Creative Disruption

For the last decade and a bit, I have been working in a newspaper business, dealing with the myriad of threats and opportunities offered by the internet. During all of this, I’ve also been following the trials and tribulations of other businesses and sectors who have seen their world turned upside down by the arrival of all things digital.

Looking at the fates of the music industry, or travel agents, or how businesses like Kodak and Britannica have failed and then picked themselves up, how postal services struggle in a world of e-mail, or how an entertainment retailer like HMV avoids going bust in a world of Amazon, Apple and Pirate Bay, I’ve been struck by the similarities – both in the challenges faced, and in the solutions sought.

It was when I started to spot the same themes cropping up time and time again, I thought it might make a good topic for what will, all being well, be my first book.

Somehow, I managed to convince FT Prentice Hall that this was a good idea, and so I am now right in the middle of writing it – much more slowly than I, or they, would like, and the results of this exercise will hopefully be with you sometime early next year.

Why bother?

It has always struck me that there has been a huge amount written about Google, Amazon, Wikipedia and eBay and the general ways of the online world. Some of this is brilliant, and genuinely insightful, some of it is frothy digital euphoria.

There has also been plenty written about what is wrong with newspapers, broadcasters, Britannica, record labels etc, and what they should or could have done; but there have been very few books that I’ve come across that take a systematic look at the what has happened to these businesses – and what they have done that has actually worked, often in the most trying of circumstances.

The point is – businesses that have to deal with the internet are fundamentally different to those that are the products of it. It is great to look at Google; great to admire Amazon, and Wikipedia is as fascinating a social and creative phenomena as you fan find. But if you are running a business that is profoundly structurally challenged, you share very little of their corporate DNA.

Yes, everyone needs to know about their world, but thinking you can just graft on the bits you like from them in a hope that you will ‘get digital’ is no more likely to succeed than putting on a flashing bow tie and hoping everyone thinks you have a sense of humour.

This process goes beyond those who have had to make the leap from physical to digital and offline to online. Already the first wave of digital businesses are finding themselves challenged (eg eBay), and we currently have a Battle Royale breaking out on all fronts between Google and Microsoft which is entirely digital.

Defining ‘creative disruption’

My first thought for a title was ‘OMG, the Internet Ate My Business’ . Which was fine if I’m just going to chronicle woes, but, it’s a little bit negative (oh, and publishers prefer titles with just two words in!). So, we wanted something that summed up both cause and effect, and that offered a pragmatic blueprint for survival and success. This is where we came up with Creative Disruption. What, you might ask, do I mean by that? To me, it is the process of profound change in a business or sector driven by three things

a. Digital physics
There are some imutable laws that follow the move from atoms to bytes, and from offline to online. This is the stuff we know too well. Digital files can be infinitely copied and effortlessly distributed. Processing power, bandwidth and storage space continue to get faster, bigger and cheaper. The network is a platform. Everything online is instantly global. In some sectors this affects the core product (eg music, newspapers, classified advertising) which is where the greatest disruption occurs. In others, just the transaction and distribution (eg travel, cars) are affected, which is where we find the threat of disintermediation.
b. Changing consumer behaviour
Teasing out the affect between changes in behaviour caused by the internet, and behaviours that were latent but enabled by the internet is for bigger brains than mine. Either way – there are four powerful urges in consumer behaviour in the online age. People want to Create, Connect, Challenge and they want Control. These urges overlap, and converge – but they are like itches that the smartest online solutions scratch. We ignore them at our peril.
c. New entrants and entrepreneurs
If the first two provide the fuel for changing a sector beyond all recognition, it is entrepreneurs and new entrants two who provide the spark that sets the whole thing off. Apple in the music and mobile industries. Reed Hasting’s Netflix in DVD rentals. Brent Hoberman and Martha Lane-Fox with LastMinute.com. Niklas Zenstrom and Janus Friis with Skype. Incumbents sitting on steady growth and great margins have no incentive to change – which is why it takes Entrepeneurs to shake things up. Of course, entrepreneurs have always existed, and have always changed sectors; but in a digital world, the barriers to entry in many areas are so low, and the potential for disruption is so great in so many sectors, that we have a quite unparralleled wave of change.

This is not just disruption, it’s creative disruption

The reason I’ve been keen to add the ‘creative‘ label, is because as an incumbent, it is all too easy to focus on what is being knocked down, but it is even more important to think about what is being built up and created.

Entrepreneurs who just want to be destructive may well succeed in their goals. But it is only those who believe in creating brilliant customer experiences that will ultimately create great businesses.

