A New Age Of Disruption

For most of his career, John Antioco had produced nothing but success.  Starting out as a trainee working in a 7-11 stockroom, he had risen to the upper echelon of corporate America.  When he pulled off impressive turnarounds of Circle K and Taco Bell, many considered him to be a retail genius.

Yet today, Antioco is widely assailed as a fool, a bungler and worse.  As CEO of Blockbuster Video, his decades of retail experience led him to dismiss Netflix as a niche business.  In due time, Antioco was fired and Blockbuster went bankrupt.

It’s easy to write off Antioco as a buffoon and leave it at that.  However, it can happen to anyone.  As Moisés Naím put it in The End of Power, “Power is easier to get, but harder to use or keep.”  The truth is that now everybody gets disrupted sooner or later.  The old playbooks are dead.  We need new principles to adapt to an increasingly uncertain age.

From The Scale Economy To The Semantic Economy

For most of corporate history, scale provided benefits that went beyond just consolidation of fixed costs and negotiating power, but also included informational advantages.  Now, however, the scale economy has been replaced by a semantic economy, where information flows freely across once impermeable boundaries of firm and industry.

One of the most salient developments resulting from the rise of the semantic economy is the shift from closed innovation to open innovation.  Whereas before, research and development was primarily done behind closed doors, now it is common for firms to build collaborative networks, which include partners, startups and even consumers.

UC Berkeley’s AnnaLee Saxenian argues that the semantic economy is not only a technological phenomenon, but a personal one as well.  Her research suggests that the “brain drain” from developing countries has been replaced by a “brain circulation” in which the worlds best minds often straddle cultures.

The bottom line is that old notions of boundaries of scale, industry and geography have become impotent.  These boundaries have been replaced by often informal connections that transcend formal structures.

From Small Data To Big Data

While the world has become more complex, our ability to process data has also increased exponentially.  The combination of accelerating returns in technology and rapidly improving algorithmic approaches has made it possible to analyze incredible amounts of information at blazing speed.

The result is big data and it is incredibly disruptive.  A small startup or even an individual can rent supercomputing capacity from Amazon, Microsoft or Rackspace and put it to work on data sets from their own business activity, from public sources such as data.gov or, if needed, purchase them at a reasonable cost.

Large, established businesses can benefit as well.  In the old industrial economy adapting to changes in the marketplace meant cumbersome retooling.  Yet MIT’s Erik Brynjolfsson and Andrew McAfee argue that a data driven approach can allow firms to achieve scale without mass by implementing changes instantly across the enterprise.

It’s becoming clear that there is an increasingly widening data divide between firms that can effectively use big data and ones that can’t.  A report by McKinsey estimates that big data can increase returns in the retail industry by up to 60%.

The Web of Things

It’s not just the amount of data that is changing, but the nature of data as well. Information used to be something separate from the real world.  We would collect it using controlled studies with small samples and then scale it up to reflect what was going on in our organizations and in the marketplace.

The point of data collection in the industrial economy was to make sure we “got it right” before we invested in action.  We’d get the smartest guys, put them in a room and they would make decisions that would determine the strategy of the enterprise.

Today, however, low cost-low power sensors are enabling us to collect data directly from physical objects in real time.  For example, UPS has installed sensors on its fleet of trucks so that they can perform maintenance as needed instead of at regular intervals.  They also use the data to improve scheduling and reduce idling.

The data collected from this vast Web of Things that’s emerging can also be fed into algorithms designed to recognize patterns which can then identify further opportunities, such as predicting what consumers will buy through the analysis of sales data.

The upshot is that organizations are changing the way they learn.  Rather than trying to come up with the right idea and then testing it in the marketplace, we can now run market simulations at much lower cost with much lower risk.  Rather than having to get it right, we can iterate quickly and simply strive to be less wrong over time.

The Rising Tide Of Unseen Connections

When I was living in Ukraine in 2004, the Yanukovych regime was much like John Antioco and Blockbuster.  It dominated the political marketplace, controlled the media and had vast resources at its disposal.  The opposition was mostly driven by disparate pockets of tent cities without strong centralized control.

Nevertheless, informal connections between the tent cities, opposition politicians and a burgeoning middle class quickly formed and the Orange Revolution erupted.  All the regime’s power soon proved worthless in the face of a rising tide.  If we are to solve the problem of disruption, it is those unseen networks of connections that we need to master.

In the corporate world today, there are similar tent cities—in startup communities, among disgruntled employees and dissatisfied consumers.  The new disruptive forces of the semantic economy, big data and the Web of Things enable these disparate groups to be identified and mobilized.  Nothing in the digital world remains unconnected for long.

While the context changes, the story remains the same.  Building large, powerful institutions no longer provides any protection from disruption because technology has undermined many of the advantages we used to associate with scale.  Communities, even if not formally organized, can collaborate and even synchronize their behavior.

Old notions of change management no longer work because it is not assets we need to leverage, but networks.  If John Antioco had understood that, Blockbuster would probably remain a thriving concern today.

– Greg