The Ripple Effect of Disruption

Nassim Taleb's "black swan theory” explains how major events that are completely unexpected are often rationalized after the fact. We've seen numerous examples of these so-called black swans in technology. Take the iPod, for example. It's introduction seemed like a me-too product that improved on existing MP3 players. But in combination with iTunes, it surprised everyone (except maybe Steve Jobs) and turned the music, TV, movie, retail, consumer electronics, mobile, internet, computer and telecom industries on their heads. 

There are probably a dozen or so more similar parallels in recent history. An unexpected technology shift, business model innovation, new product (or combination of all three) emerges and causes huge downstream effects in multiple established industries. What follows is a period of rapid recalibration as existing players grapple with the implications of these changes for their business and scramble towards a new equilibrium. I call this pattern of innovation, unexpected consequences, and recalibration "the ripple effect." 

Today, with the advent of many potentially transformative technologies, the frequency of ripple effect innovations is growing, and the pressure on strategy leaders to figure out what’s next for their companies is more acute. Here's my take on the secret pattern behind the ripple effect.

Wave 1: Adjacent Industries
The first wave of a ripple effect doesn't always begin immediately after an introduction of new technology but around the time that it's core use cases begins appearing in pockets and prototypes. Once here, the industries immediately adjacent to the core use case will start to shift.  

In the first wave, traditional industries will experience minimal revenue erosion caused by disruptors, but they will be actively paying attention to these new trends and begin investing into some new peripheral market adjacencies. These new growth vectors would be seen as experiments and will be conducted from the metaphorical edges of these organizations. The reason for this is because the core business will be aggressively protected due to a lack of market permission. Any investment into transforming the core would risk steady cash flows. So even if a company forecasts their business to be disrupted in the future, it may be more financially prudent for them, in the short term, to ride the core revenue wave. 

Wave 2: Mainstream
In this second wave we will begin to see these ripple effect technologies becoming the new normal and massive net-new economies being created as a result. 

In addition to new categories being created, the second wave of the ripple effect will also see adjustments to existing categories. Companies in the affected industries will see their core business starting to stagnate. Some companies will go on an M&A flurry, others will double down on the future and re-invent themselves, and the rest will unfortunately begin to sink.

Wave 3: Extended
Depending on the technology and it's rise to it's ubiquity, we may arrive at this final wave in as little as 5 years or over 10+ years. As the half life of new companies shrinks, we'll see these timelines compress even more dramatically. 
This is the stage where we see the technology firmly embedded into our everyday lifestyles and where we'll start to see cultural transformation effected by the technology as well. By the time this wave hits, most companies will be displaced from their leadership positions. There really won’t be too much of a chance to catch up, unless they've invested early on, in the introduction phase.

It's more important than ever for companies in all industries to contemplate how to ensure they've incorporated these types of displacements into the core business model. And, as disruptors arise, leaders will need to elevate and empower their own internal change agents. 

The Potential for Autonomous Vehicles 
We're seeing the potential for huge ripple effects with the introduction of autonomous vehicles. Elon Musk commented specifically on the question of autonomous vehicles, saying, "I consider autonomous driving to be a basically solved problem. We’re less than two years away from complete autonomy. Regulators however will take at least another year; they’ll want to see billions of miles of data.” 
The recent unveiling of Tesla's Master Plan, Part Deux has made it even more clear that autonomous vehicles have the potential to disrupt industries well beyond traditional auto manufacturers like GM and Ford. Again, these ripple effects will take place over three stages of evolution, aligned with the maturity of the technology and customer adoption. Next week, I'll dive into some of the specific industries that might undergo unexpected transformations as a result of the introduction of autonomous vehicles.