Well, the only correct answer to this question is:
Right now!
But it’s the wrong question.
Yesterday we’ve been asked about the best timing for disruption for the second time this week (which was on Tuesday), by a senior manager of a large corporation. That’s why we’ve decided to share some thoughts on this. It seems to us that timing their own disruption has become a very common concern among many leaders of incumbent businesses, even those who are still doing very well.
The thing is: If you too ask yourself the question when the right time for your own disruption has come, it could be too late already. It means that it has already become obvious, to you and to others, how your business will be disrupted. And if the how is already clear, the only remaining question is:
Who will succeed in doing it first?
This leads to a completely different question that you should be asking yourself instead:
How could you disrupt yourself in the most effective way possible?
Don’t fucking procrastinate
Now this is the part where it starts to get uncomfortable. We think this is exactly why incumbents are so reluctant to initiate this kind of change: Disruption means not only that the beloved playbook of how things work in your industry will change upside down. That alone is a reason to be frightened because no one likes change. But disruption also means that the margins will evaporate (and the remainder probably shift to other players). Obviously, no one feeding from those margins today likes them go away.
And because the profits in many industries are still OK at this moment, this leads to a cognitive dissonance:
People know things will change.
But they don’t want to.
So they procrastinate.
We think this is why so many managers are asking the question of when, rather than how, because when actually means: “Not now!”.
Fast follower? Really?
With regard to the timing of a substantial Digital Transformation a top manager from a large corporation told us a couple of months ago that their strategy was to be “a really fast follower”. We actually weren’t surprised to hear this exact phrase from several other companies since. It seems like a comforting strategy at first: It gives you an answer to the annoying questions of how you’re going to deal with the Digital Transformation; to your board, to your investors, or even to your own conscience nagging you about it.
The other guy: “When are we going to disrupt ourselves?” — You: “When we see disruption happening.”
The other guy: “What are we doing to get prepared?” — You: “Let’s become more agile, so we’re ready when the time has come”.
Sounds great, doesn’t it?
Wrong! In our opinion, this “strategy” is equivalent to the ostrich burying its head in the sand. One thing you can be sure of is that no large corporation will be fast, not even in following. The only thing this strategy actually says is: We’re not going to do anything.
You might not agree with us on that one, because you are undertaking many initiatives trying to make your processes, structures and systems more agile and trying to drive innovations here and there. That’s great — don’t get us wrong.
However, one of our founders has been part of this kind of initiatives within a large corporation under huge disruptive pressure. He has seen them fail pitifully (you can read the story here). Those kinds of initiatives move things in the right direction, yes, but they do so on the wrong scale.
Those kinds of strategies might help your organization, but they will not transform your business model.
A traditional transformation won’t do the job
A typical senior manager considering seriously to disrupt his own business model would probably be thinking about how he could transform his legacy business towards a new target model where everything is neatly digitized. That’s the conventional approach. It’s how substantial change has always been managed in large companies. Those are strategy consultants’ most loved (because most expensive) projects.
The thing is:
a) This approach will hurt terribly, both in human cost and profit loss, and
b) We would bet all our chips on a failure.
Let us explain why: We’re talking about a paradigm shift here. It’s not just to move from a state A, which is the old model, to a more digital state B. Next to everything will need to be different in the target state. That is just too much of a gap to be bridged. Even if you would succeed in transforming all your structures, systems and processes and let’s assume you even manage to keep your customers; you would still be left with a culture who will treat the new model as “wrong”, because it runs against many of the old core beliefs of how business is done. As Peter Drucker once put it famously: “Culture beats strategy”.
It’s kind of like an auto-immune disease where the whole system in the target state will start to fight against itself.
It sounds like a recipe for disaster: Not only are the chances of success very little; even if you would succeed you would be left in the end with a much smaller business and less profits.
So besides the cognitive biases mentioned earlier, these are certainly very rational reasons why you shouldn’t go down that road.
Disrupting your current business model in a transformative process would mean to destroy your margin on purpose and do so with little chances of success…
So why should you do that? — Well; You shouldn’t!
Disrupt yourself — but do it smartly, and do it now
A better way to disrupt yourself is to start building new digital business outside the current company walls, but with the potential and intention to disrupt your old business model.
Don’t make the mistake to only build or acquire digital business in areas that do not potentially hurt your incumbent business. This is a very common line of thinking though: Many large companies started to venture out into new digital business areas, but they do so away from their core business out of fear to destroy their margins and to run against internal resistance.
We think that’s a serious mistake.
Firstly and already obviously enough, it means venturing out in areas where you have neither skills, experience nor anything else to leverage besides your money. In other words: You have absolutely no right to play there. Pouring money on just any idea is not good enough to succeed, what every VC will confirm, even if you’ve got the cool startup guys running it. Strategically speaking, this is an arbitrary diversification, which runs against any good practice.
Secondly and even more substantially, such a “digital diversification” is a mistake because it still leaves you unprepared for true disruption coming the way of your core business.
The conclusion is simple: Build digital businesses that could and should disrupt your current core business.
By doing so, keep in mind to:
- Keep digital business away from your old structures and politics in order not to suffocate them.
- Build many of them, because many will fail, which is just part of the game — so you’ve also got every interest in doing it the proper, lean way.
- Don’t treat them like your internal departments but manage them like a VC manages his investments; nurture and challenge them.
- Give them time to grow until they really start disrupting your core business… which is the whole point. Now is the time to run your incumbent business through a full fledged restructuring programme as outlined above.
And start disrupting yourself right now.
Epilogue
The best thing about this approach is that it will not hurt until the time has come: Any new business will probably need many years in order to build the scale to indeed disrupt your legacy business. A good approach may be to start with small target groups, such as Millennials, or in a different geography to build up momentum. This is even pretty easy to justify internally.
And when the time has come to be disrupted, better be it by yourself than by someone else.
The only thing you need to do now is to smartly invest some of those profits. We think those investments will pay off many times.
