“Half a century ago, the life expectancy of a firm in the Fortune 500 was around 75 years. Now it’s less than 15 years and declining even further,” author Peggy Noonan wrote in an article on why big companies die. That statistic might sound surprising, but it probably shouldn’t. After all, we are living in a time of unparalleled business change and disruption; an era where 50 percent of the Fortune 500 from 2000 no longer exist. An era where 40 percent of today’s Fortune 500 companies are estimated to have disappeared in 10 years, according to researchers at Washington University. It does make me wonder, who will replace them? Professor Richard Foster from Yale University estimated that by 2020, 75 percent of the companies that will be on Standard & Poor’s 500 index hadn’t yet been founded.
But what has changed? Mergers, acquisitions, and bankruptcies have changed the makeup of global corporations we know and trust, while new entrants to every market threaten the very existence of those established incumbents. At a more fundamental level, the twin forces of digital disruption and the changing nature of the workforce (and of work itself) are unleashing vast changes across the global business landscape. That’s quite a lot for businesses to deal with.
In their book, “The Second Machine Age,” Erik Brynjolfsson and Andrew McAfee argue that technology is the major catalyst for disruption. They talk of how unprecedented levels of innovation and technological improvement have inspired a new wave of disruption that goes far beyond helping businesses become more efficient or automate manual processes.
The life expectancy of a Fortune 500 company has been reduced to less than 15 years.
If you think things are moving quickly today, well, they’re only going to get faster and more disruptive. Klaus Schwab, in his book, “The Fourth Industrial Revolution,” writes, “We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before.” Against the backdrop of today’s technology landscape, it’s hard to take the other side of this argument.
From established market leaders, to fast-growth startups, the impact of digital disruption is being felt at all levels of the business world. But what do we mean when we talk about digital disruption? Simply put, digital disruption is the change being wrought by the inexorable march of long-term trends: Moore’s law is driving more powerful computing, faster networking, and cheaper storage. The effect of these changes is cumulative, with each successive innovation building upon the last. The pace of change accelerates over time. A short list of what’s impacting business today would start with the above and add cloud computing, big data, mobility, open-source software, in-memory computing, and the API economy.
Whether you’re a multinational organization or a cool startup with a great idea, these innovations have radically changed the playing field for businesses. Forrester’s James McQuivey describes this transformation: “The force of digital disruption doesn’t just reduce barriers, it obliterates them. This allows the disruptor to take new ideas . . . and rapidly pursue target customers at almost no cost and in the space of a few days, rather than years.”
Businesses built on legacy models and technologies will not be competing on a level playing field with more agile organizations using the latest technologies.
I can’t help but get excited when I think about how smaller entrants to the market can approach mature markets with the goal of solving problems faster, better, and cheaper. That mirrors our own experience here at Workday. Businesses no longer need to make huge investments in technology infrastructure or a large workforce in order to compete. Disruption is creating entirely new business models, and new types of products and services that are made possible by digital. In addition, today’s workforce is more multi-generational, mobile, and global than ever before.
As HP CEO Meg Whitman explained at the company’s Global Partner Conference: “We’re in an era of relentless disruptive change for business and governments, with a huge host of new business models. No company survives without adapting, without the ability to rethink, to change and to renew.”
If faster, better, and cheaper are key tenets of digital disruption, then businesses built on legacy models and technologies will not be competing on a level playing field with more agile organizations using the latest technologies. I firmly believe that legacy approaches to technology and culture are inhibiting established organizations and that 20th century businesses are poorly equipped to empower the potential of their people.
As digital technologies continue to transform the economy, many leaders are struggling to set a digital strategy, shift organizational structures, and remove the barriers that are keeping them from maximizing the potential impact of new digital technologies. However, many long-established organizations are defying this perceived inability to adapt and are embracing self-imposed disruption before it comes to find them. Are you disrupting yourself before it knocks on your door? I’d love to hear your thoughts.