Finding Growth in the Face of Disruption

On October 30 and 31, 2017, nearly 45 chief strategy officers representing a broad range of industries gathered in New York City for BCG’s North American Strategy Leadership Summit: No-Regrets Moves for an Uncertain Time. The consensus that emerged from the presentations, dialogue, and networking was that in the current environment, leaders need to embrace disruption decisively, explore adjacent opportunities thoughtfully, and boost the vitality of their organizations so that they can do a better job of adapting to change. Here are five takeaways from the sessions:

Disruption happens when newly cheap resources are wasted to create something new. BCG Fellow Philip Evans argued that the PC emerged when computing became cheap enough to waste; the Internet, when communication did. Now, a result of the plummeting cost of storage, blockchain is emerging. Four critical, disruptive, and converging technologies—artificial intelligence (AI), the Internet of Things, mobile, and big data—are all empowered and accelerated by these changes in the economics of information. The world and the digital representation of the world are becoming the same. As a result, data is becoming infrastructure, and privileged access to data is an increasingly important source of competitive advantage. In AI for example, all of the most important advances of the last quarter century were gated—not by the availability of algorithms but by the availability of the data needed to train them.

Competing with platforms is difficult and demands a concerted response. Among other things, digital disruption has led to the deconstruction of traditional vertically integrated value chains and the rise of powerful platforms such as Google, Facebook, Amazon, and Uber that ride network effects to achieve commanding positions. Harvard Business School Professor Karim Lakhani described the rise of these platforms and what he terms the hub economy that they exemplify. He explained that platforms, unlike many traditional businesses, can exhibit increasing returns to scale. He argued that competing with these companies involves taking a more expansive and innovative approach to value creation and value capture strategies, partnering with other industry participants to create a counterbalance to the hub player, and encouraging “multihoming,” in which platform participants support multiple platforms simultaneously.

Blockchain has huge potential and should not be ignored. Mike Schwartz—a blockchain expert and partner at BCG Digital Ventures—began his talk by asking how many people in the room were from companies that act as intermediaries. He then proceeded to describe how blockchain can “cut out the middleman.” He sketched out ways that blockchain can be leveraged to create industry and sector platforms that offer radical transparency and traceability of, for instance, supply chains and transaction histories. Schwartz also predicted that many of blockchain’s current technical limitations related to speed and cost are on the cusp of resolution—as early as 2018. As a consequence, executives need to carefully assess what blockchain could mean to their businesses and rethink their strategies in that context.

Innovation analytics offers a powerful lens for identifying and capturing unexpected adjacencies. At first blush, a semiconductor equipment company might not seem to have the right to win in life sciences. But Brooks Automation has successfully done just that. In six years, it has built a new division that generates 20% of the company’s revenues and has been a big driver in the quadrupling of its market cap over the period. Brooks CEO Stephen Schwartz said that a study of who was citing the company’s patents revealed that the company had a key capability for controlling motion in a range of cryogenic application environments and opened management’s eyes to the opportunity in the storage and transfer of biological samples (such as tissue used in cancer research). Innovation analytics also helped Brooks operationalize that insight by identifying the acquisition candidates that would help enlarge its footprint in the new market quickly.

Vitality is essential to staying ahead in a changing game. Martin Reeves, the director of the BCG Henderson Institute shared a remarkable statistic: since the 1990s, average business model life cycles have halved. As a result, he argued, companies need to move faster to renew themselves—and become adept at running the current business efficiently while simultaneously exploring opportunities to reinvent it. Introducing recent BCG research, conducted in partnership with Fortune magazine, into the drivers of corporate vitality, he detailed the 15 predictive metrics that were used to create the new Fortune Future 50 list.