CEOs - Are Disruptions Accidental Marvels, Sadistic Endeavours, Or The Innocent Works Of Genius?

And How Can You Ride The Wave?

"The only thing that we know about the future is that it will be different." - Peter Drucker.

Sunday the 4th of October 2020 proved to be a day like no other in sports - disruptions galore! It was certainly not the kind of Octoberfest kick-off that many noisy fans expected. And much as Brigid Kosgei won the women's category of the London marathon to much applause, it was the conundrum in Eliud Kipchoge's failed bid for the men's title that made it first into the continuum of the upsetting results across the sporting disciplines that afternoon - relatively, it was a bad day in the office for two of English football's biggest teams.

That the seemingly invincible premiership champions, Liverpool, were hammered 7-2 by underdogs Aston Villa just minutes after iconic Manchester United painfully went down 6-1 to Tottenham Hotspurs, shocked everyone harder than the news of President Trump's and First lady Melania's Covid-19 positive status.

Even increasingly harder to bear for Liverpool's and United's fans, was the nagging fact that earlier in the day, perennial archrivals Arsenal had won against Westham. For once in a long while, many neutrals witnessed a kind of deafening silence reminiscent of what the first nights of the Covid-19 curfew felt like for the crowd-addicts - too early, too quiet and too lonely. They took the meanings of "pin-drop silence" and "jaw-dropping moments" in public spaces to new levels, as the reality of the huge losses from the unhedged bets, sunk in like the ill-fated Titanic did in the Atlantic with the lives and the fortunes it had on board, its elegance and raved up reviews, notwithstanding. It is worth finding out where Leonardo DiCaprio was on the 4th of October, 2020 - which way did he bet?

Despite these shocking results coming as a huge disruption to the championship prospects of the felled teams, no flags flew at half-mast because many other fans were celebrating their respective wins as well. Disruptions carry both sad and happy emotions and you shall always be on either end. Fortunately, what we have just read about happened under controlled environments complete with sporting rules. In the business world, things are less forgiving. Sample the following:

Video streaming drove rental stores to the ground. Netflix is now the largest subscription video provider having outstripped cable and satellite. Investors and providers in the supply chains of those outpaced operators find the disruption sadistic, but the disruptors find it the innocent works of genius.

Smartphones have disrupted the sales of Laptops. Over half of all web searches are done on smart platforms as they are widely affordable. Smartphones have irreparably cannibalised the Laptop market which in turn, mercilessly disrupted the PC market that had earlier on exterminated mainframes.

Online education is steadily climbing as the quality of the courses are improving every day and are cost-friendly. Huge corporations are also seeking specific skills at costs that shake off the need for the traditionally whole rounded educational approach. We know who are next on the chopping board here. Disruptions take no prisoners.

The 6th of October, 2020 in Kenya may have gone unnoticed due to the political noise locally and abroad - the Tanzanian and US election campaigns are taking away plenty of attention, but parliament began debate on the "Startup Bill." This law when enacted shall give legal backing to startup business initiatives that had remained frustrated by the disinterest from previous governments. Financial credit, technical assistance and long-term commitments will now be availed to startups in ways that now matter.

When youthful enthusiasm, a correct vision and high energy levels converge on an idea whose time has come, even the established companies will feel the effects of such developments. Measured spontaneity will punish hesitant pragmatism hard.

This bill will birth the next generation of continuously disruptive innovations that will positively impact Kenya. It will no doubt reduce the high startup mortality rates thus providing a steady stream of employers and monied consumers as a result.

For once, emerging business owners will get mainstreamed in their own right without the need to submit to an established pecking order that is jealously protected by prohibitive thresholds. We shall witness unsettling additions to the business lexicon signalling the push for control by an impatient generation.

What should concern established organisations more is that the next breed of competitors will take on them with more ease than has been the case for a long time.

When it is business as usual, and just as moths are strongly attracted to the nightlight, the established companies innovate away themselves by improving their product offerings for the fewer but more profitable top-tier clients. The lower end tiers are left in the shadows for they have thinner margins and are therefore not prioritised for improvement. But that is how new innovators creep in and quietly take this much shunned lower end.

The road map that enables them to creep in on incumbents assumes the following pattern:

They initially go for lower gross margins than established competitors.

They operate at a lower cost and are highly accessible.

They will normally secure the lower end markets then stabilise before the steep climb to the top end.

They are hard to see coming and are therefore never taken seriously enough until it is too late. Fighting with a determined midget is often harder than fighting with someone in your weight category.

Now add this pattern to the favoured position lent by the startup bill. With technology serving more as an equaliser than a barrier to entry, established companies are in for an extremely disruptive road ahead. All their present strategies and supporting structures are geared towards attracting and retaining business whilst playing against present-day competition. They will now have to go back to their respective drawing boards to re-narrate and rewire for this next phase that is now unstoppable.

And in combination with the credit guarantee scheme presently in the works, the startup bill will revolutionise business in Kenya. We have had too many youthful citizens greying as spectators in a world of a few active business owners and gainfully employed participants. They are retired by the big boys' system even before they can get employment. But now the tables are about to turn. The newbies are about to happen on the market place like a locust invasion on a priced farm.

So does this spell doom for the established organisations? Yes and No.

Yes, it does for those that fail to change with the times. And No for those that adapt to the new ecosystem. The emergent marvels have no balance sheet baggage issues and will be travelling light. Incumbents will be bogged down by assets and liabilities with no true advantage in the newer scheme of things and will find themselves clatching at energy sappers.

Lower overheads shall certainly improve the operating ratios for the newer outfits and lend them the advantage over established businesses with heavier structures. It will be more like a five-litre V8 engined vehicle racing against a one-litre four-stroke engined motorbike from Mombasa to Nairobi. Each has its pros and cons. But at the end of it all, the V8 will have used up more fuel and suffered more wear and tear in the process but with no guarantees of crossing the finish line first.

If credit is readily available for both the established and the nascent players, then the difference will be in answering the question: at what cost is the credit available and with what collateral? Most likely, to no advantage for the older companies. For instance, the newbies won't need huge office blocks that are now increasingly serving as collateral for old modelled businesses. It's a bit like a dairy cow having very long horns. Longer does not equate to more milk.

With sound laws backing up startups, other players in the guarantees business will step up their quest for this new space. It will make it attractive for the Africa Guarantee Fund, for instance, to step in and take up 50 -75 percent of the risk in instances where doubtful collaterals initially put off lenders and right there, that is a game-changer. This is what an inclusive society needs to bridge the opportunities gap.

Given the circumstances, students on industrial attachments will prefer startup environments because they also have ambitions to set up similar outfits. So this new bill has the true potential of resetting the buttons on role models. There is a real fear of a whole generation of mentors being shunned and left feeling obsolete. That is what disruption brings about. It has no apologies.

But the established companies have the advantage of incumbency and get better views of the changing landscape from their high saddles. This gives them the vantage point from where to navigate the terrain. They have the luxury of time but are cursed with unresponsive mindsets. Rigidity is costly at this time.

So if you are heading a profitable business today, what must you do now to avoid turning your organisation into a lame duck?

First, it is prudent to take stock of the changing trends. When I work with my clients, we develop a risks assessment framework that enables us to seat periodically and bring to the table all the real and possible risks at that moment. We use a guide to map out these dangers and then assign them a weighting so that resources in time, money and effort are allocated proportionately. Some of the risks will point you in the direction that you must take urgently.

Added to the above, it is important to map out the organisation's manpower capabilities. This involves matching the required skills against the tasks that must continuously be accomplished to attain the organisational objectives. The new situation will point you to the new knowledge and skills gaps that require correction through learning and development initiatives or via the acquisition of the same through new staff or outsourced services.

It is critical to discard unproductive cultures. Culture provides you with your operational framework. On an annual basis, it is crucial to adopt two new practices as you shade off the two least desirable ones. But when going through a rapidly changing situation, you must recreate a fitting culture. Those resisting change must be shipped out of the system. That is what disruption brings upon the rigid types.

It is time that you benefited from reverse mentoring. Put together a team of millennials or younger advisors who frequently sound you on developing trends and the possible responses to the developments. These could be internal or external resources.

There is another strategy too. Purchase a startup business that has commenced the upper-end market trajectory and allow It to evolve. They are free of the bureaucracy and the politics found in big business. Let them evolve their own culture. Those that die or stagnate after takeover were infected with the new owners' bad cultural traits and you must do everything to protect the new kids on the block from the retrogressive practices of entrenched sadists from within.

Let's throw a spanner in the works here. Supposing you are a bank, and a hotel approached you to finance its facelift as a response to the intense competition from several sprouting AirBnB based players. The business numbers are down to 50 percent of where they were two years back. Recently this hotel hosted a conference of 250 participants but only managed to accommodate 80 guests. The rest attended the said conference but lodged at nearby AirBnB facilities. Would you lend them money given that most of the smaller players sourced their working capital from you?

The relationship manager would agree to go ahead because he has a target to achieve. The credit risk manager will be hesitant because of the trend that has taken away the hotel's market share. This is not an easy question to answer and it has several considerations. This hotel is a long-standing customer that has an excellent credit history. The disruptors have demonstrated steady cash flows and are consistently servicing their facilities. The business environment is currently hostile and numbers are down across the board.

The hotel has other entities in its supply chain that are dependent on it and they too are great customers of the bank. So if the bank denies it the loan sought, nearly 50 suppliers will get affected and in turn, the bank suffers from their repayment challenges as they won't have much to bank. So the decision is bigger than the mere fact that smaller players are spoiling the party for the hotel.

The hotel's 3-year strategic plan will aid the bank to test for its robustness against the competition. I would lend but some banks won't. Hotels are here to stay. They must adjust their offering and actively seek out those responsive customers. The disruption is simply stratifying or helping to niche slice for clearer and better servicing of the identified guest needs. AirBnBs may not provide laundry, sauna, gym and additional services to discerning customers. Not everyone is a budget customer. The low accommodation could have been a response to Covid-19 social distancing protocols and that too, is a diminishing threat.

So it is prudent to test for the level of disruption. If it is a total replacement, then the risk of lending is much higher. Several disruptors will just stake a claim in market share but because the economy is growing too, they perch in well and coexist with earlier players.

There was a cab company aptly name Smart Fellas. Their smartness came from alleviating the pressure exerted on drinking drivers who needed to get home past the police breathalyser roadblocks. Thousands of customers enrolled to their membership because they could drive your car home whenever you were ready to leave the pub.

Then Uber happened on them and suddenly, the idea of membership became an avoidable expense and instantly, customers got hooked to App hailing rides. The Smart Fellas lost their smartness and we now saw them as courageous fellas as they put on a brave face for a while before thinking of better things to do given the circumstances. Let's credit them for being gentle. Other taxi operators burnt down competitors cars to ashes and injured the drivers, as they could not fathom an income deprived life, having been caught up with run-down cars that were no longer attractive.

Those that were strictly in the random retail business suffered because there was no loyalty cultivated over time. But those with their fleets tied to corporate customers live on to this day. They withstood the disruption and many are still growing.

Back to the bank again. I will not question the robustness of regulatory and internal financial indicators. Let me stick to disruptive innovations. Are you just full of career bankers or do you have within your ranks futurists who can analyse trends and anticipate disruption related risks on both existing and arriving customers on a moving basis? Do your dashboards tell you if you can maintain or add motor loans because electric cars pause no threat to the combustion engine over the next six years? Does it tell you that lending to schools is getting riskier because of online modules? Does it indicate that the office block segment in the real estate sector is a no go zone because of Work From Home possibilities? Would you know with certainty the areas growing fastest into the risky red zone? Your dashboards early warning systems should work like the airport control tower radar. You should be able to monitor an oncoming risk the way oncoming planes move on the screen. But there are exceptions to the rule as some come with radar-evading capabilities like a good leader turning rogue or incompetent when least expected. Slow or wrong decisions will bite harder.

So, are disruptions, accidental marvels, sadistic endeavours, or the innocent works of genius?

They are accidental marvels if you never planned them despite enjoying the unlikely benefits. Many times, luck completes the equation for us. This is the guy who just bought a car before losing his job then coincidentally, Uber became available in the country, took his car in, and he continued earning.

They are sadistic endeavours when the competition is gaining at your expense. After turning profitable, you switched to sleepwalking mode and kept walking like Johny. This is the yellow-line taxi owner who was left gasping in the wake of App hailing cabs.

They are the innocent works of genius if they further improve the consumer experiences and are good value for money. This is the technology behind that Zoom aided meeting that enabled you to participate in the discussions without leaving your house. A good idea will always give in to a greater idea.