Majority of Large Companies Face High Levels of Industry Disruption
Around two-thirds of the world’s largest companies face high levels of industry disruption, with almost half already showing severe signs of future susceptibility.
That is according to new research from consultancy firm Accenture, which studied the presence and market penetration of disruptor companies in various different sectors. It was found that the insurance and healthcare industries are in a ‘vulnerability stage’ of disruption, with structural weaknesses exposing them to significant risk.
However, barriers to entry currently inhibit disruptor companies in these markets, with incumbents being urged to position themselves so they can develop and leverage future innovations. This will involve these firms improving the productivity of their legacy businesses, and shifting dependence on fixed assets to monetising underused assets.
“Disruption is continual and inevitable, but it’s also predictable,” Accenture’s chief strategy officer, Omar Abbosh, said. “Business leaders need to determine where their company is positioned in this disruption landscape and the likely speed of change.”
The research involved a study of 3,600 firms with at least $100m (£72m) in annual revenues across 82 countries, analysing incumbents’ financial performance, operational efficiency and commitment to innovation. Around 19% of companies fall into a ‘durability stage’ where disruption is not life threatening, and another 19% are in the vulnerability state, while a quarter are categorised in a ‘volatility stage’ where disruption is prominent. However, it was found that 37% of the world’s largest businesses are in a ‘viability stage’ of constant disruption, where competitive advantages are short-lived, and include high tech and telecommunication firms.
“We found that the lower an industry’s digital performance, the more susceptible it is to future disruption” Accenture Digital group chief executive, Mike Sutcliff, said. “Digital technologies can help make a company more resilient in times of disruption, driving better outcomes from existing products, developing entirely new digital services, lowering costs, or increasing barriers to entry.”
The four periods of industry disruption are shown below:
Durability: Disruption is evident but not life-threatening; incumbents still enjoy structural advantages and deliver consistent performance. One-fifth (19 percent) of companies — including those in the automotive retail and supply, alcoholic beverage and diversified chemicals industries — fall into this period.
Industry response: Companies in this stage must start reinventing their legacy business, rather than only preserving it. This could involve taking steps to maintain cost leadership in the core business, and making key offerings more relevant to customers by making them less expensive and higher performing.
Vulnerability:The current level of disruption is moderate, but incumbents are susceptible to future disruption, due to structural productivity challenges such as high labor costs. One-fifth (19 percent) of companies — including those in the insurance and healthcare industries and the convenience retail sector — fall into this period.
Industry response: Companies now must make their legacy business more productive, to allow themselves to develop future innovations in their business and also tap the innovations of their competitors. This might include reducing dependence on fixed assets, the report noted.
Volatility: Prominence of violent, sudden disruption; traditional strengths have become weaknesses. Companies in this period (25 percent of companies studied) include those in the consumer technology, diversified banking, advertising and transportation services industries.
Industry response: The only way for companies in this phase to survive is by changing their current course, the report stated. This means transforming the core business while also investing in new businesses. However, it's important not to make the change too quickly—risking financial problems—or too slowly, risking becoming obsolete.
Viability: Disruption is a constant; sources of competitive advantage are often short-lived, as new disruptors consistently emerge. More than one-third (37 percent) of companies — including software and platform providers; telecommunications, media and high-tech companies; and automotive manufacturers — fall into this period.
Industry response: Companies that reach this stage must embrace constant innovation, the report stated. This means increasing the penetration of new offerings with current customers, and rapidly expanding into new markets.