5 things all businesses should understand about disruption

Kai Riemer, Associate Professor at the Digital Disruption Research Group at the University of Sydney Business School, is a guru when it comes to understanding disruption, how it affects business and how to tackle it when it presents itself.

Speaking at the Daze of Disruption Conference Riemer revealed 74% of incumbent businesses react to unfolding disruption two years after its occurrence – or later, according to research by Cap Gemini.

This mind-blowing statistic should send shivers down the spins of incumbents.

“That looks a bit like people wasting their time… sitting on their hands,” said Riemer.

“I want to make a point that this is not the case. We’re talking about many intelligent people in incumbent businesses.

“Disruption is much more of a profound thing than just the launch of a new app or a new technology coming into market… Disruptive change is path breaking change.

“It is not a linear extrapolation of the past, it is not a change that we could predict.”

This is where Riemer’s VIRUS model comes into play.

“Much like a virus the infection happens slowly and by the time a full blown disease hits it might already be too late,” says Riemer.

VISIBILITY

“Anybody who pretends that they could predict what the launch of the iPhone would do to our collective lifestyles and industries in just eight years is kidding themselves,” he says.

Riemer explains that disruptive technology has usually been around for a while before it reveals its potential disruptiveness.

“This is not just a technological change… it’s a fundamental change in our understanding about what is important in an industry. The iPhone was not a better smartphone, it was not a better phone, it was a miniaturised computer. It achieved something that had never been done before.

“In industry when a disruptor comes along they don’t try and beat you at your game they try to change the rules, and when they do that product will look superior on the new rules and yours will look outdated.

“It’s very hard to spot the disruption as it unfolds… At any moment in there’s any number of technologies in startups competing for attention and to be the next disruptor.

“The more we do big data and lock ourselves into models that are based on a current understanding of the industry, the more problems we might have trying to shift away from that understanding.

“I believe intuition is more important because past-breaking change won’t show up in data that you collect today.

INFORMATION

“Information rules,” says Riemer.

He explains that disruptors are ‘Information First’ businesses; they change the rules of competition by becoming very good at working with data and exploiting the information to add value to the industry.

“Uber, Airbnb, none of them own the actual assets that deliver the service, but they are disruptive because they are better at orchestrating the information flow, therefore reallocating bias and suppliers and appropriating rent from this game.”

They turn physical into digital industries.

RISK

“Risk as an incumbent business is a problem. As an incumbent you have probably built a sustainable business in a reasonably stable market by achieving more economies of scale, by reducing risk. So when the disruption happens that becomes your greatest liability because decisions are made on a business case – you want to know what is the outcome. [But] you can’t. When you have to compete in a disruptive market you cannot possibly know what the outcome of a business decision might be.

He explains that when incumbents face disruption it is these solid, well-built structures make it hard to innovate and change, an aspect which startups prove to have a flexibility that incumbents don’t.

UTILITY

“Different, not just better,” Riemer explains in his blog.

New products or services may initially start out as inferior to the incumbent product, which makes them appear harmless in the short term, but then slowly emerge as a powerful and disruptive alternative.

“The change that happens is not just one of linear improvement, but a subtle, yet radical change in the understanding of what counts as utility in the market in the first place. Disruptors are not delivering an initially inferior, then better, solution”.

SPEED

“By the time disruption become apparent and the market has shifted, the customer wants a different product. The disruptor is already up to speed whereas the incumbent might be too slow to react,” he says.

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