IBM: Cross industry innovation top concern for CxOs
Uber-syndrome has grasped the imagination of CxOs across industries, a recent IBM report reveals. Companies fear the rise of a competitor using disruptive means to rapidly capture market share and transform whole industries. Many CxOs at established players remain positive about the potential within technology however, and are developing more and more external innovation relations to become the disruptive element themselves.
Disruptive innovation, and the companies that wield them to rapidly annex market share, are becoming more and more common as digital technologies mature. New business models, often founded on technological innovations initially developed for another purpose, are now becoming relatively common. These new companies are often not merely competing within the same field as more traditional players, but are sometimes reshaping entire industries, sweeping tradition away.
In a recent survey, the IBM Institute for Business Value sought to discover how traditional firms are faring with respect to the latent potential unlocked in meeting the needs and demands of customers, opened up by innovative thinking. The survey involved 5,247 CxOs (corporate executives) from 21 industries in more than 70 countries. Researchers from IBM spoke with many of the respondents face-to-face to collect open ended responses to questions. Statements were fed into IBM’s Watson cognitive computing system, which derived various inferences from qualitative response information – while a survey disclosed quantitative information about where CxOs stand.
Incumbent risk
The report highlights a number of areas in which business leaders see approaching risks. The most concerning among the respondents is industry convergence, with all CxOs placing the risk level between 60-70%. The second most concern trend, highlighted by CxOs, is the ‘anywhere workplace’, at around 50%. Cyber risk ranks highly, especially for CIOs at around 55%, while across all CxOs at just under 50%. Areas of least concern are the challenges posed by alternative finance and the sharing economy.
The report highlights a number of different risks to incumbents from industry convergence. This includes the expansion of internet giants like Google and Apple into a range of industries by leveraging their dominance in technology and their powerful brands, as well as small start-ups developing solutions to problems using cross industry technologies that come to disrupt traditional ways of doing business.
Outside innovation
In terms of the areas from which they expect competitors to stem, the respondents are becoming more and more concerned about competitors from outside their industries. In 2013 39% of incumbents expected more competitions from within the industry, while 43% expected the competition to come from outside. Today, following the continued success of players such as Uber and Airbnb, 29% are concerned about competition within their industry, while 54% expect it to come from outside – representing an 11% increase in two years.
Techno standpoint
According to the research, the biggest shift in the competitive arena comes from technology factors. Although technology has been on top of the list for the past four years, the rapid development of a range of solutions – including FinTech – means that CxOs now consider it a game changer. Other factors include changes to the wider market space (71%), regulatory concerns (55%), macro-economic factors (51%) and people skills (48%).
The CxOs provided a wide range of open ended responses to questions related to how technology is changing the business environment. The majority of responses used positive language related to technology, suggesting that many CxOs see it as an opportunity, as well as a potentially disruptive challenge.
Innovative externals
The CxOs’ interest in leveraging the potential contained in innovation, which is often technology-based, has seen an increase in their sentiments regarding laying partnerships with external innovation means. Now, more than half (54%) are scouting for external innovation opportunities, while 24% continue to focus on internal efforts. This is up from 47% seeking external collaboration for innovation on 2013, and 38% engaging in internal means.
As part of the research, the consulting firm identified a small group of respondents (5%) whose operations are known to be innovative, and whose performance surpass their industry peers in terms of revenue growth and profitability. These respondents are dubbed ‘torchbearers’. The firm also identified poorly scoring organisations, whose efforts lag that of the rest of the field, with much lower market profile in the opinion of the CxOs who head them, and almost all much less successful financially. This group, called the ‘market followers’, made up 34% of the total respondents.
A number of factors differentiate the torchbearers from the market followers trailing behind. The firm notes that torchbearers tend to be more aware of the dangers of unexpected competition, at 59% for torchbearers vs. 52% for market followers. They also tend to have a greater focus on new markets, at 69% compared to 57%, and a more streamlined and agile decision-making process, at 62% compared to 45%.
“Companies see themselves confronted with a new kind of threat – one that often remains invisible until it is too late,” comments Bridget van Kralingen, Senior Vice-President at IBM Global Business Services. “At the same time we see that successful companies respond to disruptive developments in their sector through cognitive systems, which can think and learn. Thus guarantee the future managers for their companies.”