10 October 2017
– or why we should focus on transition, not transformation, when it comes to evolving our businesses.
Welcome to another instalment in the Mannaz Multispeed Leadership Series. In previous posts, we established Multispeed Business as a term and painted (with broad strokes) what Multispeed Leadership looks like. We also talked about the challenges created when a business begins to consciously operate at multiple speeds. The purpose of this instalment is to provide a bit of thought-provoking context to the Multispeed term and to challenge the predominant notions of ‘disruption’ and ‘transformations’. We do not want to participate in the fear mongering of impending disruptive and exponential doom. Instead, we believe most businesses should think in terms like ‘transitions’ and ‘maturity’ when it comes to evolving sustainably.
Technology, innovation, and disruption. When you read about it in most business journals and trade papers, it can leave you either depressed or in a manic state.
Some writers will have you think that disruptive entrants are lurking around every corner just waiting to come in and steal your customers, offering a cheaper and better product, wreaking havoc and leaving entire industries ablaze in their trail – including yours. Your spirits sink as you begin to believe there is nothing you can really do except acquire the upcoming disrupter (with all the headaches the following integration process will ensure) if you have the funds. The only alternative seems to be planning for an early retirement.
Others writers will have you manically excited as they offer you easy-to-grasp, harder-to-do plans for how you can disrupt either yourself (before others surely will) or your competitors. Frustration is almost guaranteed to follow when you come into the office Monday morning all excited, preaching this new gospel to your conservative manager, who may not appreciate your new passion for immediate change.
If – perish the thought – you are the top manager, you are guaranteed to frustrate your board and lose employees as you suddenly upend your entire organisation, hire a ‘Head of Innovation’ or ‘Chief Disruption Officer’, and start planning disruption inspiration tours to Silicon Valley.
When results of organisation-wide transformations fail to show, you can either blame it on your company culture (‘They’re change resistant!’) or the market: ‘They’re just not ready for us yet’.
What we have just outlined may sound a little dramatic, but that is exactly the point. Words like ‘disruption’ tend to be used both in excess and create an over-reaction.
There is a little truth in both the manic and depressive outlooks. Times are changing and most global executives are left with a queasy feeling about the accelerating pace of business, chaotic legislative environments, and fragmented competitive environments [1].
We acknowledge that. Yet the very premise of disruption is rarely questioned, or the need for transformation as an answer to the premise. Both terms have become what we can call ‘dominant narratives’ and they are all-pervasive.
The notion of disruption has become so strong that even its originator, Harvard professor Clayton Christensen, had to write a corrective follow-up article in the same journal where the original terms was launched some 20 odd years ago [2].
Since writing “The Innovator’s Dilemma,” in 1997, everyone is either disrupting or being disrupted. We now have disruption consultants, disruption seminars and educations in disruption management. Schoolteachers (or ‘learning impact consultants’) talk of disrupting classrooms, and cultural institutions are disrupting themselves by offering new and often weird appropriations of pop culture (did anyone say spaghetti sermons in churches?).
One measure of the widespread adoption of the term is to look at the media: between 2011 and 2014, Time magazine, the New York Times Magazine, The New Yorker, Forbes, and even Better Homes and Gardens published special “innovation” issues [3]. We will return to Professor Christensen shortly. Let us first briefly turn to the history of term ‘disruption’ to understand its origin, use, and misuse.
“Victory in the disk drive market has, in the long run, gone to companies that were exceptionally good at sustaining development and innovating incrementally rather that radically.”
Joseph Schumpeter, the Austrian American economist, is often hailed as the prophet of disruption – or ’creative destruction’ as he coined it, heavily inspired by Marx’ analysis of accumulation and annihilation of wealth under capitalism [4].
However, Schumpeter was not solely focused on destruction, as later theories of innovation would have us believe. Christensen, retrofitting, believed that Schumpeter was really describing disruptive innovation, but casually neglected to account for Schumpeter’s second premise: Creative destruction was in Schumpeter’s view indeed the driving force of capitalism – but only in balance with its yin-yang-like productive counterforce: Efficiency and optimization.
Most of the time organisations focus (and should focus) on gradual and incremental innovation, prolonging the life of existing business models and bettering infrastructure. That is often most effectively carried out in big corporations. Only when we see technological breakthroughs and the creation of new infrastructure will it be possible for smaller companies to break the inertia and resistance in the market and change the economic equilibrium.
The development of reliable, cheap and widely available high-speed internet connections made it possible for smaller entrants to use this new infrastructure to build their economical platform businesses, connecting sellers with buyers and providers with recipients. The economy is thus either in this revolution mode or in a more post-revolution-oriented mode. Entrants become incumbents eventually and the cycle begins anew.
We still see large technological breakthroughs in areas such as AI, robotics and augmented interfaces, but financially we are nearing maturity and a post-revolution phase. Within IT, large platform players such a Facebook, Alphabet (Google), Microsoft, Amazon, Apple, and Baidu, control the market. The notion of disruptive innovation will have you believe that revolution is a permanent state and offers you the hope of salvation against the very destiny it describes: Death by revolution.
