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The 6 Stages of Disruption: Lessons from The All Too-Common Mistakes of Companies that Didn’t Spot It Coming

Brian Solis
Brian SolisPrincipal Analyst
As Principal Analyst and futurist at Altimeter, I study disruptive technology and its impact on business and society. In my reports, articles and books, I humanise technology and its impact on business and society to help executives gain new perspectives and insights. My research explores digital transformation, customer experience and culture 2.0 and "the future of" industries, trends and behaviour.

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Disruption: New behaviours, trends and beliefs that make the old behaviours, trends and beliefs obsolete.

One of the most over-used but also misunderstood terms in business today is “disruption.” Experts, consultants, reporters, influencers, and the like use disruption to either frighten and shock audiences or compel them to adapt and take action. Aside from its overuse, disruption, however, is a bona fide threat to almost every incumbent and legacy organization. At the same time, too many executives and boards suffer from “out-of-touchness” a powerful endemic that hinders awareness and bewilders strategy, stifling innovation and transformation. This ironically sets the stage for disruption as ambitious entrepreneurs, startups, investors and challenger brands aim to do just that: Disrupt markets in the name of invention and opportunity. By definition, an organisation that arrives in-market second will be a disruptor. It’s realistically, and quite simply, a matter of disrupting or be disrupted.

In a recent series of interviews exploring why once great organisations weren’t innovating or keeping up with times and trends, one executive’s words stood out:

“We are not replacing or re-training older executives and employees, and their way of thinking and working is in the way of progress.”

This feedback was, unfortunately, an all-too-common sentiment. Anything that challenges the status quo seems to trigger defence mechanisms that turn opportunities into threats and hope into resentment. Yet, the very defence to disruption is to challenge the status quo, explore new possibilities and experiment, incessantly.

The 6 Phases of Disruption

Here’s a question for you, and please be honest with your answer! Do you or your organisation guilty of practising any of these clichés:

  • “why rock the boat.”
  • “everything’s fine.”
  • “try harder.”
  • “give it 110%” “let’s focus on a win-win solution.”
  • “let’s pick low-hanging fruit.”
  • “let’s assemble best-in-class case studies and best practices.”
  • “let’s think outside of the box” to “find synergies” that lead to a “paradigm shifts.”

If you do, I can assure you that “disruption” isn’t jargon, it’s an open invitation to be rivalled by progress.

The list of names that have been disrupted out of existence is well-known: Kodak, Blockbuster, Sears, Toys ‘R’ Us, Borders, Lehman Brothers, Tower Records. One way or another, each activated a potentially debilitating or fatal business formula: Ignorance + Arrogance + Negligence = Disruption.

And this list is just getting warmed up. Why? This potent and toxic blend of ignorance, arrogance and negligence deprives decision-makers of sight, judgement and enlightenment. There’s no sense of urgency to change. Decisions and movements are too rigid to make strides. Leadership isn’t leading. The expertise and experience needed to defeat disruption are largely absent at the top. Shareholders, stakeholders and boards are protecting their investments and value short-term gains over long-term rewards.

The key for those in charge of running organisations today is to identify an anecdote to “out-of-touchness” and develop the formula that’s right for their situation to balance scale and growth with innovation and experimentation.

Disruption isn’t an overnight phenomenon, and that’s what is most menacing. Disruption’s disguise is cloaked through familiarity. Its invisibility is strongest when cognitive biases prevent those from recognising its slow and eventual besiege until what’s familiar to them is affected. By then, the damage is already done.

For the undisrupted, there are clear and defined stages where ignorance, arrogance and negligence play roles in contributing to unintentional obsolescence. I call this the “6 Phases of Disruption”, and it affects organisations, industries and individuals alike.

Phase 1: Too Big To Fail

I am not kidding you when I say that I hear “if it ain’t broke” or “why rock the boat” more often than not. Too many executives place great faith in the momentum of maintaining the status quo. They suffer from “short-termism” – a condition that emphasises shareholder/stakeholder returns, scale and quarter-on-quarter growth. There’s nothing wrong with that focus. It’s important. Except that it comes at an opportunity cost. Innovation is viewed as a cost centre rather than an investment, and it seemingly takes away from immediate returns with no analysis of potential longer-term yields.

