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Disruption
as a platform:
three key lessons

How to improve our
understanding of
the disruption process

Disruption is a commonly used word, so how can we give it meaning in a technical or economic sense and make it useful as a strategy rather than let it be the bogeyman? I think there are three aspects of disruption worth keeping in mind and they all point to a very different approach needed by management. The big surprise, and maybe disappointment, for many managers is that disruption is a social process.
For many executives, as an Accenture study showed last year, disruption is already felt when there is as little as 2% loss of revenue. It is revenue loss.  For others it is a technologically driven imperative where change is wide ranging and distinctly difficult to manage. At root, it is neither of these. Nor is it innovation. So what is it?
  1. Disruption is a process where whole markets are restructured under pressure from social forces - disruption is not innovation, though the two are closely linked  (you have to innovate to get theough disruptive times). Disruption is really about the disintegration of markets dominated by  quasi-cartel concentrations (like in banking). People often choose the term "unbundling of a value chain" to describe this process. It seems to miss an important point. If a "value chain" was functioning properly it would not need to be unbundled, so really we are looking at replacing defunct value chains - and that means little of what comes after will be recognizeable. I prefer a definition of disruption that also recognises the reality that concentration is bad and will be attacked by entrepreneurs. That is why executives are often so troubled by responding to disruption - because they have been in markets where their scale and concentration has protected them, as, often, have the management education and principles that help them to manage oligopoly firms.
  2. Disruption is about behavior and social processes - it is partly a result of entrepreneurial dissatisfaction and aggression (the true meaning of Schumpeter's phrase "creative destruction"). But it is also driven by new or unmet needs in a consumer base.  That means it is also principally about social interaction.  These days we are tempted to refer to networks or ecosystems to signal the presence of broadly based behavioural changes. On a large enough scale these force change onto companies; force them to reappraise their innovation strategy; and force some of them out of business. What many companies find difficult to grasp or action is that social interaction is increasingly the key to success. Companies with high degrees of concentration tend to treat the human factor as a cost to be driven down or out, whereas in new systems the "cost" element of interaction is often borne by the customer (e.g. the users of Twitter or Medium, or the reviewers at Amazon, the participants in a P2P platform etc) and is a key aspect of enduring engagement.
  3. Disruption is about a very precise form of transformation - in the curent economic climate disruption leads to new kinds of enterprises built around platforms. Those platforms serve a number of needs - the management of collaborative ecosystems, the processing of market transactions, the orchestration of economic activity beyond any one enterprise. Again companies find this difficult to grasp, given that they see companies like Uber gaining all the benefits of a market and of being an enterprise. It remains to be seen what durability instant markets like Uber will have, after their backers stop pouring billions of dollars into them. In the meantime though it is worth considering that platforms are the enterprise, the meeting place for entrepreneurial activity. That means strategists need to think in terms of how to gain traction among different interest groups, how to orchestrate social and economic activity, and how to extract value from it all on a business platform. More of that in a later post but I wrote about them at length here. That transformation is often inconceivable in advance - for example, the loss of wet film hegemony at Kodak gave us Facebook and Instagram, two totally unrelated types of business.
Second guessing these transformations is not an easy task but at least if you focus on the social dimension of disruption you have a chance of engaging with it. Engagement in a world gone social is like capital over the past 100 years - vital to success.
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