Paul Nunes (United States) is the global managing director of the Accenture Institute for High Performance. He is a well-known business author, patent holder, and a frequent and sought-after speaker on the topic of business strategy. His research has been featured in publications worldwide, including The New York Times, Wall Street Journal, USA Today and Forbes.com.
It used to take years or even decades for disruptive innovations to dethrone dominant products and services. But now, any business can be devastated virtually overnight by something better and cheaper. Here’s how executives can harness the power of this new type of innovation.
When Google launched its free navigation app Google Maps Navigation, the company was looking simply to drive more eyeballs to more advertisements by integrating more already-digital information. But from the outset, the app outperformed expensive, standalone GPS devices on every strategic dimension. It was, and continues to be, lower cost (i.e., free); highly differentiated, as it is updated and enhanced in real time; and more customer-friendly, as it connects with other smartphone apps, including search results, maps, mail, and contacts.
Little surprise, then, that the major players in the GPS device market lost as much as 85% of their market capitalization in the 18 months after the introduction of Google Maps. The lesson learned: today’s innovations come out of left field, combining technologies seemingly unrelated to a company’s offerings, to achieve a dramatically better value proposition.
Markets are being rocked by this new kind of offering, and word of their superiority in all relevant dimensions now travels the globe in a flash. As a result, entire product lines and whole markets are now being created and destroyed overnight. In Accenture’s ongoing research, we have already identified this type of disruption in more than 30 industry segments.
The upshot? A “big bang” of success for those who make the leap to this next level of value creation, and a disaster for incumbents, who swiftly become obsolete.
To survive—and even thrive—amid big bang disruption, companies must learn the new shape of new product diffusion and the four stages of this curve, one that loosely tracks the metaphor of the big bang theory of the universe. (See figure: “The Four Stages of Big Bang Disruption.”) They must also embrace the new rules of strategy and competition that follow:
Copyright: Accenture
Note: The “shark fin” encapsulates the shift from business evolution driven by incremental technologies to big bang disruption powered by exponential technologies. Its strange shape reflects the new economics of information: the declining cost of innovation, the declining cost of information, and the declining cost of experimentation. Together, they have both shortened and skewed the life cycle of industry change, often to devastating effect.
Big bang disruption demands a new approach to strategy and planning, one that is different not in degree but in kind. The nature of your interactions with competitors, customers, suppliers, and other supply chain participants will be drastically altered. Every business function is affected—from research and development to manufacturing, marketing, sales, and even service. Your survival depends on new leadership and new ways of thinking.
The singularity: Find a truth teller
Big bang disruption happens in large part because experimentation has become both low cost and low risk, increasingly by using a wide range of new, often off-the-shelf component technologies. Many, many failures are likely before the right combination is found and proven to be cost-effective.
For incumbents, the failed early experiments send false signals, lulling executives into the misdirected belief that the disrupters are not ready for prime time. Enter the truth tellers—named for the characters on soap operas who move the plot forward by revealing big secrets. These are industry experts with profound insights into new technologies and customer behaviors, who can predict earlier than anyone else when small tremors signal imminent earthquakes.
One example is the North American executive of a Japanese carmaker who drove the company’s decision to launch a luxury version of its popular SUV, based on his insight into fundamental shifts in income and spending in the US market. Only when he threatened to resign could he get the company to buy into his vision. His truth telling played an essential role in the carmaker’s ongoing operations at the time.
Truth tellers speak a strange language, one that isn’t focused on incremental change and the next quarter’s results. Learning to find them is hard. Learning to listen to them is even harder.
The big bang: Exploit near-perfect market information
A big bang disruption, once created, enters the mass market at ultrahigh speed. Instead of a predictable process of selling to discrete, sequential market segments, big bang disrupters need worry only about two main categories of users: what we call trial users, and everybody else. At this stage, the goal is selling to everyone else—and fast.
The sudden success of big bang disrupters is driven by easy access to market opinion, facts, and comparison data, which creates something ever closer to consensus market opinion. The availability of near-perfect market information means consumers make fewer mistakes. They don’t buy a mediocre product simply because manufacturers invest in more advertising. They wait until the right version—smartphones, 3D televisions, electric cars, solar power—emerges. Almost-there versions don’t sell poorly—they don’t sell at all.
Maintaining an intimate connection to trial users—the co-developers and, thanks to crowdsourcing services such as Kickstarter, co-funders—is therefore critical. Take, for example, the smarthome initiative of consumer electronics company Belkin International. Known as WeMo, the smartphone and tablet application has been designed to enable users to create specific commands for the on/off switches of basic home functions and electronics, such as lights. The company solicits and publishes user ideas for commands on its website, and when commands become popular enough—such as “If the Weather Channel says the sun has set, then have WeMo switch on the lights”—Belkin integrates them into the app’s default list of commands for all WeMo users.
The big crunch: Collar your risk
Some companies do survive the inevitable downturn—in many cases, emerging in the new version of the industry in a position of greater leverage and profitability. But how?
The first step requires tough-minded management, sufficiently steeped in big bang strategy. Assets must be shed, products must be retired, business models allowed to sunset. Incumbents must prepare for the immediate evacuation of current markets and be ready to liquidate once-strategic assets.
Only then can incumbents unlock the hidden value of core, often intangible, assets. Traditional accounting still leads management to concentrate on the value of hard assets rather than expertise, brands, patents, and human resources. But in a fight against big bang disruption, intangibles are often the most valuable assets incumbents have.
Industry leaders may have a hard time committing themselves fully to transformation, creating an opening for perennial second-banana incumbents to shed their assets first and take their expertise, brand, and intellectual property into other industries where change is happening at a slower pace. When the film-based photo industry collapsed, it was Fujifilm and not Kodak that survived.
Entropy: Ride off into the sunset
In entropy, the big bang process comes full circle. The old industry is dead, and a new one has risen from the ashes. The new industry now waits for pressure to build and technology to advance through a new generation of failed market experiments, signaling the start of the next shift.
Companies must look closely at the phenomenon of industry sunset. How do assets get liquidated? How do old technologies and the facilities needed to manufacture and distribute them get recycled or retired? What financial tools are available to smooth the transition, even for industries that are “too big to fail”?
In this new diversification, the successful launch of a big bang disruption only buys you a license to try again. And your own success becomes your biggest competitive threat. Serial big bang disrupters effectively put themselves out of business first, before the competition, emerging as new enterprises that share the same name but often little else. Successful brand associations and truth-teller networks may be their most valuable assets.
Like Fujifilm, companies must imagine new uses in new industries for their products and, most importantly, capabilities. And, as Amazon has done, incumbents in this stage should imagine their business as a platform that provides value for a wide range of other businesses in many industries.
These ideas only begin to touch on the details of strategy and risk management in each of the four phases. Executives must ascertain the movement of disrupters in their own industries, and begin to put in place the capabilities necessary for success in a world that doesn’t play by the old rules of business.
Business managers should heed the tacit warning given by a character in Hemingway’s novel The Sun Also Rises, about the ways businesses fail. When asked how he went bankrupt, he replies, “Two ways. Gradually and then suddenly.”