Five Strategies Every Leader Must Embrace to Harness Disruption

27 October, 2020 / Articles

COVID-19’s threat to businesses is not just the immediate loss of revenue from slowed and shuttered operations. The biggest risk will come from accelerated disruption, generated by far-reaching changes in customer behavior and dramatic shifts in business regulation.

The companies that will thrive post-crisis are those that seize the opportunities generated by the accelerated upheavals we’re seeing — where industries are suddenly transformed by new products and services entering the market that are simultaneously better and cheaper than existing offerings.

Consider how consumers and workers have had little choice but to pivot to digital substitutes for in-person activities. Videoconferencing for work, school, and social gatherings; having food and other staples delivered; and streaming newly released movies at home have become normal, even for people who only a few months ago had never heard of the applications they now use daily. Many U.S. online services saw huge spikes in usage in the initial weeks of pandemic-induced lockdowns.

It is far from clear how well new disrupters will fare after the crisis. Still, the relative ease with which consumers have adapted to rapid change both highlights and heightens the urgency for all businesses to better prepare for future disruptions.

We see five imperatives for companies to address today. They are derived from business challenges that two of us (Downes and Nunes) first described in our 2014 book Big Bang Disruption: Strategy in the Age of Devastating Innovation, and we think they’re more critical now than ever. Companies need to address a historic underinvestment in core technologies, an undue reliance on regulations that have kept competition at bay, a misreading of customer adaptability, a need for new kinds of partnerships, and ways to take advantage of the robust technology platforms that have worked so well during these first months of the pandemic.

Tackle Chronic Underinvestment in Core and Emerging Technologies

The crisis has made abundantly clear just how many “emerging” technologies were already market ready. Videoconferencing, high-definition streaming media, and AI-based customer service software, for example, have proved themselves not only usable but rapidly scalable.

The pandemic is providing the ultimate reality check, for better and for worse. It is becoming obvious which businesses lack basic capabilities in online networks, mobile customer and employee support, and other basic elements of digital readiness. Many industries and companies need a quick correction of chronic underinvestment even in mature applications, some of which are central to today’s business.

Upgrades are especially urgent in service industries such as health, education, government, financial services, and energy — parts of the economy where limited competition has systematically blunted the incentives for providers to experiment with better and cheaper methods of product development, delivery, and customer support.

The technology gap is especially acute in government services. In early April, U.S. governors put out urgent calls for retired COBOL programmers to work on antiquated benefit systems that couldn’t handle surges in volume. At the start of the outbreak, Floridians risked their health to stand in line for paper unemployment forms when the state’s online system crashed and couldn’t be repaired.

Any business that doesn’t offer a full-service online channel is now at risk. Many traditional banks, for example, stumbled trying to support small businesses hoping to participate in federal emergency loan programs.

Regardless of the size of your business, your new imperative is to get on top of the technology adoption curve and stay there. In particular, embrace online technologies that have proved themselves fully capable of replacing some of the in-person elements of your business. Dedicate at least some part of your budget to technologies that seem to be viable in the long-term future. You may be surprised how fast those technologies come up in your rearview mirror.

Stop Relying on Regulatory Advantages

For many business activities, readily available technology-based disrupters were waiting just off stage, held back by regulation. In some cases, the alternatives were stymied by a long and troubled history of professional licensing (as with the development of medical devices and services), overly protective franchise laws (safeguarding car dealerships), or even union contracts (dictating media production). Many government services, including drug approvals and benefit management, are legal monopolies.

In industries with that kind of regulation, incumbents often have little reason to experiment, let alone disrupt themselves. It’s no surprise that prepaid HMOs like Kaiser Permanente were already experimenting with telehealth, whereas insurance-supported medical services, which may not have been able to recover any fees for virtual services, didn’t. Similarly, cutting-edge disease contact-tracing applications are being developed by non-health technology companies, including Apple and Google.

The ease with which governments are demonstrating flexibility during the crisis may inform a large-scale rethinking of policy after the crisis. In health-related fields, notably drug and treatment testing, we may see a new reliance on faster digitally driven protocols and an expanded role for nurse practitioners, pharmacists, and other professionals. More broadly, the pandemic has exposed laws that claim to protect consumers but that, over time, have simply served to shelter industry incumbents from competition.

You’ll want to review all the laws and regulations that govern your business. Ask yourself which ones you rely on most for competitive advantage. And then think like a startup: Actively get out in front of regulation when inefficiencies are obvious, even if those regulations are (currently) working to your advantage. They may suddenly disappear, temporarily or permanently.

Don’t Kid Yourself About Consumer Resistance

The accelerated turn to working from home, online education, digital sales and service, and streaming content (which has attracted viewers who never rented movies from digital services before) has burst many long-standing myths about online channels. In every case, incumbent providers had long resisted going even partially virtual, convinced that their users were different. Customers, they were sure, preferred in-person experiences, either because of their age, the nature of the product, or the unique expertise of the business’s front-line staff members.

