The current COVID-19 pause seems like a good time to assess what we mean when we talk about “disruption.” In my last blog, I suggested that much of the hype surrounding technology disruption was a red herring and that many of the usual suspects (Uber, Airbnb, Wayfair, etc.) actually reflect financial disruption within an industry segment.
In other words, legacy enterprises that operate with constraints on capital costs and pre-set bottomline expectations face asymmetric attacks by entrants with little or no capital, profitability and sustainability concerns. It was the asymmetric financial disruption that led to technology impact.
Increasingly, executives tell me that even more important than looking at supposed technological or industry disruption, their major focus should be their own sustainability. Today’s customers – as well as a broader range of potential customers, channels and supply chains – are changing. Sustainability entails disrupting internal business models and assessing how the business-model elements resonate and interact both with each other and with a variety of customer types.
For example, a food service provider described how changes in digital technologies and customer expectations forced it to change over 500 elements of its business model. The most challenging aspect wasn’t the individual changes required but the interactions among those elements.
I also heard from a manufacturer of commercial real estate fixtures that now generates over 20% of its business from the global retail residential market. The business has learned how to market across various online and retail channels, as well as how to price, take, make and support orders of one vs. many. According to the CEO, the technology has been the easiest aspect.
Many other business leaders with whom I speak admit to having made knee-jerk active or defensive efforts without properly considering the scope of the internal disruption required to make their digital efforts sustainable and a material contributor to overall business success.
The Internal Ramifications of Change
Many CEOs say they’re comfortable making major investments, as well as launching significant programs and projects that extend their existing business. With the exception of contending with globalization challenges, few have experienced major business disruption. An engineered products CEO who is focused on making his business more digitally enhanced, in fact, likened digital enhancement to his company’s globalization efforts over the past 40 years. To gauge the level of disruption in any particular endeavor, he calls upon his team to consider “the extent to which we are asking our folks, new folks, customers or partners to do something they have never done before or just more of the same.”
Rather than slapping digital efforts on current business models, this CEO requires full-on ideation and efforts to provide an impact analysis and a remediation plan. His critical questions include:
- How is the market changing?
- How does this fit with or lead the market change?
- Is the market ready, and will customers pay for this?
- What will have to change or be disrupted in each of the following soft and hard aspects/elements of our overly simplified business model, and how do they interact with each other:
- Business strategy
- Business entities, organization
- Business policy
- Products and services
- Marketing, sales and distribution
- Product, service and customer support
- Investment, cash flow and revenue realization
- Business practice
- Discipline and cadence
- Capabilities and functions
- Focus and KPIs
- Leadership style
- Measurement and governance
- How will enabling changes or remediations be made?
- What is the plan for those remediation enablers, and how are they funded and resourced?
- Who is responsible for making those changes happen?
The CEO described a situation from a few years ago, when a consultant informed him of vulnerability from a startup competitor with digitally enhanced, intelligent and connected versions of its highly profitable packaging products. Engineering said it would be easy to just add some “digital stuff” to the existing packaging products. The fiasco that followed severely damaged long-established customer and channel partner trust and relations.
Eventually, every one of the aspects and elements of the company’s business model had to iteratively change to make the enhanced and now profitable product line a success. Over 200 new changes were eventually made, including the equivalent of IT system management, new revenue realization, appropriate customer support and channel partner training for the digital products.
Disruption Oversights & Necessities
Many executives with whom I speak say they have painfully learned that in the haste to launch a digital program, effort or project, they didn’t consider the internal disruptions required. Key among the changes needed are overall culture, financial support, incentives and individual behavior.
A few years ago, several CIOs I knew were transitioning to become heads of global business services. They got together to consider the broad elements of a successful family of offerings. The discussion led to agreement that a service offering within an enterprise had to be a series of layered, interlocking gears.
While they didn’t all agree on all the elements of the gears, they developed an overly complex but relatively normative gear model for business services. The gear model had three tiers:
- Four core services.
- 13 enabling capabilities.
- 14 operationalizers to deliver quality service in a sustainable manner.
The checklist forced the company to consider what had to be addressed to provide successful services.
Developing a Model for Disruption
From my discussions with other executives seeking to revitalize their organizations, this type of gear model that lays out the interlocking disruptions needed to ascend the digital curve can be helpful to senior leaders who seek a capability-informed model from which to move forward.
As we emerge from the COVID-19 pause and enter the phased-in return to full business operations, it will become even more important to develop tools for navigating internal disruption. If you’ve seen a comprehensive gear model of the elements for mastering the elements of internal disruption, please contact me so we can share it with others.
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