Examples:

  • Borders vs. Amazon
  • Retail vs. e-commerce
  • Blockbuster vs. Netflix (and underemphasizing streaming tech)
  • Kodak vs. Digital (placing larger bets on growing existing business in the face of new opportunities)
  • Taxi Industry vs. Uber and Lyft

Phase 2: Out-of-Touchness aka The Experience Divide

As markets and behaviours evolve, so too do individual preferences and expectations. With each new innovation, customers are introduced to new products and services, which create standards for new experiences. The challenge becomes whether or not you can see it as it’s happening, to then do something about it in real-time or soon thereafter. This is an incredible inflection point in disruption. The experiences that people start to love diverges from the experiences many organisations will likely deliver. This creates an experience divide. Normalcy bias, the tendency to see the world and make decisions based on convention, along with other cognitive biases, distract from seeing the world (and their incredible experiences) through the eyes of another. Without understanding its dimensions or dynamics, the gap increases over time and creates an open door to disruption.

Examples:

Amazon’s 20-year campaign to push consumers toward new shopping behaviours and expectations (not just online bookselling).

Airbnb’s 10-year campaign that empowered an untapped market of homeowners and renters to offer personalised experiences to travellers directly, and the recruitment of a connected generation of guests who sought something more convenient and approachable beyond standard hospitality experiences (not just short-term holiday lets).

Postmates, Uber and Lyft’s 10-year campaign that normalised ordering and paying for immediate products and services through a mobile device, setting the bar for a new standard of consumer experience based on immediacy, convenience, personalisation and integration (not just new taxi services or online grocery shopping).

Phase 3: Disruption is Coming and the “See of Denial”

As the experience divide gains momentum, external forces unite to pave the way for innovation’s effects. Early adopters and fringe markets become mainstream, and new behaviours and expectations become the norm. This accelerates not only adoption but also exposes substandard and outdated products, services and experiences as they’re in stark contrast of the new standard. If you’ve ever heard the expression, “denial isn’t just a river in Egypt” this is where disruption becomes incredibly dangerous. Ignorance is bliss until it’s not. In this phase, those who were once naysayers, detractors or totally unperceptive, start to wake up to reality. They don’t yet see the presence of disruption, though. All they see are its threat. This is very dangerous as disruption happened for a reason and these causes are still not understood. I call this the “see of denial”.

Examples:

When Blockbuster was presented with “the threat” of streaming competitors in 1999, an analyst famously said, “investor concern over the threat of new technologies is overstated.” In 2008, Blockbuster CEO Jim Keyes told the Motley Fool, “Neither RedBox nor Netflix are even on the radar screen in terms of competition.”

Then Microsoft CEO Steve Ballmer famously laughed off the debut of Apple’s game-changing iPhone, “There’s no chance that the iPhone is going to get any significant market share. No chance.”

In 2006, Motorola’s CEO Ed Zander dismissed Apple’s Nano iPod, “ Screw the Nano. What the hell does the Nano do? Who listens to 1,000 songs?”

Even the disruptors get disrupted. Steve Jobs famously reacted to Samsung and Google’s smartphones that featured larger screens by saying, “no one’s going to buy that.”

Phase 4: Industry Rebellion

The five stages of grief are important steps in helping individuals cope with loss and more so, help those grieving ultimately learn to grow from the experience. The first stage is “denial.” The second stage is “anger.” Alvin and Heidi Toffler’s famous phrase and the book “Future Shock” dates from as long ago as 1970: this level and speed of disruption, is not new, and it still manifests itself as a state of distress or disorientation due to rapid social or technological change.

Once the effects of disruption become clear, anger, rather than strategy and productive action, is rampant. Denial, cognitive biases, ignorance, arrogance, negligence, all of the above represent reasons why the signs of disruption were missed or written off. But none of those reasons justifies the situation. So many in this stage embrace anger, play the blame game, point fingers at everyone and everything other than themselves. There’s often zero or very little accountability. At a later point in the grieving process, there’s an upward turn where acceptance can lead to hope and hope can lead to recovery and growth (if you survive that long).

Examples:

In protest against Uber, taxi drivers in France led to a violent protest in 2016.

As Apple rose, Microsoft lost significant market share. At a company-wide meeting in 2009 at Seattle’s Safeco Field, Steve Ballmer spotted an employee taking pictures with an iPhone. Ballmer grabbed it, put it on the ground and pretended to stomp on it before walking away.

When Tesla introduced its groundbreaking direct-to-consumer dealership model, the automotive industry responded with lawsuits aimed at preventing Tesla from bypassing traditional dealership franchise models. In 2019, California Dealers filed a petition against ‘Care By Volvo’, an all-inclusive car subscription service.

