The rate of change in business today is so rapid that new products, technologies, and business models sometimes become outdated before companies can fully capitalize on them. Recent research by Boston Consulting Group suggests that only one in three companies successfully evolves in the face of industry disruption. Often, however, companies that do make the transition create even more shareholder value than they had before the disruption occurred. (See “Creating Value from Disruption (While Others Disappear),” BCG article, September 2017.) Why do some companies thrive in this environment while others fail?
Military history provides some insight. US Air Force Colonel John Boyd, a renowned military strategist, observed that some US fighter pilots in the Korean War had a far higher kill rate than others and were less likely to be killed themselves. Boyd’s analysis revealed that the ace pilots had faster OODA loops: they were able to observe, orient, decide, and act more quickly than their peers. By continually shortening their OODA loops, and thus increasing the tempo of the battle, they consistently caught their opponents off-guard. According to Boyd, when the loop is so fast and tight that a competitor’s response rate drops to zero, the opponent with the faster tempo has disrupted the competitor—and the end result is victory.
The same concept applies to today’s uncertain business environment. Disruptors—the most agile, responsive, and aggressive companies—put the squeeze on competitors with a similar dynamic loop. But since a solo pilot’s reaction time is unique to the circumstances and is far faster than an organization’s, we have adjusted the loop to better reflect that business reality. Our business version consists of four repeating aspects: scan, orient, decide, and act (SODA). Disruptors continually scan the landscape, orient themselves to new circumstances, decide how to respond, and act quickly. (See the exhibit.) Then they regroup and repeat the process. With experience and expertise, their SODA loop tightens and their tempo accelerates.
A tempo advantage relative to the competition is the best long-term insurance against being disrupted. In any sector, the company that sustains the fastest cycle time usually wins. We call this rapid, continuous cycle tempo-based competition.
To illustrate how the SODA loop works, let’s examine each of the four aspects more closely:
One hallmark of tempo-based competitors is their ability to move more and more quickly through the four steps of the SODA loop as they accumulate learning and experience. In a broader sense, the SODA loop describes the process of scaled learning on a company-wide level.
Market leaders stay ahead of the pack—and keep the competition guessing—by constantly changing and improving key aspects of their value proposition and operating model. Ralph Hamers, the CEO of ING, put it this way: “Don’t wait for new players or incumbents to compete with you, disrupt you, or disrupt your model. You take the lead. If you feel there’s an opportunity to disrupt and change your business model, do so. It’s very hard to make this decision as a manager or a leader because, basically, you’re cannibalizing your own business.” (See “Ralph Hamers on Disrupting the Banking Industry,” BCG interview, September 2016.)
Quicken Loans offers a perfect example of this aggressive strategy in action. Once a traditional mortgage provider, the company shifted its focus to online in the late 1990s. Through its online arm, Rocket Mortgage, Quicken Loans makes the mortgage process easy for the average consumer to understand. As of 2018, Quicken Loans was the largest home lender in the US.
Most companies spend far too much time on things that slow people down, consume resources, and add little value. Tempo-based competitors such as Quicken Loans, Alibaba, Amazon, and Zappos understand that the best way to avoid disruption is to maintain an unwavering focus on the factors that confer a competitive advantage—and to never stand still. Stationary companies become targets.