There is a grain of truth to many of these claims but often not much more than that. True experience goods, such as live sports events and travel to theme parks and unique tourist destinations, will recover in some form, even though they’re suffering tremendous downturns right now. But in many cases, digital alternatives have been superior for a while. With increased price transparency and fewer models and options to choose from, buying a car online versus solely at the dealership was already becoming popular. Seeing an opening, new entrants like Carvana are now heavily promoting their touchless approach to used-vehicle buying and delivery, elegantly pivoting their advertising tagline from “simpler” to “safer.”

Consumers who previously thought of themselves as tech averse for certain experiences are finding that online options can be adequate or even better. Many doctor visits for minor or routine checks, which have shifted online to keep in-person slots available for sicker patients, are proving just as effective when done over the phone or videoconference. Accenture’s recent survey of 2,700 patients around the globe showed that 44% have become new users of medical devices and apps to support treatments in oncology, immunology, and respiratory medicine since COVID-19 hit.

The COVID-19 crisis has shown that there are significant opportunities in meeting consumers where they are now (by being adaptable) rather than where companies thought they were before the pandemic (a few steps behind).

Rethink Your Partnerships — Including Those With Consumers

Having seen just how much even current technology can do for so little cost, no stakeholder will continue to accept excuses for inefficient and information-starved business as usual. Now is the time to reconsider traditional ecosystem partners like supply chain and distribution partners that may have failed to meet business needs and to seek to build new partnerships.

You don’t want to wait for the next crisis to start looking for opportunities to collaborate with or acquire the most visionary startups, entrepreneurs, investors, and tech giants already circling your industry. Already, for example, AI is being deployed at scale to help develop a COVID-19 vaccine, and robots are helping manufacturers and distributors continue to operate. In the workforce, companies are forming partnerships to shorten the complex, often lengthy cycle of unemployment. For example, with People + Work Connect, human resources officers from many industries created an employer-to-employer platform that brings together companies laying off or furloughing people with companies that are in urgent need of workers.

It’s long past time to combine available technologies with new business thinking, especially about users. The good news is that the risks for encouraging virtual alternatives, including touchless payment and delivery and self-service kiosks at high-risk locations, has been dramatically reduced by the crisis. It will likely stay low even after the emergency passes.

One note of caution: Customers suddenly forced to solve their own sales, delivery, and service problems are learning fast just how much benefit they bring to the companies they do business with. Don’t expect them to forget that when the crisis is over. Instead, give them the tools to do even more and watch the value you share with them multiply.

Embrace Robust Technology Platforms

The internet has held up brilliantly during the pandemic, thanks to long-term investing by leading providers: Key infrastructure providers had all built capacity well ahead of demand. Fortunately, many businesses had already transitioned from custom IT services to cloud providers, mobile network operators, and app developers, which increasingly offer better prices, scalability, and superior customization. The crisis has only underscored the wisdom of that trend and the crucial need for future flexibility.

New services built on those platforms, such as videoconferencing services, are experiencing what we call catastrophic success, where years of projected user demand arrives all at once. So far, app developers and their platform partners are managing to serve an exponential increase in both customers and unanticipated use cases.

In some cases, however, a robust digital infrastructure is being let down by its physical counterpart. Users of restaurant and grocery delivery services, for example, are finding that they can easily search for products, get recommendations for alternatives, and place orders only to be told that there are no available delivery windows for days or even weeks.

All this suggests two immediate actions. One is to reassess your current technology infrastructure, looking for ways that you can offload even more of your IT needs — hardware, software, and capacity — to reliable third-party services. Those providers may not be able to satisfy exponential growth indefinitely, but they are likely to do so longer than you can on your own.

At the same time, look for weak links in your supply chain, both physical and virtual. If demand were to explode suddenly, what processes would be the first to break down, and why? What alternatives can you line up now in the event of your own catastrophic success? What features on your IT wish list, such as better security and usability, might be more critical than you thought?

Some of the changes we’ve seen in consumer attitudes and behaviors since COVID-19 erupted may or may not be permanent. What is permanent is the market’s newfound readiness for alternate options. As consumers show an increasing willingness to try new things, as workers seek out technologies that will help them survive and thrive, and as regulations in industries such as health and education rapidly evolve, companies must look more closely than ever at the growing possibility of disruption.

To do this, companies must examine the evidence and the trends and get a reasonable sense of what the future will look like. It’s something we call seeing the inevitable future. That future is arriving a lot sooner than even we ever imagined.

The science man and innovator, Fernando Fischmann, founder of Crystal Lagoons, recommends this article.

MIT Sloan Review 

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