What history tells us about businesses not fully embracing change

In a recent survey by Alix Partners, 94% of executives state that their business model will need to change in the next 3 years and 72% of CEO's think that disruptions are so great that their personal jobs are at risk. While disruption can create anxiety, in reality the greatest risk comes from not embracing change to turn it into advantage. As an illustration of how this has played out historically, in their book, Machine I Platform I Crowd, authors Andrew McAfee and Erik Brynjolfsson recount the introduction of a potentially highly disruptive new technology – electricity - to industry starting in the late 1880’s and how the differing approaches that the leading industrial businesses at the time took to electrification led to dramatically different outcomes. 

As McAfee and Bryjolfsson recount, the dominant industrial trusts of that time were the largest manufacturing companies in the US and intent on achieving economies of scale to dominate their industries. These companies were comfortable adopting new technologies to incrementally improve operations. However, over 40% of the industrial trusts from the late 1800’s had failed by the early 1930’s despite their once dominant positions. In addition, many of the remaining trusts had become much smaller. The authors hypothesize that one of the biggest drivers of this turn of events was the impact of electrification and, more importantly, the advent of the unit drive (i.e., electric motors) that accompanied it. The core of their argument is that the large industrial trusts treated electrification merely as a substitute power source as opposed to looking at it as an opportunity to leverage the flexibility offered through electric motors and to completely rethink and improve how they laid out the production lines in their factories. This could have resulted from a lack of imagination, inertia around their current operations, or overconfidence given their dominant market positions. 

Regardless of the reason, it is inarguable that, whether they thought of it in these terms or not, the players that embraced the unit drive as an opportunity to fully rethink their operations were taking an operating model view to innovation and, as a result, were able to achieve far greater efficiency. They did not think about electricity as a simple substitute but as a disruptive technology that could impact every step of the production process and the organizational elements that went with them. Those businesses that thought about themselves with an operating model mindset evolved and thrived while those that did not eventually became noncompetitive and failed. This dynamic illustrates the importance of operating models, and the need to become far more explicit about the science of operating models as they can be the single greatest enabler of innovation and improvement in the context of growing complexity and the advent of new, disruptive technologies. And those factors – increasing complexity and new, disruptive technologies – are only accelerating.