Disruption

 The era of disrupters

Companies must constantly reinvent themselves to ensure their future in the digital era. If they don’t, they’re in danger of a quick, painful downfall.

Text Tino Scholz

Destruction has always been a reaction to the unfamiliar. Even back in 1707, when inventor Denis Papin set sail on board a paddle-wheel boat on the Fulda River from Kassel, Germany, toward London. The boat was driven by a steam engine he had developed himself—a revolution in shipping, which had been dependent on wind power until that time. But Papin’s journey abruptly ended after just twenty kilometers: the local boatman’s guild had the right to prevent the passage of any foreign vessels. The indignant boatmen in Münden pulled Papin’s hitherto unknown vessel out of the water—and destroyed it.

Papin’s innovative idea survived the attack, as there was simply no stopping the (eventual) development of steamers. It did take time before this new industry conquered the Seven Seas toward the end of the nineteenth century, supplanting sailing ships for the most part. Yet even at that time, there were looming parallels to a process that we know today as disruption. A good idea, no matter how insignificant it might initially seem, can overwhelm even nearly invincible adversaries.

It was not until the digital business era, however, that the term disruption first became a word imbued with magical powers. It describes the unexpected destruction of markets in their current form in order to make them more user-friendly and to restructure them more profitably. The Internet plays a special role in this, as it aggressively increases the speed and frequency of disruptive technologies, resulting in an almost perpetual state of disruption around the world. In the United States, the disruptors’ stealthy power can be summed up by a bitter expression now making the rounds: ultimately, the saying goes, nearly every company can be Amazoned or Ubered.

 

Then and Now

Photos: iStock

Then and Now

Not all too long ago, analog cell phones were our constant companions. Then internet connectivity heralded the triumph of smartphones.

 

The power of the upstarters

Amazon, Uber and airbnb are prime examples of modern disruption. They profit from people’s needs that established companies are unable to meet for a variety of reasons. “What the big companies do wrong is to do everything right,” writes American author Whitney Johnson in her book Disrupt Yourself. “They want to become bigger really fast. Bigger feels good. But sometimes they lose track. It’s the unremarkable, little products that have the power to upend the market.”

Startups recognize these gaps. Disruptors are well served by their slender digital business models that allow them to nimbly accommodate customer needs. Disruptors are made even faster and more independent nowadays due to the fact that they often act only as intermediaries. Uber didn’t first require a whole fleet of cars to be successful. Airbnb doesn’t have to build hotels. And music-streaming services such as Spotify supply music on demand without their users having to purchase CDs or wait for downloads.

The dominance of these agile upstarts is a dogma for many economists, founders and managers, going back to economist Clayten Christensen, who coined the term “disruptive technologies” in the mid-1990s. But his thesis is not without its detractors, for instance Harvard Professor Jill Lepore. In an article for The New Yorker titled “The Disruption Machine,” she argues that companies that are supposedly victims of disruption remain successful in their industries today, if in a slightly changed form. Not every large company is doomed just because a new player emerges on the horizon. Displacement is a process that can frequently take years. And a lot can happen in that time—for instance, the disruptor can run out of steam.

Nevertheless, established companies are obligated nowadays to analyze their business models in order to minimize the dangers of disruption. Online retailer Amazon, for example, wasn’t satisfied with merely having destroyed the traditional bookselling market. Today the American company streams films and series and has become the leading online shopping company. Customers may soon be receiving their packages delivered by drone to their homes. Amazon is constantly reinventing itself, thereby helping to prevent its own destruction. In contrast, taxi companies in San Francisco were late to the game in noticing how their business sector was being eroded. In 2014 it was reported that more than 2,800 of the 8,500 drivers had given up their licenses—because they were switching over to startups such as  UBER, Lyft or Sidecar.

TÜV SÜD is familiar with the difficulties that disruption carries in its wake—and is also aware of the danger it faces as a company. Dr. Armin Pfoh, Head of TÜV SÜD Innovation Management, says that the company has long been keeping an eye out for startups that could muscle in on its territory. For instance, the testing of exhaust gases can now easily be done with portable devices at various locations. “We regularly examine our successful products and review how vulnerable they are with respect to new technologies,” says Pfoh.

Internet killed the video star

Photos: iStock & Netflix

Internet killed the video star

Blockbuster Inc., the biggest video rental chain in the United States for years, had to declare bankruptcy in 2010. The reason was Netflix, which sent DVDs via mail and made it so that customers never had to leave their homes. Netflix subsequently simplified its offerings even further by providing films and series via online streaming.

 

 

The solution: go broad. The topic of digitization has been a top agenda item at the executive level for some time now. Two digital expertise centers will be going online this year in Munich and Singapore, and Dr. Dirk Schlesinger, who is comprehensively focusing on the company’s digitization, was appointed Chief Digital Officer (CDO) in May. “Aside from just devoting a lot of thought to new business models, we’re also doing something,” Schlesinger says. “Right now we have nine pilot projects running in various fields. As is common in the IT industry, innovations are being tested directly with customers for a period of six months and, afterwards, we discuss which business models could arise out of them.”

Schlesinger also spoke of a twenty-year-old coal-fired power plant in India that TÜV SÜD equipped with sensor systems that identify where preventative maintenance needs to take place. “In the best case, with the combination of our expertise and the advanced data analytics, after first dealing with upkeep and maintenance we can optimize the entire power plant.”

A study conducted by US-based Cisco and its International Institute of Management Development shows the importance of TÜV SÜD’s dedication with respect to its own business sectors. Almost 950 companies worldwide—from twelve industries in thirteen countries—took part in the study. The surveyed managers believed that the area that will undergo the greatest amount of change due to digitization would be the tech industry, followed by the media and entertainment industries, the retail sector and financial services.

Yet the end is not yet in sight. It’s not a utopian idea that pharmaceutical companies might soon be able to offer personalized medications or that the internet giant Google will someday sell insurance. Big data will play a major role in this. “If you can analyze huge amounts of data, you can also make better decisions with respect to customers,” says Ms. Johnson. But she isn’t the only one who believes that smart companies need to behave like startups in order to continue playing an important role in the future: disrupt, and you shall be saved.