The Beauty of Disruption

About 100 senior Euro 500 executives from 13 countries convened in Geneva for BCG’s ninth European Strategy Leadership Summit. The theme—“The Beauty of Disruption”—challenged participants to see disruption as a friend, not a foe. Of the group gathered in Geneva, more than 95% reported that their businesses had been affected by disruption of one sort or another, and nearly 60% named new technologies and business models as the primary types of disruption they face. At the same time, many participants said they struggled to respond to disruption, with 60% describing their organization’s ability to adapt to it as average or worse.

The summit began on an inspiring note with a dinner at CERN’s Globe of Science and Innovation, where participants learned not only about CERN’s leading-edge physics research but also about NEOM, a special economic zone spanning 26,500 kilometers in Saudi Arabia, Jordan, and Egypt. Klaus Kleinfeld, NEOM’s CEO, shared details on this ambitious project to create a vibrant new economy and society.

A key perspective emerged from the summit: organizations that embrace disruption are more customer-centric, innovative, and agile—skills that position them for long-term success. Here are eight specific takeaways from the sessions:

1. Playing your best game means getting ready for your next game. Given shortening business model life cycles, leaders need to do more than maximize current performance. According to Martin Reeves, the leader of the BCG Henderson Institute, sustained superior performance demands a simultaneous focus on exploitation and exploration. Without exploiting the current business, there’s no cash to invest in the future. But without exploring for future growth opportunities, there’s no clarity on the next game to invest in. Exploitation and exploration call for different skills and approaches, and Reeves argued that ambidexterity—being equally adroit at both—is an essential capability. He also described the critical role of organizational vitality to successful exploration and made the case for the importance of self-disruption. 
2. Innovation is essential, increasingly digital, and not always do-it-yourself. BCG’s Ramón Baeza and Florian Grassl argued that innovation is more important than ever in disruptive times. Yet many companies struggle in their innovation journeys. Only 21% of innovation executives in BCG’s latest innovation-survey considered their companies to be strong innovators—and these strong innovators are disproportionately adopting digital innovation techniques, such as big data and machine learning. External innovation—as a complement to do-it-yourself approaches—is an important trend. Participants heard from Robert Hardt, a partner at the Siemens-backed global venture firm next47, about how the company is both accelerating the success of key startups by connecting them to Siemens’s divisions and customers and, in the process, providing Siemens with privileged access to potentially valuable new technologies. At the welcome dinner, CERN’s Giovanni Anelli shared success stories of how the novel technologies developed for CERN’s physics experiments are also driving innovations in sectors as disparate as health care, Industry 4.0, and aerospace.
3. Digital transformation is an imperative across all industries. It is no surprise that digital transformation is at or near the top of most companies’ strategic agendas. And significantly, according to BCG’s Reeves, the data suggests that companies that transform themselves before a decline in their performance fare better: BCG Henderson Institute research finds that the ROI on such preemptive transformations is 50% higher than that for reactive ones. The vice president of audit, risk, and organization for Renault, Farid Aractingi, said that like most companies represented in the room, Renault is adapting to a permanent cycle of disruption. He shared the story of three major corporate initiatives designed to position Renault for success in the current environment: profit improvement, followed by digitalization, followed by a move toward agile at scale. The three form a cycle of transformation to take full benefit of disruption.
4. Ecosystems are on the rise—and significant value is up for grabs. Leading companies are increasingly moving from the traditional bilateral collaboration model to a new approach centered on digitally enabled multilateral ecosystems, said BCG Fellow Nikolaus Lang. These ecosystems can scale dramatically from a few dozen participants—for example, Volkswagen’s digital ecosystem around connected cars—to much larger ecosystems, such as Alibaba’s multi-industry offering, which brings together several million participants via a digital platform. And they are disrupting a wide variety of industries, including consumer goods, mining, automotive, and finance. Significant value is in play. Typically, new tech entrants take the lead while traditional players struggle to keep up with the pace of change, but incumbents can make interesting moves.
5. Emerging-market leaders are becoming world-class in digital. Whether digital natives (such as Alibaba and Tencent) or digital adopters (such as Indian steel manufacturer JSW, IT services provider Wipro, and Chinese logistics company SF Express), leading emerging-markets companies are embracing today’s digital imperative—and at a more aggressive pace than traditional developed-market incumbents. There has been a pronounced shift toward digital during the 12 years that BCG has been identifying and tracking the global challengers—a cohort of outstanding emerging-market companies. Almost 60% of the companies on the 2018 list of global challengers are either digital natives or significant digital adopters, compared with only 17% that made significant use of digital technologies in 2012. During a panel discussion in Geneva, three emerging-market executives underscored this point. BCG’s Ted Chan, a former chief strategy officer for SF Express, spoke of the company founder’s guiding dictum that “SF Express must become SF Technologies if it is to remain relevant.” Partha Sengupta, the president of corporate services at JSW, remarked that “Digital has been a clear imperative for JSW because it facilitates our ambitious growth targets.” And Rajan Kohli, the head of Wipro Digital, commented, “Wipro Digital was established with a clear purpose: to enable clients to go from doing digital to becoming digital.” The passion behind these digital leapfrogs is one of the reasons emerging-market companies are taking market share in many technology-related sectors.
6. To maximize the return on growth strategies, manage growth as a program. With faster-moving markets, there’s less time to tap the full potential of any given growth strategy. As a result, organizations need to adopt a more structured approach to take best advantage of narrower windows of opportunity. To use a metaphor from rocketry, successful breakout growth requires attention to both vector (the strategic direction) and thrust (the propulsive force behind the strategy). BCG’s Francesco Bellino and Matthias Schmidt shared ten factors (four focused on vector and six on thrust) common to successful breakout growers. They pointed out that more growth strategies fail because of insufficient attention to thrust than from an error in vector—suggesting the critical importance of taking a more rigorous, programmatic approach to growth strategy implementation. 
7. To win in the new globalization requires changes to business models and organization. Changing and connected consumers, digital technologies, and rising economic nationalism are affecting the costs of factor inputs, customer access, talent, supply chains, and ecosystems—fundamentally altering the economics of globalization. BCG Fellow Arindam Bhattacharya proposed that, in response, business models have to change in three ways: from product-based value propositions to ones based more on digital services and solutions; from an architecture of globally optimized physical supply chains and local data and service organizations to one of multilocal supply chains and globally integrated data and services; and from pursuing broad emerging-markets standardized strategies with big in-country investments to a more country-by-country approach, with a mix of asset-light and heavy entry options via partnerships. Addressing the last point, BCG’s Nimisha Jain shared data suggesting sharply varying digital influence and spending from market to market: China leads the world, with online accounting for 18% of all retail spending, followed by the UK, US, France, and Germany.
8. Embracing AI at scale is fiendishly difficult but achievable. The potential business value of artificial intelligence (AI) is vast. BCG Fellow Philipp Gerbert estimated that for the top ten global banks alone, AI could deliver $220 billion in incremental annual profits. But BCG research suggests that companies struggle to realize the potential of AI, getting stuck in a dangerous maze of pilots that don’t move the needle. Gerbert shared stories of how, with BCG’s help, some major companies are making the leap to AI at scale. Getting there requires new ways of working—such as centralizing learning, the building of AI use cases, and governance—while decentralizing implementation. In another session that highlighted transformational AI applications implemented by BCG GAMMA in health care cost management, airline operations, logistics pricing, and toll-road operations, BCG’s Sylvain Duranton made the key point that AI is 10% about algorithms, 20% about technology, and 70% about business processes—and that getting AI right demands overinvesting in the 70%.