What is disruption in contemporary society and economy?
Disruption = the act or process of disrupting something - a break or interruption in the ordinary course or continuation of some activity, process, etc. Also derangement, dislocation, disturbance, upset and related convulsion, revolution, unsettledness, unsettlement, upheaval.
Innovation is the opposite of complacency — and strategic innovation is, in fact, how disruption is delivered.
Disruptive technology is an innovation that significantly alters the way that consumers, industries, or businesses operate. A disruptive technology sweeps away the systems or habits it replaces because it has recognizably superior attributes.
Creative destruction describes the way technological progress improves the lives of many, but only at the expense of a smaller few.
- Creative destruction occurred during the industrial revolution when machinery and improvements to the manufacturing process, such as the assembly line pushed out craft and artisan production. While the economy as a whole benefited from such improvements, those craftsmen who were displaced saw their jobs destroyed, never to return.
In the last decade, digital transformation has been a critical driver for profitable growth, customer delight, and seamless operations. Today, we are well into the digital revolution, reaping its benefits, solving problems that lie in its wake, and trying to determine our next steps on the way forward.
- Digital transformation is redefining education for the age of machines. What started as an attempt to close skills gaps in the workforce, has fast become a race against time to not only equip people with new, digital age skills but to also create an environment where creativity and innovation have free rein.
- Here again, it is the digitally mature organisations who have been most successful in embedding technology into learning and creating digital platforms that offer seamless, personalised learning. They are best poised to advise on how to create a new multidisciplinary, technologically savvy workforce that can draw on the prowess of technologies and work alongside it.
- Take the case of our new digital identities; they are the gateway to a range of services. Now, even those without traditional identities can obtain digital ones based on biometrics and access essential services such as healthcare, financial aid, education and, with that, the possibility of a better life, where none existed before.
In business theory, disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market-leading firms, products, and alliances.
- Not all innovations are disruptive, even if they are revolutionary. For example, the first automobiles in the late 19th century were not a disruptive innovation because early automobiles were expensive luxury items that did not disrupt the market for horse-drawn vehicles. The mass-produced automobile was a disruptive innovation, because it changed the transportation market, whereas the first thirty years of automobiles did not.
- Disruptive innovations tend to be produced by outsiders and entrepreneurs in startups, rather than existing market-leading companies. The business environment of market leaders does not allow them to pursue disruptive innovations when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from sustaining innovations (which are needed to compete against current competition).
New technologies and disruptive innovations are influencing not only international politics and the global economy but also the strategies and operational toolkits of state and nonstate actors alike. Above all, they create new threats, but also opportunities for peace operations and humanitarian missions and have complex implications for Austrian and European stability.
Macro-level disruptors may be, for example :
- Innovations that enable recovery of precious materials or supplanting traditional materials
- The shift from disposability to restoration drives regenerative design and reduced consumption
- Closed-loop systems reduce the need for extraction and processing of new resources
- Worldwide adoption of the just-in-time vs just-in-case model of production reduces consumption
- The shift from subtractive manufacturing to additive manufacturing eliminates waste
- Resources substituted by alternatives enabled by technology (e.g. 3D Printing, Nano-technology)
- Decreased automobile demand due to urbanisation and the sharing economy
- The shift in automobile material requirements as experience design replaces safety needs
- The shift to renewable energy drives a shift in the materials required to generate energy
- Sustainability demands drive a need to improve safety, increase productivity, and reduce costs
- Sustainability forces companies to radically re-think their business models
- Resource scarcity drives the need for alternative sources
- Resource scarcity and environmental impacts drive a reduced consumption agenda
- The price tag to extract scarce resources becomes prohibitively expensive
- Economic incentives drive metals consumers to look for alternatives
- The shared economy drives a reduction in manufacturing and consumption
- Increased demand from 3 billion people that join the consumer ranks by 2025
- Increased demand from 5 billion people that join the ranks of the middle class by 2030
- Spiralling prices and unparalleled volatility continue in the future.
International level disruption sees the below trends:
Battle for technological supremacy.
- The United States and China have emerged as the dominant players in the race for hegemony in the Fourth Industrial Revolution. Divergent technology standards will persist while the competition continues. The winner will have outsized influence—with economic, political, and military implications for years to come.
Rise of the Indo-Pacific.
