Disrupt to Thrive in 2011 – Model Facebook, Groupon, Twitter

Summary:

• Communication is now global, instantaneous and free
• As a result people, and businesses, now adopt innovation more quickly than ever
• Competitors adapt much quicker, and react much stronger than ever in history
• Profits are squeezed by competitors rapidly adopting innovations
• But many business leaders avoid disruptions, leading to slower growth and declining returns
• To maintain, and grow, revenues and profits you must be willing to implement disruptions in order to stay ahead of fast moving competitors
• Amidst fast shifting markets, greatest value (P/E multiple and market cap) is given to those companies that create disruptions (like Facebook, Groupon, Twitter)

All business leaders know the pace of competitive change has increased.

It took decades for everyone to obtain an old-fashioned land line telephone. Decades for everyone to buy a TV.  And likewise, decades for color TV adoption.  Microwave ovens took more than a decade. Thirty years ago the words “long distance” implied a very big cost, even if it was a call from just a single interchange away (not even an area code away – just a different set of “prefix” numbers.) People actually wrote letters, and waited days for responses! Social change, and technology adoption, took a lot longer – and was considered expensive.

Now we assume communications at no cost with colleagues, peers, even competitors not only across town state, or nation, but across the globe!  Communication – whether email, or texting, or old fashioned voice calls – has become free and immediate. (Consider Skype if you want free phone calls [including video no less] and use a PC at your local library or school building if you don’t own one.) Factoring inflation, it is possible to provide every member of a family of 5 with instant phone, email and text communication real-time, wirelessly, 24×7, globally for less than my parents paid for a single land-line, local-exchange only (no long distance) phone 50 years ago! And these mobile devices can send pictures!

As a result, competitors know more about each other a whole lot faster, and take action much more quickly, than ever in history.  Facebook, for example, is now connecting hundreds of millions of people with billions of communications every day.  According to statistics published on Facebook.com, every 20 minutes the Facebook website produces:

• 1,000,000 shared links
• 1,323,000 tagged photos
• 1,484,000 event invitations
• 1,587,000 Wall posts
• 1,851,000 Status updates
• 1,972,000 Friend requests accepted
• 2,716,000 photos uploaded
• 4,632,000 messages
• 10,208,000 comments

Multiply those numbers by 3 to get hourly. By 72 to get daily. Big numbers!  Alexander Graham Bell had to invent the hardware and string thousands of miles of cable to help people communicate with his disruption. His early “software” were thousands of “operators” connecting calls through central switchboards. Mark Zuckerberg and friends only had to create a web site using existing infrastructure and existing tools to create theirs.  Rapidly adopting, and using, existing innovations allowed Facebook’s founders to create a disruptive innovation of their own!  Disruption has allowed Facebook to thrive!

Facebook has disrupted the way we communicate, learn, buy and sell.  “Word of mouth” referrals are now possible from friends – and total strangers.  Product benefits and problems are known instantaneously.  Networks of people arguably have more influence that TV networks!  Many employees are likely to make more facebook communications in a day than have conversations with co-workers!  Facebook (or twitter) is rapidly becoming the new “water cooler.” Only it is global and has inputs from anyone.  Yet only a fraction of businesses have any plans for using Facebook – internally or to be more competitive!

Far too many business leaders are unwilling to accept, adopt, invest in or implement disruptions.

InnovateOnPurpose.com highlights why in “Why Innovation Makes Executives Uncomfortable:”

1. Innovation is part art, and not all science.  Many execs would like to think they can run a business like engineering a bridge. They ignore the fact that businesses implement in society, and innovation is where we use the social sciences to help us gain insight into the future.  Success requires more than just extending the past – because market shifts happen.  If you can’t move beyond engineering principles you can’t lead or manage effectively in a fast-changing world where the rules are not fixed.
2. Innovation requires qualitative insights not just quantitative statistics. Somewhere in the last 50 years the finance pros, and a lot of expensive strategy consultants, led business leaders to believe that if they simply did enough number crunching they could eliminate all risk and plan a guaranteed great future.  Despite hundreds of math PhDs, that approach did not work out so well for derivative investors – and killed Lehman Brothers (and would have killed AIG insurance had the government not bailed it out.) Math is a great science, and numbers are cool, but they are insufficient for success when the premises keep changing.
3. Innovation requires hunches, not facts.  Well, let’s say more than a hunch.  Innovation requires we do more scenario planning about the future, rather than just pouring over historical numbers and expecting projections to come true.  We don’t need crystal balls to recognize there will be change, and to develop scenario plans that help us prepare for change.  Innovation helps us succeed in a dynamic world, and implementation requires a willingness to understand that change is inevitable, and opportunistic.
4. Innovation requires risks, not certainties.  Unfortunately, there are NO certainties in business.  Even the status quo plan is filled with risk. It’s not that innovation is risky, but rather that planning systems (ERP systems, CRM systems, all systems) are heavily biased toward doing more of the same – not something new! Markets can shift incredibly fast, and make any success formula obsolete.  But most executives would rather fail doing the same thing faster, working harder, doing what used to work, than implement changes targeted at future market needs.  Leaders perceive following the old strategy is less risky, when in reality it’s loaded with risk too!  Too many businesses have failed at the hands of low-risk, certainty seeking leadership unable to shift with changing markets (GM, Chrysler, Circuit City, Fannie Mae, Brach’s, Sun Microsystems, Quest, the old AT&T, Lucent, AOL, Silicon Graphics, Yahoo, to name a few.)

Markets are shifting all around us.  Faster than imaginable just 2 decades ago.  Leaders, strategists and planners that enter 2011 hoping they can win by doing more, better, faster, cheaper will have a very tough time.  That is the world of execution, and modern communication makes execution incredibly easy to copy, incredibly fast.  Even Wal-Mart, ostensibly one of the best execution-oriented companies of all time, has struggled to grow revenue and profit for a decade.  Today, companies that thrive embrace disruption.  They are willing to disrupt within their organizations to create new ideas, and they are willing to take disruptive opportunities to market. Compare Apple to Dell, or Netflix to Blockbuster.

Recent investments have valued Facebook at $50B, Groupon at $6B and Twitter at almost $4B. Apple is now the second most valuable company (measured by market capitalization).  Why? Because they are disrupting the way we do things. To thrive (perhaps survive by 2015) requires moving beyond the status quo, overcoming the perceived risk of innovation (and change) and taking the actions necessary to provide customers what they want in the future!  Any company can thrive if it embraces the disruptions around it, and uses them to create a few disruptions of its own.

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