Is Disruptive Change The Most Significant Strategic Risk?

There is not a business or industry I can think of that is not currently, or soon to be, subject to some form of disruptive change.

Disruptive change refers to situations where there is a major shift in the underlying forces of an industry or market.

This has an impact on everyone in the sector – some positively and some negatively – depending on your ability to adjust to the change and exploit opportunities.

Legislative Change – Wine Industry

Disruptive change can come from changes in legislation – for instance, if the WET tax rebate was suddenly removed from the wine industry, a significant number of our smaller wine producers would simply shut their wineries as they would no longer be profitable.

Legislative Change – Taxis

Another example is that current legislative change has removed the licensing of travel agents from the 1st July 2014. This allows anyone to sell travel products without the safety of a licensing regime.

Disruptive change could also come from changes in consumer demands, or significant industry consolidation that redefines the industry.

Biggest Impact – Disruptive Technology

The change that has the potential to impact most organisations across the board is the impact of disruptive technology.

Disruptive technologies that will provide opportunities for some businesses and frankly put others out of business.

The McKinsey Global Institute last year published a report on disruptive technologies that identified the top twelve technologies that will radically change our landscape and deliver economic value to those that are positioned to exploit the opportunities.

They listed mobile internet as the technology with the greatest potential to drive economic value world-wide. Others were Cloud Computing, the Internet or Things, Autonomous Vehicles, Energy Storage, Advanced Robotics, Next Generation Genomics, Advanced Materials and Additive Processing, better known as 3D printing.

While for some, these will sound too futuristic to be an issue, the speed of development of these technologies is accelerating at warp speed and those companies asleep at the wheel may find that the changes in their external environment means that their business model is no longer competitive.

We are seeing, almost daily, examples of this technology development and how it is changing the dynamics of our markets.

Taxi App

Recently, it was reported in the business papers about how Uber is bringing real competition to the taxi industry worldwide through the smart application of mobile technology and delivering a product that consumers actually want.

It is so successful that Google has invested $250M into the company last year.

And that Iluka has invested in a British company that has developed a titanium powder technology which will open up 3D printing potential for the product and Iluka wants to have exposure to the potential of this developing technology.

Lotteries Go Mobile

I noticed recently that Lotteries has now gone mobile. While about a quarter of lotteries sales in the country are internet based, with the introduction of the mobile app (which allows you to buy tickets, choose numbers and collect your winnings – all with the convenience of doing this on your phone), we can expect significantly more of the lotteries revenue will be sold through this channel.

What will be the impact on the newsagencies that rely on their lotteries agency for income?  How will this change the value of their business when they want to sell.

I think they should plan for significantly declining revenues over the next couple of years.

We have all seen the impact that online retailing has had on bricks and mortar retailers over the past few years.

This has been a direct result of improved internet technologies coupled with secure payment systems and our uptake of shopping with convenience and price in mind.

Those businesses that have not invested in a digital distribution channel are way behind the pack now.

Customised Goods & Services

The next trend we are seeing is the introduction of individualised customisation of product using both mobile technology, 3D scanning and 3D processing technologies to deliver product to meet each individual customer’s needs.

We can currently see examples of this in shoes (Shoes of Prey is a great website if you haven’t tried it yet), and apparel (where clothes can be ordered over the internet for your exact body measurements).

It is likely that traditional retailers will come under increasing pressure unless they can find a way to ride this trend.

There are companies that are now 3D printing food and while some of the early examples have been largely novelty value, some people already asking whether the 3D printing of food might address food shortage issues in under developed countries.

Manufacturers are looking at how 3D printing might enable them to reduce their inventory costs by exchanging warehouses for supply hubs which produces customised product using 3D printing when the customer wants it rather than manufacture, ship, store and wait for the customer to need the part.

We can now pay to have our personal DNA genome sequenced for about $1000. Soon we will be able to have medicines prescribed specifically for our individual DNA – the ultimate in customisation in my view.

(So the investment tip is health and aged care as technology continues keeps us all alive longer!)

These are just a few examples of the rapid changes that are already redesigning some of our markets.

And these changes will continue as the technology develops and we find more creative ways of creating value which will change the expectations of our customers as to the products they want and how they want to interact with the companies who supply them.

The challenge for Directors is to stay abreast of these emerging trends and use judgement to determine which of these may result in significant disruptive change to their organisations.

Directors Must Stay Informed

My concern is that not enough Directors currently have these emerging technology trends on their personal radar nor are they sufficiently informed of the significant disruption that these technologies may bring to their industries and to the sustainability of their business model.

It takes intellectual curiosity and discipline to stay abreast of technology, economic and social trends.

Contemporary boards will expect each director to be proactive in ensuring that are suitably informed on the changing landscape and add value to the strategic conversations on what might be possible to position their company to exploit the opportunities that disruptive change may bring.

And I think that it is not unreasonable of our shareholders to expect that their boards and executive teams are doing just that.

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