Phase 5: The New Kodak Moment

Austrian economist Joseph Schumpeter coined “creative destruction” in the 1950s to describe the process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This is a foundation for disruption. Today, we live in an era of what I refer to as “digital Darwinism.”It’s led by technology, which introduces, incessantly, new capabilities, which in turn establishes new behaviours, and changes the standard for exceptional experiences. The result is a “new normal” that moves the posts for ambition and aspiration, which then affects the expectations and demands for value and shapes how other companies and industries react, compete and innovate. “The New Kodak Moment” is that moment when you realise that you completely missed how the world changed and you suddenly woke up to recognise you were not only out of touch but also on a path toward irrelevance.

Examples:

Kodak eventually went digital when it realised that the “Big Bang” adoption of filmless cameras was too great and too fast to ignore. By then, however, the company was out of touch with the effects of digital photography on human experiences and their relationship with pictures. For instance, with film, pictures were paper mementos, physical manifestations of memories. The value ecosystem and resulting consumer behaviours were centred on nostalgia, hence “the Kodak Moment.” With digital, the rise of online photo sharing, and smartphones as the “camera that’s always with you”, pictures became documented experiences. You captured more than you revisited. Think about the hundreds (thousands) of pictures on your phone or in your cloud store right now that you most likely will never see again.

Example: As cassettes and vinyl were replaced with CDs. Then everything was displaced by MP3s. Then MP3s were both rivalled and propelled by Apple iTunes, Then YouTube suddenly became the new radio and MTV and Pandora – and then Spotify challenged all of the above and completely changed the relationships between consumers, music ownership and music experiences. Labels, management companies, distributors, radio stations, retailers and even artists were late or absent at every step. And disruption on this front is only evolving.

Phase 6: The Innovation Chase

What’s the ROI of innovation? Ask any startup founder or investor, and they’ll tell you it’s the formula they use to show potential returns for early rounds of investment that can yield as 100x, 1000x or more.

So what’s the ROI where the “I” stands for ignorance?

What’s the cost of not investing in new ideas and opportunities?

Once you see that the momentum you once rode proudly and diligently has slowed, stopped or worse, reversed, the need to act is as clear as day. The smelling salts that finally awoke you or the slap in the face that snapped you into reality is often financial in nature, and which point panic and then survival mode kicks into high gear. Whether it’s lowered expectations, missed numbers, a dramatic tumble in share price or significant loss in market share, the sense of awareness and urgency to fix what’s long overdue and pursue lucrative new opportunities, is surging like adrenaline in a fearful, stressful or extraordinary event. The innovation chase becomes paramount. Companies have to make up for lost time before they lose support. Because this is a reaction and not a longer-term, thoughtful and calculated investment, the path to innovation becomes clouded and disjointed. Initially, capable or experienced leaders are absent from early decision-making. Innovation becomes a game of catch-up and a game of chance.

Examples:

Walmart is making enormous investments and strides in innovation. But according to former Target Vice Chairman Gerald Storch in a CNBC interview, the company is still “trying desperately to catch up. If Walmart had made the kind of investments they’re making today; there would have been no Amazon.”

Celebrating a big IPO in 2014, GoPro faces major layoffs and is considering a sale while it also triages its multiple wounds to stop or slow the bleeding. The same is true for Fitbit, which went public in 2015. Both rode the trend waves that launched their success without adequately planning for the location, timing and needs to catch the next set.

Disrupt or be Disrupted

The most direct path to disruption is to continue on the road of business as usual.

This is a time of great threat and a great opportunity. It’s a choice in how you see it and what you do.

The only way to counter future shock is to future proof your business model, your investments and your capabilities. The only way to thrive in an era of digital Darwinism is to continually adapt and compete by aiming for evolving relevance (and greatness). The only way to stave off the 6 Phases of Disruption is to invest in innovation across the enterprise, beyond products to include services, processes, mindsets, skills and experiences.

Again, it’s not just incumbents who need to invest in innovation. Former disruptors eventually become targets of disruption. Your legacy is defined by your actions and your inactions. Success is never a finite state. It is earned and re-earned by those who are obsessed with solving problems, improving what isn’t broken and creating new capabilities or changing behaviours until they finally change the world.

And the most passionate (and successful) then set out to do it all over again.

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