One of the most unique things about the current COVID-19 crisis is just how universal it is. No event in history has affected every single country in the same way and at the same time. It is safe to assume even at this early stage, that an event of this magnitude could send the shock waves of disruption through every sector, every business and every product line that is trading today.
The big lesson from the current crisis is that some countries have managed this disruption better than others.
Taiwan has a population of 23 million people and is situated just over 100 km from China, where the virus originated. By June 2020, Taiwan had only 443 confirmed cases of the Coronavirus and 7 confirmed deaths.
Compare that to England, which has roughly twice the population of Taiwan and is situated almost 8000 km from China. In the same period, England had 155,000 confirmed cases and almost 37,000 deaths.
Informed by the memory of the SARS outbreak of the early 2000s, Taiwan was better prepared to deal with this pandemic.
Like Taiwan, a business that is sufficiently prepared can outperform competitors to survive, and even thrive, in the face of any disruption.
To manage disruptions successfully, business leaders must understand that disruptions are bigger than any single person or company. Even one of the most celebrated disruptions in business history, when Apple took over the music industry, was not all down to Apple. True, Apple’s execution of their role was flawless, but there would not have been a role to play if the music industry had not ruined its relationship with a new generation of digital music consumers.
The music industry misread the significance of digital technology and citing piracy, destroyed Napster, the digital platform that new consumers had started using to share music.
With digital music consumers feeling betrayed, all Apple had to do to dominate the space was to side with the consumer and ensure that their alternative was reasonably good.
In the end, their iTunes and iPod combination was so superior that the true nature of this disruption was obscured, leading many to the flawed belief that one company could overturn a whole market by force, regardless of the underlying conditions.
The true nature of business disruption
Wherever the disruption facing your business might come from, the way you respond to it will leave you with one of four outcomes:
- EXTINCTION – where the crisis kills off your business before you can respond at all
- INTERRUPTION – where after temporary pain, your business returns to normal
- DISRUPTION LOSER – where the crisis triggers irreversible changes to trading conditions that greatly weaken your company’s position
- DISRUPTION WINNER – where the crisis triggers changes to trading conditions that greatly strengthen your company’s position
Whatever the cause and whatever the outcome, all disruptions progress through five distinct stages:
- New Normal
Through this sequence, the initial market leaders get disrupted by the emergence and irresistible growth of more suitable players.
Stage 1 is the NORMAL state of a mature market.
Market leaders in this stage become more focused on how well they do what they always did, rather than how well they serve the customers. Other players notice this disconnect and start niche businesses to better serve subsets of the market. While the Normal Stage persists, the newcomers pose little threat to the market share or profitability of the established leaders.
Stage 2 is the EVENT.
Things remain stable until an event triggers the disruption. The event may involve things like the emergence of a new technology, the passing of new legislation or a shift in public sentiment towards the market leaders. Market leaders tend to underestimate or even ridicule the significance of the event, as producer Darryl Zanuck did in 1946 when he predicted that “Television won't last because people will soon get tired of staring at a plywood box every night.”
Stage 3 is the CRISIS.
It is only when the results of the event begin to seriously impact the company’s bottom-line that market leaders realise that something significant is happening. With a limited understanding of the larger context, they can draw the wrong conclusions. They often invest in remedial solutions that lose money and time.
Stage 4 is characterised by CONFUSION in the marketplace.
With weakening leaders trying to shore up old-world offerings and with new offerings coming to market before they are ready, consumers and investors struggle to know what to do. Honest speculators make early investments in their best guesses, long before the characteristics of the new market have been revealed. Dishonest speculators make promises that they are not ready to back up, in the hope that they will figure it out before they are exposed. In all this noise, the voice of the cautious, reputable current market leaders gets drowned out as more aggressive players jockey for position.
Stage 5 sees the establishment of the NEW NORMAL.
By this stage it is all over, the charlatans have been exposed, and the luckiest, or most insightful, speculators have seen their investments returned with interest. Most of the other speculators, however, will lose out. A small few will learn enough valuable lessons and evolve to take a lesser place in the new market.
In the model of disruption outlined here, COVID-19 is the triggering event, and with it, we have all entered the Event Stage (#2), regardless of our sector.
The Crisis Stage (#3) will hit different sectors at different times. The hospitality and airline industries may well be experiencing their crisis already. Most sectors, however, will not fully understand the nature of theirs until they see business failing to return to pre-COVID-19 levels, despite general market conditions returning to the old norms.
Disruption Management is a new discipline that allows business leaders to improve their odds of success during any of the first three stages of a disruption.
Ideally companies should prepare for disruptions in the Normal Stage (#1) before any event has occurred, but it is also effective to do so during the Event and the Crisis. Any organisation that does not have a credible response ready, when the speculative land grab of the Confusion Stage (#4) begins is unlikely to ever catch up enough to be competitive in the New Normal Stage (#5).
The COVID-19 pandemic will trigger a commercial disruption pandemic in the months and years that follow it. Those who are prepared will move quickly and will use the upheaval to strengthen their position.
Fortunately, large-scale disruptions are very rare, so any gains made at this point in history are likely to be sustained for many years to come.
Considering the prizes on offer to the winners, has there ever been a better time to master disruption management?
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