Responding to Disruption: Stormy weather ahead?

By Kerry Topp

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“If you do what you’ve always done, then you’ll get what you’ve always got.”

There’s a paradox here: why would companies that have been successful and created a winning formula need to do anything different? Why should they feel the need to transform or invest in new areas when they can maximise shareholder returns right now?

The reason: If boards and executives don’t have transformation and continuous improvement in their strategies, they are building vulnerability into their organisations.

To quote Ralf Dreischmeier, Global Leader of Technology Advantage Practice at Boston Consulting Group: “Executives need to create their own ‘digital attacker’ businesses. Long-dominant companies are increasingly under attack from a host of digital start-ups that are out to reinvent businesses and industries by addressing consumer needs in completely new ways.”

Dreischmeier states that incumbents should be more disruptive: “Large companies hold a lot of cards—including resources, assets, relationships, and data—that smaller competitors frequently do not have enough of. But they often do not fundamentally rethink their business model.”

This challenge is at the heart of why companies in New Zealand are slow to commit to activities which seek out new markets and opportunities, and help their people change and survive.

But why?

To quote another guru, Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, recently said: “Making Industry 4.0 work requires major shifts in organisational practices and structures.”

These shifts, Schwab said, include new approaches to IT and data management, to regulatory and tax compliance, new organisational structures, and changes in company culture.

Professor Schwab has been at the epicentre of global affairs for over four decades and he’s convinced that we are at the beginning of a revolution that is fundamentally changing the way we will live, work and relate to one another.

He explored this concept in his book, The Fourth Industrial Revolution. He characterises this Revolution through a range of new technologies that are fusing the physical, digital and biological worlds. The impact of these technologies will affect all disciplines, economies and industries, and challenge ideas about what it means to be human.

“The world has the potential to connect billions more people to digital networks, dramatically improve the efficiency of organisations and even manage assets in ways that can help regenerate the natural environment, potentially undoing the damage of previous industrial revolutions.”

However, Schwab also expressed grave concerns that organisations might be unable to adapt and governments could fail to employ and regulate new technologies to capture their benefits. Also that shifting power could create new security concerns, and inequality could grow causing societies to fragment.

If we focus for a moment on the Financial Services sector as an example. There is no doubt the sector is going through a seismic shift. Changing customer demands, the growth of financial technology companies like Xero, the pressing need to be innovative and the changing relationship between Boards and executives are all reshaping the industry. At the same time, executives need to balance these demands against the expectations of analysts and the requirements of regulators.

This is certainly something coming through loud and clear from the 490 Financial Services CEOs who took part in a 2016 Global CEO Survey recently. The survey, entitled “Turning risk into opportunity – The changing face of Financial Services”, highlighted that CEOs were worried about speed of technological developments, with 81 percent of respondents either extremely or somewhat concerned about keeping up with the pace of change. The next biggest worry was that a limited talent pool could inhibit their growth, which 70 percent of respondents were concerned about.

So what’s the answer?

First, education – specifically, the education of Boards and executives. These incumbents need to be aware of the magnitude of the potential threat but also the opportunity that technology disruption will likely create for their business.

Tech Futures Lab is doing exactly this. As Sacha Judd, Managing Director of Hoku Group recently put it, “The Tech Futures Lab workshop … is critical information that should inform all our decision-making, as the exponential growth of new technologies challenges all of the assumptions that we’ve previously held about what the world will look like, and how our industries and society will adapt.”

Secondly, strong leadership at a time of uncertainty and change is incredibly important.

As Adobe Chief Executive Shantanu Narayen recently put it: “A great Board is one that spends disproportionate amounts of time with management, taking active steps to understand the opportunities and challenges facing the business,” he says. “With the world increasingly moving to digital and businesses implementing digital strategies, Boards also need to boost their digital capabilities to be better strategic advisers to the business.”

But it’s not just technology that Boards need to grapple with, it’s “entrepreneurial venturing” or, put another way, deferring returns today by investing in potential growth areas which can achieve returns in years to come. Boards and execs need to set the expectation that they will be more entrepreneurially-minded and less risk-averse when it comes to investing, and they’ll need to feel comfortable making some decisions based on instinct rather than hard numbers.

Why? Because this is a new world – some of the things that are happening now are unprecedented and you have to be in the game to stand a chance of winning.

New Zealand boards and executives are, on the whole, not especially diverse. They tend to be dominated by very smart accountants and lawyers because of the types of material things discussed – risk, finance, etc.  However, there is a real and present danger of “group-think” with that make up. Companies should consider the addition of a disruptor – an experienced entrepreneurial and tech-savvy protagonist – to their team.

Because as Ralf Dreischmeier said: “Leaders in the digital age are different from leaders in the past. They prototype an agile strategy and learn from their experiences. They attack their own businesses before disrupters do. At the same time, they digitise their core business and get the most value from both their existing and external data, all the while mastering the digital ecosystems they operate in.”

Is this how current Board members and executives have been thinking? In my experience, this is only happening in a handful of local organisations.

Now is the time for vision, strategy, an entrepreneurial streak, strong communication, expectation setting and above all, strong leadership.

Disrupt or be disrupted is the motto of today – but I would add that company leadership needs to enable their people to be safe to “venture smart and venture more”.

Good luck on your venturing – our future economy needs you.

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