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Chartered Accountant & Business Consultant - Meredith Harington

The number of billionaires emerging globally from innocuous start-ups is growing into the hundreds. Almost none of them are corporate employees, and that’s telling. There is a fetish today to blame all of this on digital disruption but there is something much deeper at play here. It’s about disrupting your industry simply by focusing on the needs of the customer. It’s also about innovative thinking and not just technology.

Yes, while the emergence of lower-cost and more accessible and functional technology has definitely aided and abetted this, it’s important to note that disruption preceded this current cycle of digital by decades. Low-cost airlines and mini steel mills both involved disruption but did not involve digital technology. Disruption does not occur when you put technology at the centre of your business. It occurs when you put your customers there.

Disruptive companies’ results are a function of radically different thinking, beliefs and actions. In particular, thinking differently about the way that the world works. We refer to this as dominant logic or corporate orthodoxy – also known as “this is how we do things around here”. We also know this as “dogma” or “limiting beliefs”. It describes the doctrine that has been used in the past and currently to make a firm successful. This dogma can range from pricing and distribution to product design and even target markets. But when rules change everyone goes back to zero and your past successes mean nothing.

A good example of orthodoxies to be challenged are perverse incentives. This is where firms profit from consumer misery. Out-of-bundle charges at tele-communications companies, charges for breaching overdraft or credit limits at banks, penalties for changing flight details or for early contract exits… the list goes on. Uber gave us predefined fees and arrival times and eliminated abuse of travellers by taxi drivers worldwide, while Netflix eliminated Blockbuster’s late return fees. These perverse incentives are under attack worldwide through a new form of arbitrage.

Another orthodoxy to be challenged is confusing products and solutions. Consumers are looking for solutions to problems. Your product is only one way of doing that. Examples of new approaches solving old problems are how music streaming solutions replace radio station products to solve the problem of transit entertainment, iPads replace PCs for media consumption and retailers solving cash-based money transfer problems which displace banks and money transfer networks.

Firms are blindsided further because often the disruptive competitor can come from outside your industry. The most famous example of this is Kodak’s demise at the hands of the cell-phone industry with the in-built digital camera.

Challenging the current dogma is generally a lonely business. A vast part of an organisation’s machinery is designed to protect and sustain this dominant logic. It’s much safer and simpler to follow the herd. But it’s not as rewarding as being the challenger. Entire industries are being recast as products and processes are being reimagined by asking the question “why” about every aspect of today’s orthodoxy. This means that no industry is safe from an upheaval caused by the capsizing of today’s dominant logic.

In conclusion, we should not be blinded by those preaching the end of the world through digital. Rather question the foundation on which your own business is built, in order to re-design it with one thing in mind – improved value for the customer.

~ Article courtesy of CFO South Africa, by Herman Singh

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