In 1985 while I was stationed at the Augsburg, Germany intelligence site attached to the 701 MI group I was in the process of putting together a Satellite Black Watch report on Gorbachev to send over to the CIA and State Department when I notice the birth mark on Mikhail Gorbachev's forehead. At that time we of course had the state of the art technology which wouldn't be seen by the private sector for another 10 years. I started thinking that since we track him constantly with a satellite why couldn't we simply program in his birth mark as a signature which would enable the satellite to lock in on him even in a large crowd. I sent over the suggestion to our Satellite team who programmed in the signature. The rest is history. We saved on the Human Intelligence assets that need to track him. Eventually of course the Russians figured this out and he started wearing a hat all the time so we programmed signatures of his hats with wear marks and all.
My point here is that the US Military was use to disruption as we had to be continuously disruptive to stay ahead strategically of the Russians. We were doing this in all branches of the military on a continues basis and in most cases the disruptive ideas were coming from the bottom echelon of the military. Disruption or innovation was a matter of life or death for our organization. The consequences to the American people were dire if we failed.
Now you see the same happening in the private sector where startups and driven entrepreneurs are disrupting entire industries with a very simple idea. The drivers behind this disruption is almost the same as that simple suggestion to create a signature for Gorbachevs forehead. Technology is leveling the playing field for small companies to completely take over entire industries. That Technology is Cloud, Agile Business, Open Standards (Internet) and Open Source software.
My goal in this article is to give you some insights into the Disrupted and the Disrupters and also to introduce the cloud, Open standards, and Open Source as a means for Enterprises to become disrupters. I will be blunt in most cases in regards to my pointing out key issues in large companies as to why they wont be the disrupters if they don't start embarrassing the technology and mindset of the disrupters. Don't think for a minute that Market disruption wont come to your industry whether your in the steel industry or making shoes. As CEO of any large company you and your team will have to come up with the courage and discipline to do what it takes to get ahead of the curve or you'll end up like the Russians.
I've been in the Technology field for a long time, all of the companies I have worked for have been Disrupted because the leadership did not heed the warnings coming from the lower echelon. It was simply a matter of embracing the technology and the mind set of the disrupters.
Sterling Commerce previously System center in the 90s was a fast growing EDI company who completely revolutionized the data exchange between companies with their Data Transfer software and their EDI gateways for exchanging documents. I remember talking to the head of development about the value of our software when open standards such as Secure FTP and the internet were just around the corner. He laughed at me and said large companies would not use the internet to exchange data. It needed to be secure, have checkpoint and restart capability etc. I read the RFC documents again and there in plane text was Secure FTP and restart capability. Anyone who was already on the internet at that time could download a free FTP client, with scheduling capability. By the time the company saw what was happening it was to late, large companies like AT&T who contributing over 20 million in revenue to Sterling introduces Secure FTP on all their platforms and used the scheduling capability on the platform to start the data transfers. The rest is history. I had urged our marketing and development VPs to consider embracing the internet and creating an FTP product as well as a Internet Directory for companies to list their connectivity descriptions to make it easier for companies to connect to each other through the internet. Sterling was sold to IBM 10 years later. Of course today the internet Technology and open standards are being used to do business. Disrupted!!