- The Indo-Pacific is the new megaregion at the heart of the global economy and geopolitical competition. As China steps up, the United States bows out, and a variety of middle powers move into the mix, the Indo-Pacific will simultaneously become more critical to the commercial success of multinational corporations and more challenging to navigate.
Clean food revolution.
- The global food industry is experiencing a profound disruption. More consumers prefer eating “clean foods” that are healthier and more environmentally sustainable. Furthermore, technological innovations in food production are enabling a new meat mix that will change how people around the world consume protein.
Next-generation fake news.
- Fake news has already proven costly to governments, businesses, and societies around the world. Get ready for more volatility. Falsified video and audio are becoming less expensive and more convincing—and have a wider global reach. This next generation of fake news could prove far more damaging as fabricated stories become much harder to disprove.
Transformation of higher education.
- Technological changes, policy shifts, and companies taking a more active role in addressing skills shortages are reshaping higher education for the 21st century. As education shifts toward more technical training, a more specialised global workforce will emerge, and education systems will become a more important determinant of national competitiveness.
- According to the OECD, 65% of today's children will have jobs that have not yet been invented. This means that the knowledge and skills required to enter the labour market will be very different from those provided by the current educational model.
Management and disruption
The following characteristics are critical for leading through disruption:
- A leader must think of themselves as akin to a Chief Communications Officer. They must develop and articulate clear messaging, so the vision is easily and widely understood.
- Leaders must drive execution. The key is to make decisions that are “nearly right, but now”, then pivot if necessary when new information becomes available.
- Success rests on the ability to engage the entire leadership team and other key stakeholders around a shared vision and shared goals. Focus on own team, championing others and calling out their achievements, while inspiring, motivating and leading by example. “Never on your own”.
- Credibility is an essential leadership attribute for any situation, but when leading through change it becomes even more critical. Furthermore, leader is expected to act with consistency and reliability, be a moral compass, have integrity and remain calm.
- In times of disruption, the leader must be brave enough to make tough decisions. Moreover, leader must also be bold and confident enough to remain optimistic, even as one navigates difficult times.
- Good leaders through disruptive times can see the big picture and understand the steps needed to achieve the desired outcome. However, great leaders also have the grit to recognise what is realistic and achievable at a tactical level, as well as the timelines needed to execute effectively.
- No one is immune to the fact that change is difficult. Even the most enlightened among us have moments of struggle. When leading through disruption, one must never lose sight of this fact.
Investments, innovation and disruption
With the importance placed on technology as the platform for innovation in an organisational context, a common pitfall is focusing investments on the latest and greatest technology, without a clear vision as to what this is going to do for the organisation. Innovation cannot be rushed in response to sector disruption or competitor moves. The forward-looking and future-ready organisation is every stakeholder’s dream, whether customer, investor or employee.
History shows that at the dawn of each major IT innovation, ex-ante predictions about its adoption and impact have invariably been proven wrong. They overestimated the adoption pace and underestimated the magnitude of the impact. The pace turned out to be slower but its eventual impact much more substantial. KPMG survey 2018 showed that:
- Only 2 per cent of our respondents anticipate a ‘business as usual’ scenario. The rest see it as a treadmill to oblivion since digitisation is now a necessity as much as a choice.
- Thirty-five per cent anticipate ‘incremental changes’. This, in the belief that the pace of adoption will remain moderate over this period, due to the persistence of various technology and legacy issues.
- More importantly, among the remaining majority of respondents, 53 per cent anticipate ‘partial disruption’ and 10 per cent‘ full disruption’.
Where does the disruption emerge in the financial sector:
- Thirty-four per cent expect internal disruption, as alternative investment managers themselves get on the front foot and digitise their businesses
- Forty-four per cent expect joint disruption, as incumbents collaborate with potential external rivals. This group includes many medium and small-sized managers who want to stay in the driving seat.
- Twenty-two per cent expects external disruption, as current internet titans and FinTech start-ups venture into alternative investments, especially into areas where they have a dominant digital advantage and brand presence. This group included many medium-sized managers.
Disruptive research and development will source its financial capital from different sources:
- Innovation oriented hedge funds
- Private equities like angel investors, venture investors
- Although our data set revealed that builder-led startups were nearly ten times more common than disrupter-led ones, “disrupter” startups received 1.7 times more funding, on average, than “builder” startups.
