Very early-stage capital investments fail
Venture capital deals fail

Disruption has become the new normal in the modern digital economy. Technologies such as analytics, Big Data, artificial intelligence, mobility and augmented reality are reshaping virtually every aspect of how the world interacts and conducts business.


While some legacy enterprises have been early digital adopters, the most prolific disruption has come from nimble and agile start-ups, a number of which have become unicorns – billion-dollar businesses that have grown at exponential rates to the power of 10, instead of the meagre 10% that many incumbents struggle to achieve.


Speaking at the 2018 SingularityU South Africa Summit, futurist Ramez Naam warned that more of these disruptors are emerging every year, in every industry.


He believes that the rising tide of digital-led disruption has reached a tipping point as software and computing eats into every industry. The pace of this technology-mediated change has made it difficult for businesses to survive, let alone be sustainable. For, in this fiercely competitive era, businesses that fail to adapt will face obsolescence.


In an exclusive interview with Investec, Naam offers four tips for companies wanting to outmanoeuvre digital disruption and pivot their business towards exponential innovation.  

1. Don't wait to be disrupted; become a disruptor

While most C-level executives understand the strategic importance of digital transformation, few are willing to act decisively. The issue, explains Naam, is that humans have a so-called status quo bias. We assume that the future is going to transform the present, but we underestimate the pace of technology-driven exponential innovation.


Compounding the issue is the centralised authority inherent in legacy businesses, which tends to stifle innovation as the power to veto ideas resides in the hands of a few. This entrenched corporate culture and the 'too-big-to-fail' mentality of large enterprises can also result in the rapid demise of an organisation. The complacency and hubris of Kodak is often cited as a prime example of what a failure to respond to disruption can mean for an established market leader.


Naam supports this assertion, saying business success today is not predicated on a business's size, on the power it wields or on the extent of its cash pile. Instead, success today is about agility, the pace of innovation and the ability of a business to leverage the network effect.


In an attempt to drive exponential innovation within an organisation, leaders tend to make common errors that lead us to dramatically underestimate the effects of innovation over the long term. It is this inability to accurately forecast the pace and scale of digital disruption that enables smaller, more agile start-ups to leapfrog legacy businesses.  

2. Cultivate bottom-up innovation

In an attempt to remain competitive and relevant, business leaders tend to implement new strategies and approaches in a traditional top-down manner. While pockets of innovation may develop, seldom does paradigm-shifting innovation emerge that transforms companies or creates new markets.


However, says Naam, this belief that the CEO or strategy department will determine the next big breakthrough innovation is antiquated. The most innovative and, often, the most disruptive companies give their staff – their intellectual capital – the autonomy to innovate through a bottom-up approach.


In doing so, a company can maximise the application and impact of its collective brainpower, suggests Naam, because when staff are given the freedom and space to take the initiative and try new things, without having to ask for permission, leaders empower them to discover and create. This environment often catalyses an explosion of new ideas that lead to breakthrough exponential innovations.

3. Be bold enough to bet big

Naam says that within the world's most prolific innovation hub, Silicon Valley, you'll find an ecosystem alive with experimentation. It's a culture of boldness led by visionaries who are willing to fail in their pursuit of paradigm-altering innovation and disruption.


According to Naam, one need only look at the venture capital (VC) that fuels Silicon Valley to witness this audacity. More than half of all VC deals and 99% of very early-stage seed capital investments fail. And yet, that is where innovators such as iPhone, Tesla, SolarCity and SpaceX all come from. Therefore, large corporates must get comfortable with this concept of failure in the pursuit of just a few big technology wins. The key is to fail fast, says Naam. 

4. Have the courage to disrupt yourself

When technology is the source of disruption, companies cannot stop it. Naam explains that across every industry, computing and software capabilities have replaced human and financial resources as the dominant determinants of business success.


Legacy businesses must therefore respond and adapt, which often requires the courage to disrupt the core business and embrace the new. However, it can be extremely difficult, if not impossible, to spark breakthrough innovation from within a traditional organisational structure because of the entrenched bureaucracy and inertia among executives and employees who are unwilling or unable to adapt their mindset and approach.

For these reasons, disruptive innovation usually happens at the edge of large organisations. Naam explains that it is often easier for a decentralised team that can operate autonomously from the organisation to experiment and innovate because it can establish an entrepreneurial start-up culture and a different way of working.

While this approach has its challenges in terms of integrating these divisions into the core business, many organisations now aim to grow these innovation hubs into the centre of the new future-forward company.

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