The growing popularity of Disruptive Innovation in popular discourse, as measured by Google's Ngram ... [+]
Maybe, the most important thing that’s up with disruption, these days, is the amount of attention it is receiving. Depicted in the image above, which is derived from searching for “Disruptive Innovation” in Google’s Ngram Viewer, the inescapable conclusion is quite clear: interest in disruptive innovation is way up. What is to follow, is strong support for the argument that you dismiss the likelihood of industry disruption at your own peril, no matter which industry you are speaking about. Far from being just another bit of business school jargon, disruptive innovation is earning more attention than ever before, and the reason for that is that we are seeing a wider range of industries being disrupted, as never before.
Whenever disruption is the subject of discussion, it is important to keep in mind that it is not the technologies which bring-on disruption that are the most important artifact of what Schumpeter referred to as “creative destruction,” but the changes in the composition of industry participation which occur because of this phenomena. In this regard, and most emphatically, a recent review of industry participation in twelve industry sectors, over a fifty-year period (1969-2019), on the S&P 500, by qad.com, shows a widespread and fairly quick reshaping for a wide-range of industries as a result of external disruption; a lot of change has taken place!
The qad.com data indicates that disruption has been occurring at a healthy rate for quite a while, even before the onset of the digital revolution. The period between 1970-1989, were years of recession, energy crisis and Reganomics, all of which resulted in significant enough upheaval in the way that business was conducted across most industries to witness large numbers of new entrants, as well as departures. This can also be seen as a verification that in disrupted markets, it is not so much that the markets lose their potential, as it is that managerial imaginations falter within incumbent market-leading firms. In such situations, a rising tide certainly does not raise all boats, and many incumbent market leaders find themselves beached, while previously unknown, upstarts, launch into smooth sailing.
It was the period from 1995 until 2019, better known as the dot.com bubble of the early internet era, where digital technologies, and internet commerce, became major causes of disruption within many industries. It was also a period where the increasing role played by digital technologies significantly affected the operations and business models of most industries, no matter how far from the internet they were thought to be. All of this results, again, in market shake-outs, with enough new additions and departures to earn our attention.
Not surprisingly, the Information Technology sector has consistently prospered over the fifty year range of the study, with far more additions than removals. The fact that there has been quite a few removals over this period is a reminder that disruption is not a straight-shot, and many Information Technology firms that ushered-in our digital era are no longer standing to enjoy it. As a result, in most industries, the average company lifespan on the S&P 500 has declined over the fifty year period.
Of all industries, it has been the Industrials sector that has been reshaped most drastically, with only 70 industrials, of the 166 participating in 1969, still remaining. The conclusion of qad.com is that this has been a positive outcome, overall, as firms in this sector are seen as adopting to disruption positively, and the number of firms participating in this sector has actually grown a bit through new entrants since 2005. Part of the underlying story in industrials, however, is that this sector has become much more of an arena, in the Rita McGrath sense of the word, than a real, coherent industry, as business models increasingly reflect digital transformation, no matter what the resulting end-offering might be, and offerings proliferate across customer journeys, no matter how dissimilar the assets of the competing organizations might be. It is an instance where legacy definitions of statistical data gathering may well misrepresent what is actually taking place.
Last, but not least, is the observation that, with the exception of Industrials, as noted above, most industries have been affected, to a greater or lesser extent, by the same external forces of change that have acted to recast industry participation. Information Technology, Health Care and Consumer Discretionary sectors prospered, largely because of their ability to adopt the new digital technologies that could change their business models, while less agile industries, such as Diversified Mining and Metals, could not, or did not, but all were affected to some degree by the external changes taking place around them; no one industry, nor firm, could escape the Kondratieffian wave that accompanied the onset of the digital era, and the transformation that went along with it. Disruption proved to be real, and for everyone; and let no one doubt that it continues today.