- Government R&D or Academic budget
- The decline in U.S. federal spending on R&D from 1.2% GDP 1976 to 0.7% in 2018 is even more apparent in comparison to China, which increased its R&D expenditure thirtyfold between 1991 and 2015.
- Crowdfunding
- Digital bank Monzo proved that crowdfunding is not always a slow burner. In two days, two hours and 42 minutes, the bank hit its £20m target in the biggest crowdfunding round ever completed by a UK FinTech company.
- Traditional bank loans for entrepreneurs
- Corporate R&D budget
- Technology companies represent 9 of the top 20 global spenders on research & development
- Cost and resource sharing practices among multiple healthcare stakeholders to lower R&D costs
- Equity partnerships between clinical research organisations and industry players to ease the R&D financial burden and drive innovation and cost-effectiveness
Disruptive enterprises source their knowledge capital from sources like:
- Research institutes both public and private funded
- Clinical research organisations (CRO)
- Equity partnerships between CROs and industry players will ease the R&D financial burden and drive innovation and cost-effectiveness.
- Owning platforms and offering a broad portfolio of services across the R&D value chain, beyond outsourced clinical trials.
- Universities
- Compared to North America, the average university in Europe generates far fewer inventions and patents. This is mainly due to less systematic and professional management of knowledge and intellectual property by European universities. Moreover, efficient knowledge transfer in European research institutions is hindered by a range of factors, including cultural differences between the business and science communities; lack of incentives; legal barriers; and fragmented markets for knowledge and technology. All these factors adversely affect European growth and jobs creation.
- Open innovation channels
- Many companies are developing open innovation approaches to R&D, combining in-house and external resources, and aiming to maximise economic value from their intellectual property, even when it is not directly linked to their core business. In particular, they have begun to treat public research as a strategic resource.
- Innovation cooperation
- “Marie Curie Industry-Academia Strategic Partnership” scheme which supports the development of such long-lasting collaborations via the exchange of researchers.
- State aid framework has also introduced a measure on aid for the loan of highly qualified personnel from research institutions (or large companies) to SMEs.
- Solo scientists like Einstein, or small teams, appear to come up with novel ideas that change the course of a field. Those are becoming rarer, though: authorship lists on scientific papers have grown in the last century, from about one author per paper in 1913 to an average of 5.4 authors per paper in 2013.
- Technology players: playing a pivotal role in the R&D value chain
- Leveraging new technologies such as AI, cloud-based platforms, machine learning, cognitive technology and wearables.
- Project-focused players: managing the R&D value chain end-to-end
- Teams of stakeholders including pharma and biotech players, academia and healthcare startups
- Open-source
- Value has shifted from product to data encouraging software vendors to make software open source.
The creative destruction in the economy is evident in S&P 500 list:
- The 33-year average tenure of companies on the S&P 500 in 1964 narrowed to 24 years by 2016 and is forecast to shrink to just 12 years by 2027.
- Record private equity activity, a robust M&A market, and the growth of startups with billion-dollar valuations are leading indicators of future turbulence.
- At the current churn rate, about half of the S&P 500 companies will be replaced over the next ten years.
- Retailers were especially struck by creative destruction, and there are definite signs of restructuring in financial services, healthcare, energy, travel, and real estate.
- The turbulence points to the need for companies to embrace a dual transformation, to focus on changing customer needs, and other strategic interventions.
Where is the economy currently with its digitalization?
Currently, enterprises are using digital technologies across a variety of areas in their core IT management (79 per cent), business process management (60 per cent) and customer relationship management (62 per cent). The research also found that respondents’ organisations are looking to utilise digital technologies (if they have not already) across knowledge management (33 per cent), operational intelligence (31 per cent) and product development (28 per cent).
- Almost 64 per cent of respondents’ organisations have implemented cybersecurity to improve existing business operations, 53 per cent to solve new business problems, whereas just 28 per cent implemented cybersecurity to create new opportunities.
- Forty-one per cent of respondents in the banking industry believe that data analytics for deep personalisation of products is the top trend that will have the most positive impact on their organisation within the next three years.
- Modernisation of processes is seen as a key trend within the automotive industry to invest in digital supply chains, with 45 per cent respondents ranking it among the top three trends, and 25 per cent ranking it first. Of those that see investments in digital supply chain as a key trend, respondents estimate over 16 per cent increase, in their organisation’s global annual revenue as a result of improving this.