Disruption or disruptive innovation as a theory of change was meant to be both descriptive and prescriptive – offering explanations of the past and alluring models for the future.
In judging the predictive strength of a model and its applicability in current contexts, one must look to the historical data and reliability of methods used to gather and interpret these data. Certain conditions must also be established under which the model can operate.
To cut it short – neither the quality of historical data or descriptions of theoretical conditions cut the mustard. Professor Christensen handpicked case studies that fit his model and his famed examples of disk drive disruption in his “Innovator’s Dilemma” have since been proven to be historically wrong, or at least misguiding.
Victory in the disk drive market has, in the long run, gone to companies that were exceptionally good at sustaining development and innovating incrementally rather that radically. It has not proven to be predictive of future success whether the companies were first to market a disruptive new format or technology, as Professor Christensen’s theory would have you believe. For further exploration of this topic and critique of disruptive innovation, we recommend Jill Lepore’s brilliant New Yorker article mentioned in the end notes.
Regardless of its current potential and solidity, the theory of disruptive innovation has also led to the strengthening of another powerful narrative that often trails mentions of disruption: Transformation. Many companies have set out on transformative journeys only to fail miserably.
According to several reports, about 70-75% of all large transformation projects fail to achieve their target impact [5]. An Oracle/Forbes Insights survey of 534 global executives showed that 48% of executives believe their organization is “only somewhat” or “not at all prepared” to successfully execute a business transformation today [6].
The most oft-cited cause for failure in the rollout of a business transformation initiative is inefficient execution (41%), followed by resource and budget constraints (35%). However, despite these surveys and the stories of transformation failures, we continue to find unquestioned belief in the gospels of disruptive innovation. As we have argued above, disruptive innovation is mostly a theory about why businesses fail. It doesn’t explain change per se and it is hard to use prescriptively. Furthermore, it is not a law of nature. If you build your beliefs in the need for transformation on this one-sided part of Schumpeter’s original balanced equation, you become transfixed by change, and blind to the other side: Continuity and transition.
“Adaptation, response, and contextual sensitivity become key terms for management teams rather than focusing only on the technology.”
The need to balance the destructive gales of innovation is beginning to resonate within both academia and among practitioners. In a recent post on MIT Sloan Management Review’s website, professor Gerald C. Kane argues that the language of transformation does not serve us well, when we go about digitising our businesses in order to future-proof them [7].
Professor Kane, and his research team busy with finalizing the research report on digital change due July 2017, argues that we have overused and misused the term of transformation and that we should talk about ‘maturity’ instead. He goes on to define digital transformation as “adopting business processes and practices to help the organization compete effectively in an increasingly digital world”[8].
This definition offers us two important and often overlooked perspectives: Transformation is concerned with how you respond to trends and contextual factors whether you like them, want them or have instigated them. Adaptation, response, and contextual sensitivity become key terms for management teams rather than focusing only on the technology.
The other perspective builds on this premise: How you implement the technology is just a small part of the puzzle. If you are dealing with digital transformation, then issues of culture, leadership, current and future strategy, talent, governance models, and motivation become just as important, as the technology itself – if not more important in order to sustain its impact.
Professor Kane uses the word ‘maturity’ (in its psychological sense) to express the “ability to respond to the environment in an appropriate manner,” noting also that the “response is generally learned rather than instinctive” [9].
We offer the perspective of ‘transition’ to make the same point: Rather than focusing on the beginning or end-state (where do we start or when things have been transformed) notions of maturity or transition enable managers to focus on the procedural perspectives.
To become mature takes time and effort, and no organisation can transition itself into a digitally mature business overnight. It involves several stages of development, and the results might not always be clear when you set out on the journey. Picturing teenagers growing up might be a useful metaphor: They are neither children nor adults yet, but they cannot expect everything to be as simple as it was just a few years ago. Teenagers crave the options and possibilities of maturity and adulthood, but they shy away from the accompanying responsibility. This state can be seen as both-and or either-or, depending on the perspective. In addition, it feels just as confusing as it looks to bystanders (or parents).
Many of the organisations undergoing digital transitions might feel the same confusion as a teenager does. Parts of the organisation might be developing faster than other parts and certain areas are growing through the roof!
The point is that this process is normal. Concepts like maturity and transition might not speed up the process of change but they do offer managers and employees solace and frames of reference that might be useful in disturbing times. Instead of buying into magical disruption potions or quick-fix tech-solutions, organisations need to do the work and often at multiple speeds at the same time. Parts of the organisation need to develop more slowly than others to sustain the overall growth, while others should be allowed to experiment, test new waters, and mature faster.
This context-sensitive approach ensures that the entire organisation learns how to respond appropriately to the emerging digital competitive environment – in the way that suits their stage of development and maturity. Only then can we talk about company-wide transitions. We will argue that this more human- or process-centred approach is better suited to most modern organisations. The notion of human capital becomes a key factor in this undertaking.
In future instalments of our Multispeed Leadership Series, we will return to this notion of human capital and dive into why the traditional ‘soft sides’ of change are indeed the hard factors we need to concern ourselves with.
Read our other instalments in the Mannaz Multispeed Series:
