Will your industry be disrupted? This framework will show you if it will, and maybe even when. And let’s face it, your industry will indeed be disrupted. Accenture did some research and showed that in South Africa, fully three companies out of four – 75% of us – believe our industry will be disrupted

Which makes it alarming that five out of six companies are dissatisfied with their innovation efforts. Or to put it another way, only one out of six SA companies, or around 16% of us, are satisfied that their innovation efforts will position them to overcome future disruption.

Why is that? I’d like to share the research with you because its findings will probably affect your company directly. And if not yours, certainly your competitors and your competitive landscape.

The first thing is that even though executives are aware of disruption, it’s hard to get a handle on exactly what “disruption” means, and how to address it.

So here’s the framework I talk about in the headline. We developed a disruptability Framework, using data from 100 companies across South Africa. The framework is part of our Innovation Maturity Index South Africa 2020 report which we titled Winning in the Age of Disruption.

To measure how likely it is that your industry will be disrupted, here are the five dimensions of our Disruptability Framework. We look at the five dimensions and gauge three elements per dimension.

1. Presence and Penetration of Disruptors. We look at: a) Are there incumbent disruptors in the industry? b) Are there start-up disruptors, and what is their market penetration? c) What is the value of venture capital flows? A note on that third point: The VC flow is a proxy for the market valuation of future disruptors. If there are players that are disrupting an industry but they can’t attract VC funding, then it means the market has low confidence that the new players will indeed have a lasting impact on the market.

2. The financial performance of the incumbent players. We look at: a) The profitability of the existing players. Margin pressure is correlated highly with industry disruption. b) Scale and consistency of incumbent growth. When companies are growing in an industry it means that disruptors are not gaining much of a foothold. c) Incumbent bankruptcy rate. If companies in an industry are going out of business, then something has shifted. And that something could easily be that the old business model no longer works. A clear recent South African example is magazine publishing – two prominent players ceased operations in April 2020 alone.

3. The operational efficiency of the industry. We look at: a) Transaction intensity. b) Asset intensity. c) Labour intensity. Wastefulness on this dimension may signal an opportunity for disruptors. Of course, plenty of highly efficient businesses have seen their industries evaporate no matter how efficient they were. (Again, magazine publishing). But this dimension gives us a clue about potential sources of new entrants disrupting an existing industry.

4. Innovation activities and investments. In this dimension we look at: a) Scale of innovation efforts. Are the innovation efforts small and incremental, or large and game-changing? b) Investment in new digital technologies. c) Market perception of the ability to innovate. It’s hard to fool the whole market for long. If a company is seen to be innovative over time, then that correlates highly with the fact that it is innovative.

Finally, we look at:

5. Defences. We look at: a) Brand dominance. b) Openness of the market (what Michael Porter would call barriers to entry). c) The scale of trapped value. My colleague Jigyasa Singh wrote about this in 2019.

Here are the dimensions in the form of a figure.

If you pair this framework with the strategy tools your top leadership is already using, you can plot your own company’s position in the industry, as well as the industry’s exposure to disruption. This gives you a clear indication of where your company needs to move towards in the next three years.

But perhaps even more importantly, it gives your company some real tools to start counteracting the threat of disruption. Every one of these dimensions gives companies a signpost of the direction in which they should be moving to counteract the threat of disruption. Perhaps even more usefully, it presents companies with a set of measures to track their progress against their industry peers and their industry as a whole.