Month: November 2022

The idea of the disruption crisis came from a series of conversations that I have been having in recent times and recent online news.

What is the disruption crisis?

The rise of big tech such as Meta, Twitter, Google, Amazon, Bytedance, Alibaba and Tencent drove a wave of digital disruption over the past quarter century. Now the disruptors are being disrupted themselves and I think that they may precipitate a disruption crisis.

Continuing to look to these digital disruptors is the equivalent of Jimmy Swaggart or Jim Bakker being held up as an exemplar of a good husband and faithful spouse.

Mass lay-offs

Others have talked about the layoffs in more depth, so I have included a video explanation.

I started my agency career during the dot com bubble. We had going for growth at all costs. They talked about trying to move at ‘internet speed’. This was down to the go for growth funding model that drove start-ups through their angel and VC funding rounds and beyond. Common sense was often set aside. if this sounds 180 degrees away from the lean start-up model you’re not wrong.

Product lines are being shredded

3 things you need to do now, before Revue gets shut down | AWeber – Revue is an email newsletter platform that was acquired by Twitter and will be shut down by the end of year.

Amazon, in Broad Cost-Cutting Review, Weighs Changes at Alexa and Other Unprofitable Units – WSJ – Amazon is apparently getting rid of its Alexa speakers, Fire streaming devices and Kindle e-readers. This seems to be a short termist approach to improving profits, at the expense of the long term.

…Amazon made big bets on long plays, willing to sacrifice immediate profitability to boost its overall position in blue ocean markets. When Amazon’s had to play catch-up, it largely hasn’t worked: the Kindle Phone is maybe the most high-profile mistake/missed opportunity, just to name one. It’s hard to deny that this loss-leader approach has been key to Amazon’s success, although it often made the company a mystery to Wall Street. This would signify a huge shift, totally aside from the 3% of employees who will likely leave the company.

Hacking away at the Devices and R&D divisions is the most perplexing to me. These are the sources of Amazon’s most signature successes, with the Kindle, Alexa/Echo, and Fire TV. They’re what hook customers when they’re still kids, and that customers above all associate with the company, even as they help ensure loyalty and drive their share of media purchases and retail revenue. The Kindle, like the Echo and the Fire Stick, was always supposed to be a loss leader: you sell the razor at close to cost and make your money back selling the blades. How many books has Amazon sold because of the Kindle? How many Prime subscriptions? How many impulse purchases do people make on their Echos and Fires?

Tim Carmody, Loss Leaders. (Issue #50) Amazon Chronicles

Consultants have taken the idea of transformative technology and scrappy startup methodologies to try and reinvent business, or facilitate digital disruption. The problem is that the examples they use as exemplars are failing, casting doubt on their doctrine and fuelling a disruption crisis in boardrooms and the consultants that advise them.

Unilever – a cautionary tale

For instance, I contracted at Unilever. I worked rolling out digital brand assets for their Family Brands product line. This was a line of margarines, due to organic growth it has different names in different markets:

• Blue Band
• Country Crock
• Flora
• Fruit d’Or 
• Margarina Primavera
• Plantta
• Rama

While I was doing this work, I worked closely with the Becel functional foods and Bertorelli brands. Family Brands was being put into a separate business to develop a ‘startup mentality’. The thing was Family Brands hadn’t been a startup for decades. In fact, it hadn’t been a startup since the 1870s when Antoon Jurgens branched out from trading in butter and started to manufacture margarine. His company merged with rivals Van den Bergh’s, Centra, and Schicht’s to form Margarine Unie (Margarine Union) in 1927, by which time it had a dominant position in margarine manufacturing.

Three years later, Margarine Unie merges with Lever Brothers Limited to create Unilever and the rest was history.

Margarine as a substitute good

Margarine historically was a substitute product for butter. My parents (both of whom came from farming families in Ireland) used to talk about how poor children in the towns would have eaten margarine rather than butter. As a child, we might use margarine to bake a cake, but if we wanted the cake to keep a while my Granny or my Mam would only use salted butter. Despite butter (which we kept in the fridge) being so hard that it might break up the surface of the bread, we used it on our sandwiches, toast or to fry with. Margarine just wasn’t the done thing.

One of the most damning things that my Granny once said about a friend of hers was:

She uses margarine to make the ham sandwiches when you’re invited around for a cup of tea.

One of the first courses that I had at university was in economics, where they used margarine as an exemplar for a substitute good.

Healthier option

Margarine started to be considered a healthier option due to concerns about heart disease and cholesterol. Much of this was down to Flora, invented in 1964, which contained polyunsaturated fats derived from sunflower oil. At the same time wholemeal bread started to become preferable due to the requirement for fibre in the diet.

Yellow fats category decline

However Although 21st century sales declined as many consumers switched to butter. This was down to changes in consumers wanting a more natural product and heart health improvising. In the five years leading to 2014, sales of margarine fell 6%, while sales of butter rose 7%.

It was in this atmosphere that the startup narrative was fired up for Family Brands.

The other shoe dropped when Unilever narrowly managed to fight a hostile bid from 3G Capital a couple of years after I was there. Paul Polman got rid of business lower margin businesses as an attempt to increase earnings. These were still great businesses which is why KKR were happy to take the business off Unilever’s hands.

Unilever didn’t spin out a startup. It wasn’t disruptive thinking, it was an act of desperation to fend off takeovers or possible greenmailing. The problem with with this is Unilever now has a lot less buying power on global supplies of oils and fats needed for its ice cream, mayonnaise, food additives and personal care businesses – which was the rationale for forming Unilever in the first place.

Foundational technologies in crisis bringing crisis

Foundational technologies were cited as new elements that would cause digital disruption. The fall of these technologies and the companies that have championed them have fuelled this disruption crisis.

