This is the fourth post in this series about disruption. This post was updated on 15 September 2020.
I have previously written about technological change cycles where I explored how the nature of innovation changes over time. This time I would like to explore disruption more from the perspective of the challenge to a business model as well as the broader sociological impact of disruption.
Time is another dimension that must be considered if we are to understand disruption. In the short term, new technologies often disrupt incumbents (firmly entrenched existing players) who are dominant in a particular technology market segment. New technologies force existing companies in the market to rethink their products, services, operations and networks. They may decide to resist change, or adapt or retreat to market segments where their scale and operations are still competitive.
In the shorter term, the most significant disruptions are at the level of functions and applications (or products and processes), and the disruptions are often felt by competitors who identify with a particular market or technological paradigm. The new technology may allow a better or different way for a function to be performed, and as a result a new need may be created. All competitors must scramble to get newly-introduced competing solutions integrated into their current offerings.
In the medium term, technological change may disrupt consumers and global technology markets, as new products and services might make existing alternatives incompatible or redundant. As the uptake of a newer technology increases, it may become more visible to other (unrelated) markets and user types. The result is that a technology that was developed for a particular niche market may be taken up or adapted to new markets. Technology providers benefit from more scale, and their attention often shifts from developing the products/services to improving their processes and systems. Users benefit from better-developed products/services and support, increasing compatibility and the establishment of standards, etc.
In the longer term, technological change disrupts investments in fixed infrastructure and social institutions such as universities, economic regions, job markets, regulators and industries. Some jobs, industries, key infrastructure or technologies may become redundant. From a spatial perspective, the way municipal boundaries or functional economic regions are drawn may be challenged, and regional infrastructure may suddenly become redundant or expensive to maintain.
In the longer term, technological change disrupts investments in fixed infrastructure, social institutions like universities, economic regions, job markets, regulators and industries. Some jobs, industries, key infrastructure or technologies may become redundant. From a spatial perspective, the way municipal boundaries or functional economic regions are drawn may be challenged, and regional infrastructure may suddenly become redundant or expensive to maintain.
As new technology becomes more prevalent and as it reaches a more mature phase, its influence may spread to other more indirect markets in a slow, ever-expanding series of mini-disruptions. This is where convergence and spill-overs become a risk to those who are ignorant or complacent, as technological developments in unrelated economic activities may spill over into a deeply rooted and rigid technology marketplace. It may take a long time for this kind of disruption to slowly build up, but once it arrives, the changes are sudden and often catastrophic to the economic actors who are affected.
The challenge is then not the new technology per se, but the organisational and social innovations that have been refined in the new technology market place. Many improvements at the product or business process levels can be copied (or perhaps licensed). However, new business models with different forms of financing, novel arrangements with suppliers, new partnership structures or with creative business logic are very hard to copy. It is especially hard to respond to business model innovations when an organisation is already set in its ways (or is successful). This is the real disruption, and it is not only the private sector that is vulnerable to this – The public sector and even the NGO sector can be disrupted by business model innovations.
In the course of my career I have worked with many leaders of companies and public organisations or technologists who have been caught off guard by technological change. They all describe the same pattern.
They were once globally competitive and could benchmark their operations, technologies and efficiencies against global peers. Then some competitors started choosing alternative technologies that were emerging at the time. Some competitors fell behind, while others appeared to have a small advantage. However, they were increasingly losing competitive bids for contracts. Some competitors were able to clinch contracts at prices and volumes that were just out of reach. By working hard, and staying close to their customers, they could make up for some of the disadvantages. They could justify their current path and decisions based on sunk costs and their reputation. They improved some processes and changed some arrangements, but were aware that other important priorities were not receiving attention. The status quo could be maintained for many years. Then suddenly, almost overnight, the performance gap was too big. The new technology was taken up by some local competitors, or one or two customers started insisting on the use of the new technology or higher performance standards. No amount of blood, sweat and tears could secure a deal. At this moment, they were disrupted. They had been left behind. They could not meet the criteria, the volumes or the market prices. It was not just a question of ordering a new production line, as the new technology required different systems, different suppliers, different volumes and different skills throughout their organisations. Key staff left. Funders no longer extended credit so easily.
They were suddenly behind on all fronts. It started happening slowly, and then it happened suddenly. Their financiers, government officials and industry bodies all claimed they had been overtaken overnight. But this sudden disruption took many years.
In hindsight, they could see where they had made the wrong decisions. Often it was not a big decision that caused them to fall behind, but rather the cumulative effect of many decisions building up over time.
In hindsight, they could see where they had made the wrong decisions. Often it was not a big decision that caused them to fall behind, but rather the cumulative effect of many decisions building up over time.
Some of these (disrupted) companies are still operating today, but they are now just a shadow of the successful companies that they once were. They still have some loyal customers who use their services, but they are no longer the leading suppliers or the default choice in their industries. One of these companies that I know well used to manufacture precision metal parts for the automotive sector to very high tolerances, and now they manufacture coarse grinding balls used to crush rock in the mining industry. Another company used to make trains, another used to make buses, and another used to design and build aircraft. They have all been disrupted over a period of more than ten years. It started happening slowly, and then it happened fast.
I also know of regions that have been disrupted. The town where I grew up also went through this (see my angry rant in a post about this town from some years ago).
Change in my home town also happened slowly. First, the biggest company in town moved some headquarters functions to a nearby city. They had problems attracting certain kinds of staff and supporting service providers to the small town where I lived. More functions followed a year or two later. Local government was not focused much on reversing this outflow of talent, investment and expertise. Next, certain equipment maintenance functions were moved elsewhere to consolidate operations in another city. Spouses and families moved in pursuit of jobs, and the local brain drain was gathering momentum. At some point, the existence of the local railway station and the small airfield could no longer be justified. Non-related industries such as agriculture suffered. As more and more functions moved from the town, more and more shops, restaurants and smaller companies closed down. It felt like the whole town had changed in just a few years. What started as a technological disruption in one sector quickly affected many others.
In many of the examples that I have shared in this post, technological disruption started elsewhere through the technology choices of other organisations and companies. Without anybody noticing, the seeds of disruption had been sown. The effects would only be felt some years down the line, and then it was simply too late to start scrambling around to try and reverse what had happened.