We Online Spinners are talking a lot about disruption. Dave Morgan has been talking about disruption in the advertising and marketing technology space. I’ve been looking at disruption in other
areas, including academia. Cory Treffiletti, Kaila Colbin, Maarten Albarda have all looked at various aspects of disruption. A quick look back at the
past few months’ Spin columns show that well over half of them deal with disruption in one way or another.
Maybe
it’s time we did a primer on the idea of disruption.
Disruption is what happens when something stable becomes unstable. That’s kind of a “duh..obviously”
statement, but there are some very important concepts lurking in there.
When an environment is stable, it allows for the development of extensive but fragile ecosystems. In a corporate sense,
this allows for the development of very complicated supply chains, with several “value niches” emerging along that chain. The more complicated the chain, the higher the potential for
profit. Each link adds another level of complication, allowing for someone to be squeezing a little more profit from the end consumer.
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In addition to extensive ecosystems, stable environments
also allow some members of those ecosystems to achieve significant scale. Things are predictable and this allows organizations to grow, embed processes and systems, thereby improving efficiency and
profitability. Often, one organization can establish itself at several levels along the supply chain, maximizing its profit potential.
In our physical world, stability is generally a byproduct
of friction. The higher the degree of friction -- or what economist Ronald Coase called “transactional
costs” -- the more stable the market becomes. Barriers to entry are higher. Competitive factors are dampened. Capital becomes the main predictor of success.
Then, everything changes.
We get hit with instability.
In our current case, we got hit with a double whammy: The disruption we’re experiencing is caused by the removal of friction. Technology is reducing
transactional costs in a huge swath of industries.
Technology is an interesting catalyst. We think that technology changes behaviors. I don’t believe so. I think technology enables
behaviors to change, in that it allows its users to do something they already wanted to do, but couldn’t because of some obstacle.
That technology is usually offered to the broadest
base of users available -- and this triggers the disruption, which starts from the ground up. Typically, technology also removes the friction that enables those
delicate hierarchical supply chains to form and flourish.
When the disruption begins and the incumbent ecosystem is threatened, the first
casualties are the most fragile members of that ecosystem. These are usually the smaller niche players that rely on the bigger hosts that make up the ecosystem. The bigger hosts can survive longer and
often swallow up the first casualties in an attempt to shore up their defenses.
These hosts will also often make a halfhearted attempt to respond to the disruption by adopting the
technology and going after the disrupters. This never works, because disruption is not in the hosts' genetic make up. Their priority is always protecting the status quo, because that’s where
their profit lies.
As disruption forever alters the environment, eventually the previous ecosystem withers and dies. A new (temporary) stability emerges -- along with a new ecosystem--- built on
the foundation of the previous disruption, and the entire cycle starts again.