Unpredicted Mutation of Business and Economics
The story of Swedish company Facit is the classic story of how a global leader is phased out of the market when innovation changed it completely. The company was a leader in mechanical calculators and during the 1960’s, the company had subsidiaries in over 100 countries and experienced exceptional growth and profits. The success was built on patents of physical components that made the calculators exceptionally good. In early 1970s, the company was at the peak of its success but there was a dark cloud on the horizon. Japanese companies (such as Sharp) started to conquer market shared (with digital calculator – cheaper and better performance. The disruption instantly made Facit’s mechanical calculators obsolete. For the next 15 years, Facit struggled to change and recover, before it was put out of business in 1988.
When studying the minutes from the board meetings in the 1960’s and 1970’s, it reveals that the board and executive management were aware of the disruption of digital calculators. The topic was thoroughly discussed in the board room, but nothing was done. They failed to acknowledge the superiority of modern calculators and that the demand had fundamentally changed. It was a business and technical mutation that completely disrupted the market – phasing out those without the leadership and capability to change.
The Creative Destruction phenomenon was first described in 1950’s by Joseph Schumpeter and describes a process of industrial mutation that revolutionizes the economic structure within, and destroying the old one, creating a new one. He believed that entrepreneurship and innovation were the fundamental factors behind industrial growth and revolution.
The story of Facit is one of numerous examples of Creative Destruction in history where technical advances have, together with creativity and new business models, changes 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 have 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 the new technologies.” – Wikipedia 2019
What is interesting about this phenomenon is that Creative Destruction today spreads quicker and broader than ever before due to globalization and digitalization. It is fascinating to study an online news site such as Huffington Post that 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 news, probably online, about a traditional company reducing it 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 the tools you have to address the new situation – new or old tools? In the “old days” with high stability (high predictability), the traditional strategy of lying off people might have worked because of temporary setbacks in the market. But today, there is no such thing as temporary setbacks, 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 (lying off people) will not work.
We cannot solve our problems with the same thinking we used when we created them.”-Albert Einstein
I meet many business leaders, playing a pivotal role in digitalization and the creative creation process, focusing on traditional governance excelling in outsourcing, leanification and process automation. The idea of managing digitalization through cost reduction and internal focus. The problem is that these tools are not designed to cope with increased creative destruction and drive competitiveness in the digital market. They were designed to work in a stable and predictable business environment where there were limited movement in customer behavior, technological advances and mobility. Now it is different. When I talk to leaders about agile governance and management methods, I sense that this is something that makes them uncomfortable.
“Yes, I hear what you are saying, but we have invested heavily in getting the basics in place – and building efficiency in our governance structure”.
It is about viewing the world and Its context with tainted glasses. Why is it so? My view is that many managers and leaders are not comfortable with change or challenging their old way of working. That is the only way they know, that is what is expected of them – that is how they traditionally make a career. Minimizing risk! But that is not good enough. In a company I worked with, we could see that managers with traditional management methods where quickly replaced by more digital-oriented leaders with understanding of the digital ecosystem. It is just a matter of time before Creative Destruction happens in your industry challenging your position in the company. Are you ready?
- Build awareness in the organization (and among senior management) that digitalization and creative destruction will have huge influence on your way of working. Because it will come, and it will challenge your ways of working and culture.
- 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!
Traditional governance and strategy will not be successful in the new digital ecosystem. The traditional tools are designed for a traditional environment with high predictability and certainty. Today is different! 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 not only listen to influential consultants. It is you a leader how have to drive the digital transformation through total conviction and passion. Are you ready?
Hans Gillior is a founding partner of The Goodwind Company, an advisory and knowledge company in field of digital transformation. The Goodwind Company believe in the sharing economy and the power of networks across borders and cultures. The company provides a “best practice” framework (service library) supporting Digital Transformation GooDIGITAL based on the collective knowledge and experience of Goodwind partners, academia and business partners.
Hans Gillior is an experienced Principal in field of IT/Digital Transformation with both senior line manager and senior advisor positions. He has a proven track record of changing the mind-set of leadership, and implementing dynamic governance and capabilities to create a competitive advantage in unpredictable digital markets. He is a digital thought-leader part of local and global expert networks, but also a frequent speaker at conferences, management coach/trainer and author.