Research in Motion completely disrupted the entire telecoms industry themselves but later fell to the same type of disruption. The BlackBerry device was from first site going to change the industry. Of course all the Telecoms companies looked at us like we were crazy, no one would want to have a smart device that receives their email and calendar pushed to the device. RIM had started off selling directly to companies and reselling airtime from the carriers. The business exploded and then the carriers came to us and said "we want to be part of this business". RIM changed it's business model to sell only through the carrier channels. The rest is history. BUT...again Open standards and the Cloud were about to disrupt us. You see RIM made most of its revenue on the BlackBerry service subscriptions. The technology was proprietary which locked most competitors out of the market. Two events happened which quickly disrupted RIM business model. The Cloud where Google and gang were offering free over the top services for email and cloud services which utilized open standards such as SMTP and push technology to deliver email and notifications. Apple launched their first IPHONE in 2007 which was based on open standards (Debian Linux) as well as an open platform for application developers. I remember talking to our COO in 2007 after the launch of the IPhone. I told him this is going to eat our lunch because of the open ecosystem and of course the Life Style design of the product. Again they laughed at me. Apple cant make products that the Enterprise will want. I explained to him our strategy was to secure the consumer market as well and Apple will take this market and eventually focus on the Enterprise market. The problem at RIM were some of the Senior executives that were trying to hold onto their revenue stream in BlackBerry service who were fighting with the handset team not to go to open standards. Disrupted!!
The Taxi Industry of course is the well know example of an industry that has been disrupted almost over night. The Internet and Cloud services made it possible because the Technology allowed someone like Uber to quickly bring up a service that could compete with the industry. Considering everyone and their brother was carrying a smartphone with lots of apps it was only logical that an Over the Top service like Uber would quickly disrupt this industry. Of course instead of embracing the technology the Taxi industry is trying to fight the inevitable and loosing the fight. To counter that however there is a startup in Germany called MyTaxi that is offering the same service but through the Taxi companies. So this company is disrupting the industry by collaborating with the Taxi companies. The Taxi companies don't have a choice but to embraces this technology. Consider however the industry will be completely disrupted when autonomous cars start hitting the roads. If these taxi companies haven't jumped on this Technology by now then they should be prepared to shut their doors.
The Utilities industry in particular the Electricity providers are also in the middle of major disruption. The first phase however is through regulatory forces splitting the transport from the generation in an effort to introduce competition into the market. This has opened the door for pure play internet companies to get into the middle and offer electric services simply by trading on the market and providing a web service for customers to quickly switch providers. The industry has also been very slow to embrace renewable energy sources and have allowed non traditional players to enter the market and compete with them. They should have been leading this disruption. I still don't see evidence that the industry is looking hard on how they can get ahead of the curve. They should be embracing IOT and smart meters and developing a cloud based service to enable customer to switch quickly as well as offer other services like Pay as you go electricity. Implementation of an IOT platform connected to smart meters could enable the industry to offer over the Top services. But no they are defending their old ways of producing electricity with Coal and Gas and trying to lock customers into their services for long periods of time. They are blocking all efforts for the transmission companies to introduce smart meters in the homes. Just image what business opportunities would open up for them if they embraced this technology. Why not offer other services like Smart devices in the home managed by the electricity company. Selling light bulbs that are energy efficient, providing the customer energy usage reports and suggestions how to maximize energy usages and so on. Hell they could be offering a Heat Pump service where they install and manage the heat pump as a service for a monthly fee. They could be offering internet service through the transmission lines or even managing these device through the transmission lines. I see further disruption coming when the storage capability of batteries can store the electricity generated by roof top solar panels and home owners wont even need their services. Why don't they get into this business now, could offload their generation capacity. Nope they are allowing someone like Elon Musk get into the business and disrupt it simply by introducing something simple as a Electricity storage device. Disrupted!!
Retail Industry is also not immune to disruption. Internet Technology, Cloud Services, and an Agile entrepreneurial thinking are starting to disrupt traditional retail product companies. Of course Amazon already disrupted that industry through cloud technology where products are being delivered straight to your door but other companies are coming in as well and disrupting the traditional retail business as well.
Consider Harrys.com focused on providing a service dear to my heart as a man. We all know the P&Gs product under the Gillette brand is the market leader but they are very expensive. They are of course engineered in Germany which is why the blades are so good. You however have to buy them in retail stores or buy them from Amazon which get shipped by a retailer. Harrys.com is going to disrupt this industry with a very simple idea, the use of Cloud Technology, and a very simple service to provide shaving as a service, delivering shaving kits to the home as a service and for a fraction of the price. How are they doing this ? Funny enough Harrys bought a razor factory in Germany but they have no retail channels, or commission they have to pay to the retailers and their overhead for sales and marketing is minimal compared to P&G. The service is personal and they are focused on doing one thing great at a much lower cost than P&G. P&G probably doesn't even know this yet but they are about to be disrupted. This same model driven by Technology from the cloud will disrupt most retail manufacturers as they have lost or never had a bond with their customers directly. Disrupted!!
