Disruptive change is accelerating, driven by new technologies and rising competition from both traditional and nontraditional players. As a result, Innosight forecasts that half of companies in the S&P 500 will be replaced over the coming decade, due to loss of market value or acquisitions.
What are leaders doing about these challenges? And how do they feel about their ability to prepare for and manage them? In May 2017, we surveyed more than 300 executives at major corporations with revenues of $2 billion and higher about their current attitudes, experiences, and responses to marketplace disruption. The results tell a mixed story. Key findings include:
- Business leaders may be overconfident in their ability to respond to disruption. 80% of respondents say they recognize they need to transform, and 82% expressed degrees of confidence that their company is prepared to change in response to disruptive trends. Yet there are multiple warning signs in the data—including perceptions of competition and disruption—that suggest they may be in a “confidence bubble.”
- Broad understanding about what they need to do to respond to disruption. Executives see the need for a two-pronged approach to the future. They say they are likely to both transform their core business while also investing in new growth businesses. They also see the need to expand within existing markets and enter into new markets.
- Talent and leadership are concerns. Executives say finding and retaining the right talent is considered the biggest obstacle to transformation. Moreover, 81% say that top management is not open to new ideas.
- Digital and AI may be blind spots. Despite artificial intelligence and digital technologies rapidly transforming markets around the world, executives are downplaying the threat these forces will play to their own businesses.
Main Finding: The Confidence Bubble
Perhaps the most striking finding is the disconnect between confidence levels and specific per- ceptions of threats and competition. 82% of respondents expressed degrees of confidence that their company is prepared to change in response to disruptive trends. Yet their actual activities fall short of what is required to justify their confidence. There are multiple warning signs in the data that suggest they have strategy and organizational blind spots that may undermine their ability to adapt.
• Underestimating new sources of competition. When asked about the sources of future competition, fully two-thirds of respondents (67%) think it will be from “mostly existing” competition while fewer than one-in-four (23%) think their companies will be facing “mostly new” sources of competition. In a related question, 55% expect competition to come mostly from within their existing industries, with just 10% saying competition will come from new industries.
• New thinking gets short shrift. 81% say new growth products and ideas sometimes or often do not get enough attention from top management.
• Keeping up, but not ahead. When it comes to keeping up with the pace of change, only
7% report their companies are moving much faster than the overall market, with only
24% saying somewhat faster.
Modest investment in digital. Digital business models and platforms are disrupting industry after industry, but 53% of respondents said that they plan either no increase in digital investment or a less than 25% increase.
• Underestimating new technology. Despite rapid advances in the emerging technology of artificial intelligence, fully 65% of executives said AI is not too threatening or not at all a threat to their business.
“One could say that the worrying thing here is that executives aren’t more worried,” said Innosight managing partner Scott D. Anthony. “The pace of change continues, and digitalization is accelerating, so leaders should be investing more, expecting to reconfigure their organizations more, and should be paying closer attention to new product ideas and new growth ventures.”
Reproduced from Innosight Research.
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