Creative destruction – changing times require new tools!

Hans Gillior

“When studying the major technology and business shifts in history, we see that the winners of technical and business evolution were those that could adapt to the change – and create a business advantage by leveraging new technology and a creative business mindset.”

In 2005, three university students at Stockholm School of Economics entered a school entrepreneurial contest with an idea to simplify (reduce risk) online shopping payment and claims with a new business approach. Unfortunately, the three students did not receive any enthusiasm and were ranked last in the competition. With the right support and investors, the idea grew into a global company changing the bank and financial services industry. In 2019, the company was worth 5,5 billion USD and on the way to becoming the largest fintech start-up in Europe. Klarna is now challenging traditional banking and payments.

A couple of weeks ago, I read an article about a traditional Swedish company, in the banking industry, laying off a couple of hundred employees to avoid an upcoming financial crisis. They found their industry challenged by up & coming fintech companies, with new customer centric thinking and business models set on re-writing the business landscape.

Democratization of technology, availability of funding and entrepreneurship had reduced the barriers of entry to one of the most protected sectors. So, when change comes, as predicted, the obvious answer was to cut cost with an aim of becoming more efficient – rather than adjusting their business model to the new pre-requisites. This is about meeting a new business situation with old governance tools (traditional governance, planning, budgeting and leadership) – it will not work!

When studying the major technology and business shifts in history, we see that the winners of the technical and business evolution were those that could adapt to the change – and create business advantage through new technology and business models. Those that have the ability to respond creatively see the opportunities and challenge their way of working to revolutionise business rather than retract. The phenomenon is called Creative Destruction”.

Definition: “Process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” – Wikipedia 2021

There are numerous examples of Creative Destruction in history where technical advances have, together with creativity and new business models, changed the rules of an industry. Brands such as Xerox, Polaroid and IT intensive industries such as printed media have all undergone creative destruction where new technology has eroded old technology and business models.

“Companies which made money out of technology which becomes obsolete do not necessarily adapt well to the business environment created by new technologies.” – Wikipedia 2021

What is interesting about this phenomenon is that Creative Destruction today spreads more quickly and has broader scope than ever before due to globalization and digitalization. It is fascinating that an online news site such as Huffington Post[BH1]  is leading the creative destruction movement in the whole newspaper industry. In the last 25 years, the number employed by traditional newspapers have fallen by 50%, and the same time, the number employed by internet publishing has increased by 400%.

When I read the news, probably online, about a traditional company reducing cost levels in panic, I see yet another unsuccessful attempt to address increased digitalization and creative destruction in the market. From my point of view, it all has to do with what tools and capabilities we have to foresee and address the new situation – new or old tools? In the “old days” with high stability (high predictability), the traditional strategy of laying off people might have worked because of temporary set backs in the market. But today, there is no such thing as temporary set backs, there is only increased digitalization, globalization and high unpredictability demanding higher agility and more creative creation. Trying to solve today’s problems (digitalization and unpredictability) with traditional tools (laying off people) will not work.

A few years ago, I worked with a financial service provider trying to survive in the new digital business landscape. In a short period of time, they had lost significant market shares and revenues to new digital companies with outstanding technology and business models. How to compete? When studying the company in more detail we could see that business failure was a result of reactive and passive leadership, old technology and heavy investments in services that failed to attract new customers. In the end, it was about not understanding how customer expectations (faster and better services with limited hesitation) had changed during the last couple of years. Not taking business success for granted. Today, the company is on the right track after years of struggling with leadership, governance, and technology.

My point of view is that Creative Destruction is present in all sectors and the pace with which it will revolutionize the business landscape with digital disruptions will only increase. We need to build our businesses on the hypothesis that creative destruction is already happening and do what we can to predict the impacts and analyze its progress. To do so, we must identify the signs and understand how ideas and new business models grow into digital disruptions. Only when forearmed with knowledge of what, when and how can we then ably establish scenarios, strategic plans and nurture agility to avoid the downside of digital disruptions – being left behind or worse failing to retain relevance - and future-proof the business.

My recommendation:

  • Build awareness throughout the business (and among senior management) that digitalization and creative destruction will have a huge influence on your way of working. Because it will come, and it will challenge how you get things done, and how you respond. You must culturally equip for a different breed of change.
  • Start looking at agile management methods. Get a feel for how they work and how they taste. The thing is that the agile management methods will also work in more stable environments.
  • Get a digital coach! Someone who can help you to understand the impact of the digital revolution in your organization. Very useful!
  • Contact Atmosphere – we have the new tools (scenario planning and disruption index) for the digital era.

All traditional companies and sectors will continue to be challenged by the next breed of digital company with new technology and business models. Some of them are right now inventing ideas that will change how we work and operate into the future.

You’ve probably heard the well-trod statistic that, in fact, 50% of Fortune 500 companies have disappeared since year 2000. Well used because it makes a critical point with fact. Business success can never be taken for granted in the digital era.

To survive in the new digital market is it of essence to understand how the market is changing and how it affects you. Also that you as a leader do the analysis and predict how the business landscape is going to change with disruptions. It is you, as a leader, that must drive your organisation’s digital transformation through total conviction and passion. Are you ready?

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