Accenture in its latest study analyzed that industry disruption is already a reality for most enterprises in India, and US$1.8 trillion of enterprise value is at risk of displacement. However, the study also shows that disruption can be managed and harnessed for the next phase of growth.
As part of the study of more than 2,000 large companies in India, Accenture developed a ‘disruptability index’ which measures the current level of disruption, and susceptibility to future disruption.
The research found that 44 percent of companies are currently experiencing disruption, and 38 percent are susceptible to future disruption. It also found that nearly one-third (31 percent) of companies are currently in a stable, yet uncertain position.
The report by Accenture also states that they have the unique opportunity to capitalize on their incumbent advantages, harness disruption and improve competitiveness, to avoid obsolescence.
“Disruption is a reality. It can be swift and strong or slow and steady, but it follows a predictable pattern that can be anticipated and managed,” said Anindya Basu, geographic unit and country senior managing director, Accenture in India. “The rapid rise of Indian unicorns, and gradual erosion of profits across key industries is evidence of the disruption at play. Whether Indian businesses survive disruption or thrive in it depends on how well they understand where they are positioned in the disruption landscape, and how they respond.” To compile the disruptability index, the researchers took into account the presence and market penetration of disruptor companies as well as incumbents’ financial performance, operational efficiency, commitment to innovation, and defenses against attack.
Further, the index can help business leaders understand where their industry is positioned and why. It also allows them to identify risks and opportunities and then prepare the right strategic response. Accenture applied the index to position 19 industry sectors and 59 sub-segments across four periods of disruption:
- Durability: Disruption is evident but not life-threatening; incumbents still enjoy structural advantages and deliver consistent performance. One-third (31 percent) of companies – including those in the automotive, retail, life sciences, natural resources and insurance industries – fall into this period.
- Vulnerability: The current level of disruption is moderate, but incumbents are susceptible to future disruption, due to structural productivity challenges such as high labor costs. One out of four (25 percent) of companies – including those in the utilities, health, capital markets, chemicals and CG&S industries – fall into this period.
- Volatility: Prominence of violent, sudden disruption; traditional strengths have become weaknesses. Companies in this period (13 percent) include those in the banking, travel, infrastructure & transportation services, and energy industries.
- Viability: Disruption is a constant; sources of competitive advantage are often short-lived, as new disruptors consistently emerge. Nearly one-third (31 percent) of companies – including software and platform providers; communications, media & entertainment, high-tech companies; and industrial equipment & machinery – fall into this period.
According to the report, each period of disruption also requires a distinct strategic response:
- In the durability state, companies must reinvent their legacy business rather than focus on preserving it. This means taking steps to maintain cost leadership in their core business and make key offerings more relevant to customers. For example, by making them not only cheaper but also better.
- In the vulnerability state, companies must make their legacy businesses more productive to position themselves to develop and leverage future innovations, both their own and their competitors’. For example, they should look to reduce dependence on fixed assets and monetize underused assets.
- In the volatility state, the only way to survive is by decisively but wisely changing the current course. Incumbents need to radically transform the core business while scaling new businesses. Striking the right balance is essential because if they pivot too quickly, they are more likely to stretch themselves too thin financially; and if they pivot too slowly, they risk becoming obsolete.
- In the viability state, companies need to embrace a constant state of innovation. This involves increasing the penetration of innovative offerings with existing customers and aggressively expanding into adjacent or unchartered markets by leveraging the strength of their reinvigorated and innovation-enabled core business.
Basu added, “Additional research establishes a clear link between the impact of disruption and a company’s investments in digital. The right combination of technology investments, aligned with the right strategy are a necessary response to disruption and can help companies transform and grow their core business, and innovate and scale new businesses. Striking the right balance, and knowing when and how to make the pivot, remain key.”
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