Perspectives

Deloitte on disruption

Changing course in a disruptive world

Remember several years ago, when every street corner and strip mall seemed to have a big blue Blockbuster? In 2004, Blockbuster was the dominant, unassailable leader in home video rental, with 9,000 stores and 60,000 employees. Who could have predicted that just six years later, the industry giant that took out nearly all the neighborhood mom-and-pop rental shops would itself be taken out?

Disruption: A permanent fact of life

In hindsight, Blockbuster wasn’t taken down by a single competitor, but by its own failure to respond when strategic risks threatened the underpinnings of its business model. The lesson isn’t simply about the importance of real estate costs or new technology. It’s about how to sense the future and respond accordingly when this sort of disruption has become a permanent fact of life.

Living in a “VUCA” world

We live in a world the US Army War College has dubbed VUCA: volatile, uncertain, complex, and ambiguous. From automation to outsourcing, deregulation to globalization, and personal computing to the Internet, these changes have paved the way for tremendous business innovations and consumer benefits.

But there is a flip side. In the VUCA world, companies face increasing demands from customers they’ve never served with needs they’ve never had to meet, relentless productivity pressure thanks to competitors with lower costs, and business model threats from upstarts in new sectors. Then throw in other macro trends like the shifting geopolitical landscape; the rapid adoption of social, mobile, and cloud-based technologies; and the changing demographics of customers and employees.

The challenge facing organizations today is how to anticipate, adapt, maneuver, make decisions and change course as needed. And really, the only way to respond is by changing your approach to risk.

Risk is not a game

Because of the complex world in which companies now operate, strategic risk has earned a rightful position at the top of the executive agenda. Boards want to know that the executive team is “on it,” and CEOs want to make sure they’re not missing it.

The trouble with strategic risks is there’s often no historical precedent to draw from to assess their potential nature and impact. Sometimes they’re the product of a visible trend, but often they appear as a surprise. And hard as they are to spot in time or manage, they are extremely difficult to recover from.

The other way strategic risks can be confusing? They’re not just “something to mitigate.” In fact, spotted early and handled well, strategic risks can be the basis for game-changing moves that reorder the field.

We’re only human

Part of the trouble organizations have navigating strategic risks is inevitable: Organizations are populated by humans, and human thinking is inherently flawed—especially when it’s asked to look at something as ambiguous and complex as the future. For example:

  • The overconfidence bias convinces us to trust our gut when we shouldn’t and makes us unable to calibrate the limits of our own knowledge.
  • The availability bias encourages us to inflate the importance and likelihood of things we saw or read recently, giving us a distorted view of what’s really important.
  • The confirmation bias causes us to pay more attention to information that fits what we already believe while discounting information that may contradict our current beliefs.
  • The optimism bias fools us into thinking that nothing bad will happen and all our plans will work out as we intend.

And if our own biological and cognitive biases don’t get us, some common organizational constraints probably will. All of which prevent us from making the choices we’d like to make with the kind of clarity we’d like to have.

What smart companies will do

Since the complex circumstances in which we now live are never going to vanish, smart organizations will develop a system to deal with unexpected change by:

  • Accelerating discovery 
  • Scanning ruthlessly
  • Confronting biases
  • Preparing for surprise

Do it with the best knowledge you can find—about the world, yourself, and your team. Because doing nothing could be the deadliest strategic risk of all.

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