Digital disruption is one of the hottest topics in the executive suite, using up much of the oxygen in the data center and beyond. Everybody’s heard of it, but not enough executives seem to be taking action. A recent study in MIT Sloan Management Review showed that 87% of executives surveyed said digital technologies will disrupt their industries to a great or moderate extent. But only 44% said their companies are doing enough to prepare themselves.
The story is anything but new according to Why Companies Don’t Respond to Digital Disruption, a post by Gerald C. Kane, a professor of information systems at the Carroll School of Management at Boston College. Kane’s prescription is that:
Companies will effectively navigate the challenges posed by digital disruption if they look at them as organizational and managerial problems, rather than technical ones.
Unfortunately, that nostrum alone won’t get you a coffee at Starbucks these days and it’s not the statement but the supporting evidence that is worth pondering. Fortunately, Kane, with some help from friends at Deloitte, has some sage advice on the people problem at the heart of the disruption issue:
It may be that executives don’t understand enough about technology to make the changes or understand the urgency necessary.
After disruption comes diffusion
Workers in tech have become used to the rapid rate of technological change in their personal lives and this adaption translates to their work at an individual. But organizational and other forms of adoption lag individual adoption by a considerable amount. The Deloitte study breaks adoption down into four components shown in the image above – technology comes first, and then spreads to individuals, businesses, and finally public policy.
Whereas many of us are used to dealing with the initial technology disruption and quickly moving on, as I’ve written before, after the disruption comes diffusion. Innovation doesn’t reach maximum utility, sometimes for years, because it has to reach users, whose adoption and adaptation occur at different rates. Diffusion accounts for why some people are early adopters and some adopt late.
Public policy is last to adapt
Moreover, users are not simply individuals and they operate in different ways in their personal and public lives. Pick a disruptive technology, say, cable or the Internet. Both have been available for decades and consumers know how to get what they want. Yet it’s only comparatively recently that we’ve entered into wide-ranging discussions over the public policy for regulating them.
Public policy acts to level a playing field but there will often be resistance. In cable and the Internet some public policy questions are still very much up in the air, especially in the US. In return for near monopoly status, should society stipulate that these entities can’t discriminate over which customers get better service? Should they be considered as ordinary utilities whose prices can be regulated? Or should they be classified as higher priced content providers?
The tug of war stems from the fact that the cable industry wants to operate as both a utility that delivers Internet access in a more-or-less conventional utility model, but the same vendors also want the option to preferentially deliver their content too. The arrangement leaves ample room for throttling one competitor’s content traversing another vendor’s infrastructure — clearly in contravention of standard utility policies. But consumers could pay dearly for such a Byzantine and chaotic environment.
Individuals adapt before organizations
Individuals have learned to use the Internet on their own, especially the wireless net, through repetitive use of social media or online shopping. But the effect of diffusion means they’re very often far ahead of the businesses they work for, or that they are customers of, when it comes to adoption. To catch up, enterprise software vendors have trended toward creating applications that are as intuitive and useful as personal apps. But the organizations they sell to often lag in adoption.
So there are several gaps to fill:
- Between technology disruption and individuals — adoption
- Between individuals and business — adaption
- Between business and public policy — adjustment
This seems to be the essence of Kane’s point that:
Technology changes faster than individuals can adopt it, [but] individuals adapt more quickly to that change than organizations can, and organizations adjust more quickly than legal and societal institutions can.
You can understand a lot by knowing where you are in any given cycle. Why are only 44% of executives saying that their companies are doing enough regarding digital disruption? Surely, because some of them don’t know where they are in their disruption cycles and some should be more concerned than they are. But others do know where they are and for them a given disruption might not have direct impact.
For instance, a few months ago, Zuora, the subscription billing company, published a study showing lackluster interest in new revenue recognition rules for subscription revenue taking effect this year and next. ASC 606 (US) and IFRS 15 (Europe) have the potential to upset a lot of apple carts by standardizing how subscription companies book revenue from their subscribers. For example, how one books revenues can have a pronounced effect on how sales people are paid, and it would be significant if the rules forced many businesses to reformulate their pay schemes.
I was surprised that only about half of the businesses surveyed by Zuora were actively seeking to comply with the new rules. But then again, we should understand that not every business is so exposed to subscription business models that they have to act.
The great thing about free markets is that individuals and businesses seek their enlightened self-interests, a concept that goes back to the Enlightenment. Sometimes most people’s interests are aligned but other times they cluster more loosely, and we get surprises. This seems to prove the point that digital disruption is a people and managerial problem – so it’s perfectly reasonable that our free market instincts drive appropriate responses.
Image credit - Chart courtesy of Deloitte University Press
Disclosure - Some vendors may be consulting clients of the author.