Disrupt the distruptor

If you believe the conventional wisdom, digital disruption is to business what the Black Death was to Europe. Most self-publicised experts say 60 per cent of business will die from disruption; 60 per cent of Europeans died from the plague.

Business has always faced disruption.

In the late 1700s canals were the big thing, followed by railways and then the industrial revolution. We think of Amazon as having been around for a while (25 years) and companies like General Motors (111 years) and BHP (134 years) as having been around forever, but some companies make them look like babies. Japan’s Kongo Gumi built and repaired temples for more than 1400 years before it was taken over in 2006.

And to demonstrate just how little is new in the management caper, for most of those centuries Kongo Gumi principles included being customer-centric and flexible (even appointing a woman CEO) and drinking in moderation. More than 2000 companies have been around for hundreds of years.

Of course, everyone says “this time is different”, as if previous disruptions were no big thing. Clearly it is hard to mount that argument about the industrial revolution, when everyone’s life was changed in some way. Incomes and standards of living went up while the environment and children took a beating.

“We need to move aggressively now to leverage our unique capabilities in a way that disrupts the disruptor”

In her 2002 book Technological Revolutions and Financial Capital: The dynamics of bubbles and golden ages, Carlota Perez wrote that history doesn’t exactly repeat itself, but it does run in cycles. It’s not continuous. We are living through the fifth transformation/revolution/disruption since the industrial one. And while getting food delivered at home, not having to go to a bar to meet someone and frictionless business are transforming life, most economies are stagnant, wage growth is low or non-existent and the mob is getting restless.

The cycle is driven by financial capital and government. We’ve seen financial capital move early from the traditional media to the Googles and Facebooks, which then enjoyed unfettered fun in the free market till they began to mature and the state began to step in. Financial capital is quick to move from old industries to new industries, leaving mature players feeling under threat. That is not surprising given most mature companies are still organised around a mass-production model.

So, is the conventional wisdom right? Are all old businesses doomed to go the way of the horse and buggy? Not according to Todd Hewlin and Scott Snyder in their new book, Goliath’s Revenge: How established companies turn the tables on digital disruptors. They use the GM example. GM had 50 per cent of the US auto market in the 1950s. Its decline into bankruptcy and a government bailout in 2007 took decades. It was more like a slowly boiling frog than a sudden fall into hot water.

Like Kongo Gumi, when the going got tough GM appointed a woman. Mary Barra is a GM lifer. Her father worked for GM. GM put her through university. When she took over in 2014 the place was in very bad shape. She strengthened the old money earners like big wagons and went electric, self-driving and share-driving. As The Economist says: “The most important reason for GM’s comeback, though, is its success in convincing investors that it is a leader not just among established carmakers, but among tech firms, too.” Analysts at Barclays say GM is more “evolving mammal than … dying dinosaur”.

Hewlin and Snyder say the CEOs of established companies are shifting from a mindset of “I just hope I can retire before this really hurts my business” to “We need to move aggressively now to leverage our unique capabilities in a way that disrupts the disruptor”.

In his book The Age of Agile, Steve Denning writes that “while many CEOs are still managing quarter to quarter, looking at short-term results in a traditional paradigm, cutting costs, and extracting value for shareholders, other CEOs have built a culture of innovation and long-term value by developing their people and declining to participate in the charade of offering quarterly guidance on the future of their earnings. There are public firms like Apple, Amazon, Google and Unilever that have recognised the primacy of delivering value to customers”.

This article by John Connolly appeared in the July issue of The Deal

Julie Connolly