Netflix, for example, didn’t just disrupt Blockbusters – it created a brilliant new way for you to get DVDs. Lastminute.com similarly wasn’t just about hacking away at Thomsons and Thomas Cook – there was a brilliant proposition, as much about convenience and price. And now, Kayak and Skyscanner are taking the travel world to the next step – a further creative disruption, by creating a business even thinner than LastMinute.com but with real consumer value of live price comparison.

Craigslist might well have hacked many newspaper’s classified revenues off at the knees, but to simply see it as that, ignores the phenomenal job Craig Newmark has done at the same time of turning something as creatively moribund as newspaper classifieds and turning them into a global community.

Standing on the shoulders of giants

The smart ones among you will have noted the nod in the title to both Schumpeter (‘Creative Destruction’) and Clayton Christensen (‘Disruptive Innovation’). This is deliberate. Both men loom large in my thinking – in particular Schumpeter, who I think should be getting much more of an airing in the current climate.

Schmpeter looked at a number of massive technology changes and how they affected different businesses – from the arrival of the Spinning Jenny to the launch of the motor car. His point – as I mentioned above was that dramatic change like this creates a whole new world, while often destroying the old one.

He was – as far as I can tell – the first economist to really stress the role of entreprneurs (‘new men’ and ‘new businesses’) in creating spectacular/ disruptive change in a sector. But he also analysed and described that change more vividly than anyone before, and most people since.

His description in Business Cycles of the impact of the railways on the businesses is perhaps the finest definition I’ve seen of the change that the internet would later cause to the business world as a whole.

“Upsets all conditions of location, all cost calculations, all production functions within its radius of influence; and hardly any “ways of doing things” which have been optimal before remain so afterward.”

And, if there is one phrase that sums up the challenge faced by so many businesses with Germanic (ok, he was actually born in Austria) precision is it that all their old ways of doing things are ‘no longer optimal’.

Christensen’s The Innovator’s Dilemma is one of the great works of modern business thinking. I sat through Christensen’s legendary 3 hour explanation of disruption that covers everything from steel mills to strawberry milkshakes a few years ago, and was blown away. As an exposition of what disruption is, and how it works – it is truly astounding. And, I think Christensen and his team’s templates for innovation are also pretty smart. But I think that while he identifies 95% of the problem, he only profers about 30% of the solution.

So what can incumbents do about it?

Well, I’ve got to hold something back for the book. But if you look at the turnaround at HMV, or if you start to ask yourself why Deutsche Post is deemed a viable business while the Royal Mail is a bit of a car crash. Or if you look at what we have beeen doing at Guardian Media Group, you will start to see some of the principles in action.

My general thesis is that the nice bit of the solution – smart innovation, often at the edge of the business, just isn’t going to be enough. To focus solely on that lacks credibility with anyone who is actually operating in this world.

The disruption that happens within a business is going to have to be at least as profound and radical as that happening outside. It will normally involve fundamentally rethinking how the core business operates, as well as looking a mix of diversification and edge innovations. It requires vision, the willingness to challenge pretty much every assumption about how you operate, and what has been branded by some academics as ’strategic agility’

It is not easy.

One of the things I’ve always noticed is that everyone outside a challenged incumbent such as Britannica or Kodak or the newspaper industry always knows what they should have done or, less often, what they should do next. But everyone inside them somehow seems to be getting it wrong. Why is that? Is it because there are no smart people in any of these businesses? Is there no chief executive who understands the digital world?

No, it’s the simple fact that having to actually do this, having to deal with both the people and the numbers involved is tough. Change takes infinitely longer to deliver than to describe. Revenue lines in decline can still be significant. Those on the up are likely to be very small. Managing that gap is anything but easy – especially in a public business. Changing the way a business thinks, the way it sees the world and its role in it – is also a big change. Especially when, as is the case in so many businesses affected in this way, the entire business has been built on doing one thing well for decades and decades.

Blogging and writing

When it comes to writing something like this, I’m like a mid-ranking middleweight getting back into the ring after retirement. Some of the moves are still there, but a lot of the pace and power has gone. After a decade in management (which effectively means a decade in Powerpoint with occassional bursts of blogging), going back to Microsoft Word to crank out tens of thousands of words is proving a little tricky. And a bout of RSI hasn’t helped matters. Nor has a day job and three young children. So, I need to focus, which means I’m not blogging my every thought, and I’ve left it till now to even explain what I’m up to.

However, it’s time to break cover – so I’ll be posting here occassionally, tweeting a bit (@Waldo) and also be setting up an e-mail list – which is very old fashioned, I know – but it’s the easiest way for anyone who’s actually interested in progress to follow.

And yes, of course I care what you think

This is just a very rough outline. If you have any thoughts or suggestions – please feel free either to add comments below (because spam, I’m afraid I have to premoderate), or e-mail me at Simon AT Creativedisruption DOT Net.

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