Not All Digital Threats Are Disruptions

What’s happening this week at the intersection of management and technology.

Parsing digital competitive challenges: Thanks to Clayton Christensen, we throw the word “disruption” around pretty freely these days. But Strategy& consultant Alexander Kandybin reminds us that many of the competitive challenges that we call disruptions don’t actually fit Christensen’s definition of the term: “An innovation that is disruptive allows a whole new population of consumers at the bottom of a market access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.”

In an article in strategy+business, Kandybin warns executives that misidentifying major competitive challenges — like new products, technologies, and business models — as disruptions can lead to flawed strategic responses. Instead, he counsels them to learn to recognize different kinds of market dislocations (“radical breakaways from the existing market that occur when a company introduces a business model or a product that sits apart from those of competitors”), the directions from which they can come, and the best responses for each.

Kandybin’s approach offers more nuanced strategic responses to digital competitive threats. “Two of them, matching the threat and absorbing the threat, can be effective when incumbents are facing new entrants coming from any direction (from the top, side, or bottom),” writes the consultant. “A third, leapfrogging the threat, is most effective in dealing with dislocation from the top and from the side. And finally, the strategy of ignoring the innovation is most commonly associated with disruption from the bottom.

“Each strategy has risks, especially when it is used at the wrong moment or against the wrong threat,” Kandybin adds. “But when you understand where the threat is coming from and how it is changing your market, you can choose a strategic response that is likely to sustain your business.”

Building the digitally-savvy board: Hey, sign me up for a couple of those sweet director gigs! I’ve been particularly keen to serve since Willis Towers Watson reported that the average pay for outside directors hit $263,500 last year. (It’s only a “moderate” increase of 3% over 2014, but what’s a few bucks between friends?) Given board costs and the variety and pace of digital competition (see Kandybin above), you might want to check out what McKinsey partners Hugo Sarrazin and Paul Willmott have to say about building your board’s digital expertise in McKinsey Quarterly.

“Few boards have enough combined digital expertise to have meaningful digital conversations with senior management. Only 116 directors on the boards of the Global 300 are ‘digital directors,’” they write. “The solution isn’t simply to recruit one or two directors from an influential technology company. For one thing, there aren’t enough of them to go around. More to the point, digital is so far-reaching — think e-commerce, mobile, security, the Internet of Things (IoT), and big data — that the knowledge and experience needed goes beyond one or two tech-savvy people.”

Instead, Sarrazin and Willmott offer four principles for bringing boards up to digital speed. First, create an inventory of the customer, market, and digital skills required to guide your key businesses over the next five to 10 years — in order identify gaps in the board’s expertise. Second, involve the board in investigating sources of digital disruption and reviewing management’s plans to address them. Third, engage the board more frequently and deeply on digital strategy and risk. Fourth, fine-tune the onboarding and fit of digital directors. “To ensure a good fit, searches must go beyond background and skills to encompass candidates’ temperament and ability to commit time,” write the duo. “The latter is critical when board members are increasingly devoting two to three days a month of work, plus extra hours for conference calls, retreats, and other check-ins.”

On second thought, don’t bother calling me with director offers. I didn’t realize the job required so much time.


SOURCE: MIT Sloan Management Review

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