Why Businesses Must Self-Disrupt to Thrive in the Digital Age

Ten years ago, not many people could say they saw the taxi or hotel businesses as ripe for innovation. I know I couldn’t. On the surface, neither Uber nor Airbnb look like a particularly threatening competitor. They don’t own vehicles or hotels. Their innovations were almost entirely driven by technology, making it possible for them to revolutionize their respective industries. Their ability to connect customers with transportation and lodging quicker, easier, and more efficiently than the old models has made them the “new normal” for consumers—and massively disrupted existing competitors.

Just as interesting to me is that both Uber and Airbnb have created “platforms” that allow them to move into other lines of business, such as the UberEats food delivery service and Airbnb Neighborhoods travel guides.

Critics would say that not all businesses aim to be the new Uber, which is true. Even so, if we look through recent history it is littered with organizations that have found themselves increasingly irrelevant or even obsolete. Video store chains usurped by the rise of Netflix, physical bookstores hit by Amazon’s digital offerings, and Warby Parker’s direct-to-consumer eyeglasses experience shaking up the staid world of eyewear.

The only sane course of action is to meet disruption head-on and disrupt yourself before someone else does.

I really believe that, for established businesses, it’s not a matter of if your business will be disrupted, it’s a matter of when, how, and by whom. The only sane course of action is to meet disruption head-on and disrupt yourself before someone else does.

Adobe is a classic example of a business looking disruption straight in the eye. It moved away from selling physical software to a subscription-based, cloud-driven platform where revenues are recurring. The old model was preventing Adobe from keeping its product, and more importantly customers, up-to-date with the most innovative software tools for their work. It also provided openings for competitors to exploit with more frequently updated products.

As Dan Cohen, vice president, Adobe, explained to McKinsey, “Moving to the cloud affected how we engineered the products, our operations, and our go-to-market and business models. In the past  . . . we would take 18 to 24 months between major launches of new products. Nowadays, two years is an eternity.”

If you want to know what that means for the bottom line, well, according to McKinsey, Adobe’s recurring revenue has climbed from 19 percent in 2011 to 70 percent of total revenue today. The number of paying subscribers is more than four million and rising. That’s a pretty remarkable shift over a relatively short period of time.

Embracing disruption means businesses must be agile and able to react quickly to changing market conditions.

Now let’s take a look at HP, one of the most venerable technology companies, which decided in 2015 to split into two separate businesses. As two different entities, HP Inc. and Hewlett-Packard Enterprise have the freedom to pursue the business models and innovations that make the most sense for each of them. HP had to disrupt itself and its approach to technology to be more nimble and empower employees to make data-driven decisions supporting the organization’s global operations and growth.

Breaking an established business into two new entities is not an easy task. Creating the business and technology infrastructure to support this change meant HP needed to consolidate existing tools accrued over many years. The transformation saw HP build 4,000 servers and manage 500 projects across 170 countries.

How Do You Embrace Disruption?

Successful, growing organizations, whether they’re companies that disrupt others or ones that disrupt themselves, share some common traits. Embracing disruption means businesses must be agile, able to react quickly to changing market conditions and roll out new products and services globally. They need to be able to scale up rapidly. They embrace change and view innovation as a long-term strategy, not a short-term fix.

If businesses are to fully embrace disruption, they need to completely rethink the role of technology in supporting agility, innovation, and growth.

These businesses also share a recognition that regardless of what particular industry segment they participate in or the type of product or services they make, it’s their workforces that field disruptive innovations. People need access to the right tools and the right information to decentralize decision-making and base decisions on real-time data, not instinct. They use that data to strategically bet on the future and decide where to invest money and human capital. Successful organizations effectively manage two key assets—people and money—as two sides of the same coin.

The dynamic nature of business today means constant change, and companies need business systems that support this level of flexibility. And, therein lies the fundamental problem for many organizations. The same business systems that at one time got the job done—however painfully or imperfectly—are now preventing organizations from keeping up with other faster and more agile businesses that are not bound by the same technological constraints. Those legacy technologies simply were not built for this world. Traditional systems were anchored around the supply chain rather than a unified view of people and money.

If businesses are to fully embrace disruption, they need to completely rethink the role of technology in supporting agility, innovation, and growth. They can’t expect what worked yesterday will work for tomorrow.

Read Leighanne Levensaler’s first post and third post in her blog series on digital disruption.