It is already happening in the Shoe business but interesting enough Adidas and Nike are way ahead of the game with the introduction of Omni Channel Sales and marketing strategies utilizing Cloud technology and delivering a unified customer experience and to stay in the loop with their customers to offer new and better products and services. The natural next step would be to allow me to design my own shoes and have it delivered to my home. For that however Adidas and Nike would have to completely revamp their supply chain and manufacturing processes. When someone comes along and does this then they'll get disrupted.
Last but not least the most disrupted industry of all is the Telecommunications Industry. Funny enough they enable the entire Technology which is now disrupting them, primarily the internet. While the Telecoms companies where busy protecting their SMS revenues players like Google launched over the top services which in essence turned the carriers into bit pipes. Most still have not found a way to monetize over the top services and are still focused on their old ways of pushing SIM cards, protecting SMS revenue, and attempting to launch Cloud services which are getting no adoption because the OTT players have already disrupted them. The same is happening in their fixed line business. The Internet is going to completely disrupt their Fixed line business. As the Internet technologies mature and the Internet becomes as reliable as the utilities then companies will embrace open standards and use the internet for all their data transmission requirements. MPLS and such fixed line services will become irrelevant. The technology for encryption and transport quality of services is already standard, its just a matter of time before companies start relying on the internet more for connecting their office and partners. Most carriers are trying to get into the Cloud business as a way to stay relevant but they have come a little to late as Amazon, Google, Microsoft, and Rackspace have positioned themselves as the disrupters. Google is also getting into the carrier business by offering Internet service in some markets. I have to say however that the Deutsche Telekom seems to have changed gears much earlier and have invested heavily in their network and technology to enable delivery of more services through their network by implementing NFV technology (Telecoms Cloud) as well as invested heavily in Public and Private Cloud with some impressive results. Telekom saw this coming early and setup operations in silicon valley to try to get in on the ground floor with this disruptive technology. They have implemented organizational changes and a renewed focus on the customer which is showing good results in regaining market share and staying relevant. They are embracing the Internet and offering Enterprise Internet services for WAN connectivity with IP Gateways which provide Internet connectivity for enterprise customers to route their internet traffic from remote office into the MPLS network. A first step in seeing that the Internet will be the connectivity of the future for enterprise customers.
In conclusion I'd just like to say the key drivers behind disruption is technology that is lowering the barrier to entry into the markets for startups. The technology is also wide spread in the consumer based which means connecting to customers is quick and simple through the use of social media. However for many large companies internal politics and lack of leadership are clouding (No pun intended) their ability to foresee where they're business will be disrupted. CEOs will need to embrace the technology that is enabling this disruption in order to mitigate their being disrupted. That means having the courage and discipline to squash the Nay Sayers in the company and embrace the rebels or disrupters in the company. It will require not just the adoption of these technologies but also a total review of the business models and the culture within the company to switch over to an Agile or entrepreneurial attitude across the board. It will require a renewed focus on the customer and implementation of strategies to get closer to the customer and introduce a feedback loop to ensure they're staying relevant to the consumer and to the industry.
Some good book recommendations from me are the following:
- MISFIT Economy
- Disruption: Overturning Conventions and Shaking Up the Marketplace
- Being Agile in Business
- Cloud Computing Explained: Implementation Handbook for Enterprises
In the next article (Part 2) I will look at these technologies, in particular Cloud Computing, Agile Business, and Open Source technologies in more depth and how companies should approach their implementation or use. I know this seems a little over simplified but it is the reality.