- Digital technologies can be used with insurance products to update risk calculations immediately and provide more accurate underwriting outcomes. This may be a contributing factor for intelligent automation of underwriting being identified (by 38 per cent) as a top trend in the insurance sector.
Few industries that are prone to disruption as follows:
- Travel websites such as Expedia (EXPE), Kayak, and Travelocity have eliminated the need for human travel agents.
- Tax software such as TurboTax has eliminated tens of thousands of jobs for tax accountants.
- Newspapers have seen their circulation numbers decline steadily, replaced by online media and blogs. Increasingly, computer software is writing news stories, especially local news and sporting event results.
- Language translation is becoming more and more accurate, reducing the need for human translators. The same goes for dictation and proof-reading.
- Secretaries, phone operators, and executive assistants are being replaced by enterprise software, automated telephone systems, and mobile apps.
- Online bookstores such as Amazon (AMZN) have forced brick-and-mortar booksellers to close their doors permanently. Additionally, the ability to self-publish and to distribute e-books is negatively affecting publishers and printers.
- Financial professionals such as stockbrokers and advisors have lost some of their business to online trading websites like E*TRADE and Robo-advisors like Betterment. Robinhood is a free online brokerage service that is subsequently stealing market share from traditional online brokers. Many banks are giving customers the ability to deposit checks via mobile apps or directly at ATMs, reducing the need for human bank tellers. Payment systems like Apple Pay and PayPal make even obtaining physical cash unnecessarily. Ant Financial has already disrupted the Chinese financial industry and - via its investment in Paytm - is well on the way to repeating this in India. The thought of 2.5 billion people accessing financial services via their smartphones, disintermediating physical banks, is a frightening prospect.
- Job recruiters have been displaced by websites like LinkedIn Indeed.com, and Monster. Print classified ads have also been replaced by these sites, while sites like Craigslist have replaced other kinds of classifieds.
- Uber, Lyft, and other car-sharing apps are giving traditional taxi and livery companies a run for their money.
- Airbnb and HomeAway are doing the same for the hotel and motel industry.
- Driverless cars, such as those being developed by Google (GOOG), may prove to replace all sorts of driving jobs, including bus and truck drivers, taxi drivers, and chauffeurs.
- Drone technology may revolutionise the way products are delivered, and Amazon is trying to make that a reality. Drones may also replace pilots in several specialisations including those pilots in the film, crop-dusting, traffic monitoring, and law enforcement sectors. For years, fighter pilots have been replaced by drones on numerous military missions.
- 3D printing is proliferating, and technology is becoming better and faster. In a few years, it may be possible to manufacture a wide variety of goods on-demand and at home. This will disrupt the manufacturing industry and diminish the importance of logistics and inventory management. Goods will no longer have to be transported overseas. Assembly line workers have already been primarily displaced by industrial robots.
- Postal workers first saw terrible news with the widespread use of email reducing the volume of the daily mail. High-tech mail sorting machines will eliminate even more jobs in the postal service.
- Fast-food workers recently protested to raise the minimum wage. Fast food companies responded by investing in computerised kiosks which can take orders without the need for humans. Retail cashiers have also been displaced at supermarkets and big-box stores with self-checkout lines. Toll-booth attendants have been replaced by systems like E-ZPass.
- Radio DJs are mostly a thing of the past. Software now chooses most of the music played, inserts ads, and even reads the news.
- Educational sites such as Khan Academy and Udemy, as well as Massively Open Online Courses offered by leading universities for free, will significantly reduce the need for teachers and college professors over time. It is plausible that today's children will receive their undergraduate education mostly online and at a minimal cost.
- Traditional television distribution is being upended by digital distribution outlets such as NetFlix (NFLX) and Hulu. People are dropping their cable or satellite TV services opting to stream online instead. Spotify and iTunes have done the same for the recording industry: people now choose to download or stream on-demand rather than buy records.
- Libraries and librarians are moving online. References like Wikipedia have replaced the multi-volume encyclopedia. Librarians used to help people find information and conduct research, but much of that can be done individually over the internet nowadays.
- Farmers and ranchers used to make up over 50% of the U.S. workforce. Today less than 2.5% are employed in this sector. However, more food than ever is being produced in America due to the automation in agriculture and food production.
