Nearly three-quarters (72%) of industry sectors experienced an increase in disruption over the past eight years, leaving US$41 trillion in enterprise value (market capitalization + net debt) exposed to disruption today, according to a new report from Accenture (NYSE: ACN).
The report, titled “Breaking Through Disruption: Embrace the Power of the Wise Pivot” is based on Accenture’s proprietary Disruptability Index, which measures the current level of disruption, as well as susceptibility to future disruption, of 18 industries using an analysis of 10,000 publicly listed companies.
Periods of Disruption
In previous research Accenture found that, contrary to the popular belief that disruption is unpredictable, it has a pattern defined by four distinct periods — Durability, Vulnerability, Volatility and Viability — based on an industry’s current level of disruption and susceptibility to future disruption:
- Industries in the Durability period demonstrate broad resilience and achieve consistent performance, while disruptors remain a distant threat, for now. This is the period where companies have a great opportunity to seek and experiment with new business ideas.
- In the period of Vulnerability, acute weaknesses in industries, from a lack of innovation to insufficient investment, become apparent. It is in this period where incumbents benefit from the continued presence of high barriers to entry; instinctively many rely on these defenses to fend off disruption.
- Old sources of industry strength become weaknesses, as large disruptors enter to unlock new sources of value during the Volatility period. Most companies focus on resolving pressing issues in the core business.
- In the Viability period, embryonic or reborn industries try to sustain high rates of innovation and enjoy only short-lived competitive advantage as new disruptors constantly emerge. Here the opportunity lies not only in growing the core business by offering new products in existing markets, but also in expanding the footprint of existing products to new markets.
The new report challenges the misperception that disruption is sudden and short-lived, discovering that it is in fact persistent: More than four in five industries (83%) spent at least five years in the same period of disruption between 2011 and 2018. Additionally, the report finds that industry participants are aware of the threats posed by disruption and that all 18 industries have increased their resilience to disruption.
“Responding to persistent disruption requires a radical departure from old, comfortable business strategies that no longer work,” said Omar Abbosh, group chief executive of Accenture’s Communications, Media & Technology operating group. “Successful companies avoid disruption by leaning into disruptive technologies, testing new ideas and learning how to remain close to the innovation frontier.”
Using Disruption to Reinvent
The report cites several innovative companies that are thriving despite significant disruption within their industry. One example is Microsoft, which has invested heavily in innovation while also carrying its profitable legacy Windows business into the future. In addition to investing in artificial intelligence and cloud computing, Microsoft has worked on developing cutting-edge innovations in a diverse range of areas, from holoportation (an end-to-end system for augmented and virtual reality telepresence) to instant voice translations and even an HIV vaccine.
Another company that has transformed through innovation is Schneider Electric, which was featured in a recent episode of the Pivot to the Future podcast sponsored by Accenture. As Jean-Pascal Tricoire, chairman and CEO of Schneider Electric, said during the podcast, “It’s been a lot of transformation, but it has been very beneficial to us. We’ve tripled our size … going from a regional company, mostly European at that time, to a very global company… went from stand alone products, to connected products that make up almost 50% of our sales today. And, as we are going digital, we’ve become closer to the life of our customers.”
Excelling During Disruptive Periods
Accenture identifies four key actions that companies should take to be ready to innovate differently and excel during these disruptive times:
- Create Your Next Cutting Edge. Embrace new technologies to develop potentially disruptive ideas, in and outside of your current industry.
- Fund Your Future Bets. Progressively bolster and allocate your innovation investments so you can test and turn new ideas into commercial realities faster.
- Find Partners to Scale With. Commit to scaling new ideas with ecosystem partners who can provide access to technologies and specialized talent.
- Disrupt from the Inside. Establish a specialized entity such as an “innovation lab” or a “digital factory” in order to bring meaningful innovation into your established business.
“The nature of disruption in your industry should inspire, rather than constrain when and how you accentuate your innovation efforts,” said Vedrana Savic, a managing director of thought leadership at Accenture Research. “Taking steps now to prepare your company and reposition itself because of disruption is paramount — whether by innovating at the next tech frontier, experimenting with truly breakthrough ideas, or scaling those ideas faster through new partnerships and world-class in-house capabilities.”