet of Things, big data, artificial intelligence, robotics, drones, 3D printing, virtual reality, augmented reality, and blockchain are following closely behind the cellphone and the internet. The tsunami has reached the shore, but it hasn’t yet landed with full force.

Many industries already have experienced traumatic disruption, while others appear to have been spared. Their turn will come. As William Gibson said, “The future has already arrived. It’s just not evenly distributed yet.”

The Adoption Lifecycle

It takes time for new technologies to propagate. Geoffrey Moore described the process in Crossing the Chasm: Marketing and Selling Technology Products to Mainstream Customers (1991). The book was intended as a guide for high-technology companies seeking to expand their customer base across the whole adoption curve – from innovators and early adopters to the early majority, the late majority, and laggards. Each class of customers, Moore says, has a distinctly different psychographic profile. Companies offering transformative technologies need to understand and market to these differences. The most challenging step for a new technology to become widely accepted is the leap from innovators and early adopters to mainstream use. Moore called this ‘the chasm.’

He characterized the five customer archetypes as follows:

  • Innovators pursue new technologies aggressively, often proactively seeking them out. They are intrigued by any fundamental advance, and often purchase new technologies to experiment with them and explore their properties.
  • Early adopters, like innovators, buy into new product concepts very early, but they’re not technologists. They can imagine the benefits of a new technology in their business, and use their intuition and vision to find an opportunity to use it strategically.
  • The early majority are pragmatic. They rely on references from prior adopters and wait to see what others do and how they succeed before committing themselves.
  • The late majority are unsure of their ability to successfully implement a new technology. They are highly risk averse, and wait to make a move until a technology becomes established as an accepted standard.
  • Laggards avoid new technologies at all costs.

Early adopters, Moore says, “expect a radical discontinuity between the old ways and the new, and they are prepared to champion this cause against entrenched resistance.” These visionaries, he says, are in a hurry. “They see the future in terms of windows of opportunity, and they see these windows closing.”

In contrast, Moore says the early majority “are looking to minimize the discontinuity with the old ways. They want evolution, not revolution. They want technology to enhance, not overthrow, the established ways of doing business.” They are seeking to make incremental rather than radical change.

The two also differ in where they look for inspiration. Innovators and early adopters, Moore says, tend to seek out kindred spirits across industry boundaries. The early majority communicate more within their own industry and are less aware of what is happening in other sectors. As a result, they may be slow to see the coming onslaught of disruptive change.

These differences in mindset (the chasm) prevent mainstream companies from quickly adopting new technologies, creating a delay that can be fatal. Disruptors capitalize on being first. Innovators and early adopters quickly gain a strong competitive advantage. By then it is often too late for the early majority, the late majority, and laggards to catch up. Many incumbents fail.

Since 2000, 52% of companies in the Fortune 500 have either gone bankrupt, been acquired, or ceased to exist. In 2015, more than half of the Fortune 500 failed to make a profit. McKinsey says digital transformation is shrinking the revenue growth of incumbents at an average rate of 3.5 percent a year, and the figure is as high as 12 percent in some industries. It says emerging digital ecosystems could account for more than $60 trillion in revenues by 2025, equal to more than 30 percent of global corporate revenues. First movers and fast followers have a clear advantage.

Seeing the Future

Business leaders are concerned about the change that is coming, but many are unsure what to do about it. A Dell survey of 4,000 executives in 16 countries found 48% of the respondents don’t know what their industry will look like in 3 years, 45% fear their business may become obsolete within 3-5 years, and 78% feel threatened by digital start-ups.

The future will belong to companies that can see new opportunities before others do, and act first. However, being bold alone is insufficient. They will also have to have the skills to handle change well. That is the most important competency in the 21st century.

This article is an excerpt from a book in progress on complexity, collaboration, and the challenges of transformative change. It was first posted on May 1, 2018, on LinkedIn.

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David Forrest

David is the founder of the Integral Strategy Network. He is a writer, futurist, strategist, and facilitator of systemic change.

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