Cloud services

Microsoft and Amazon both saw declining sales in SaaS and related services, as businesses has less employees and needed less seats. Amazon has been cutting deep in its R&D function and devices. This means that Alexa for the hospitality industry and health sectors are likely to be borrowed time.

Web 3.0 (blockchain, NFTs, cryptocurrency)

Here’s what my friend Nigel Scott had to say about FTX on LinkedIn:

There has been a lot of commentary over the weekend on the #ftx #cryptocurrency #exchange collapse

A lot of words have been typed and spoken but in the end I think the numbers probably sum it up best

Back in 2018 there was an estimated 200 Crypto Exchanges scattered around the globe

Over the past 3 years an estimated 200 Crypto Exchanges have either collapsed or disappeared

This rate of attrition is nothing new. Back in 2014 – after the Mt Gox event – it was estimated 45% of all #Crypto Exchanges had either collapsed or disappeared

The harsh truth is the risk of failure has always been central, rather than peripheral, to the Crypto Exchange model

Today there are almost 600 Crypto Exchanges open for business

The only question that needs to be asked is what fraction of them will still be in business in 2023, 2024, 2025 and beyond?

and, more importantly, what is the probability of picking a survivor, never mind a winner, in such a volatile environment? 

Which is to say, contrary to most of the commentary I have read over the weekend, the #ftxcrash isn’t the exception, it’s the rule – what makes it exceptional is the scale, not the probability of the failure 

Blast radius

One edition of the Axios Login newsletter used the headline ‘blast radius‘ describe the impact that FTX and other crypto economy problems were having on the wider Web 3.0 ecosystem of decentralised services. Creating a disruption crisis.

This has forced El Salvador to pursue a free trade deal with China, with the Chinese government buying $21 billion dollars of Salvadoran government debt: China circles El Salvador’s economy as country edges toward crypto plunge | The Guardian 

Less than four years before disruptive technologies had become mainstream when IBM brought a ‘better way’ of managing supply chain for Walmart by putting their heads of lettuce on the blockchain. Just writing that last sentence made me like my IQ number was dropping; but just four years ago, this was a point of validation…

Metaverse

Prior to Meta’s recent financial results and job cuts you had the likes of McKinsey cheerleading for the metaverse.

With its potential to generate up to $5 trillion in value by 2030, the metaverse is too big for companies to ignore.

Value creation in the metaverse – McKinsey & Company.

To give you an idea of how far we are from the much vaunted metaverse, have a look at my discussion paper.

Social media marketing

Alphabet has seen a decline in YouTube advertising and search advertising is down by about a fifth in October. Twitter is heading towards bankruptcy as brands stopped advertising on the platform. Meta has also shown a decline in advertising revenue. Snap is doing much worse. TikTok seems to be the outlier.

Accenture and the disruption crisis

A quick search of Accenture and disruption yields about 628,000 results. Accenture has latched itself onto disruption in the same way that IBM glommed on to e-business during the first dot com bomb, Sun Microsystems became the ‘dot in dot com’ and the whole of the entire enterprise IT industry latched on to the millennium bug.

Better than ‘the dot in dot com’

Some bright minds at Accenture came up with a concept that was ownable, not time-bounded like ‘e-business’ or ‘the dot in dot com’ – you’re kind of done when everyone has a website that can do transactions of some sort.

Accenture welded itself to disruption with the Disruptibility Index which looks at how disruption affects different vertical markets.

Dark thoughts

Disruption tapped into deep negative behavioural emotions. Fear, uncertainty and doubt. As tech executive Andy Grove had constantly repeated ‘Only the Paranoid Survive‘. Disruption didn’t necessarily promise a thriving business due to sustained competitive advantage, like earlier generations of technology companies and consultancies. Instead it promised, merely survival in a globalised hostile world, with constant waves of disruption coming at the c-suite. This is the business equivalent of Adam Curtis’ video essay Oh Dearism.

This gives your internal champions on the client side a bit more political space if their digital transformation projects doesn’t hit all the goals that we would like it to hit.

Of course all of this could come off the wheels if a great disruption crisis hit, wouldn’t it?

The disruption crisis doesn’t just toll for Accenture

It would be remiss of me to just single out Accenture. They have been part of a much bigger movement across professional services, finance, the technology sector and academia. Here are some of the people across academia have had a similar idea to Accenture; they’ve written books like these over the past 10 years or so:

• The Digital Disruption: The Past, Present, and Future Of Digitalization and Its Impact on The World We Live In by Osama Mohammed Alzoubi
• Digital Disruption: Unleashing the Next Wave of Innovation by James McQuivey
• Harnessing Digital Disruption: How Companies Win with Design Thinking, Agile, and Lean Startup by Pascal Dennis and Laurent Simon
• Digital Disruption; The Future of Work, Skills, Leadership, Education, and Careers in a Digital World by Tracey Wilen-Daugenti

It has been the fodder of countless conferences around the world. For example here’s a representative of Euromonitor International speaking at a conference of the International Homeware Association (IHA) on digital disruption.

I am not putting this in here to make fun of the IHA – it is the professional association of a market worth 80 billion dollars a year globally and deserves our respect. Globalisation has centralised a lot of homeware production in the Far East due to globalisation over the past quarter of a century; but it still plays a central, if less visible part in our lives today.

Instead I am using the IHA as an exemplar of how digital disruption has pervaded all parts of the economy as a central organising principle in modern business thinking.

That central position in corporate thought means that the disruption crisis becomes much more alarming. Which makes the advice Judy Estrin‘s 2008 book Closing the Innovation Gap: Reigniting the Spark of Creativity in a Global Economy even more urgent