Understanding Change

In a number of recent conversations with clients about the impact that technology is having on their industries I have been reminded of a chapter in my 2013 book, Business Models for the Social Mobile Cloud. One of the topics I had taken up in this book was digital transformation and in particular why change is so hard for organizations. I've drawn from that book for this article, reusing an analogy that I invoked to try to explain one of the most difficult to understand mechanisms of digital disruption -- market share displacement.

Similar to the concept of competitive displacement (in which a company's product or service is proactively offered as an alternative to a competitor's product or service) the concept of market share displacement describes the process by which one company absorbs the market share of a second company, usually (but not exclusively) through the commercial failure of that second company. Imagine two restaurants -- if you arrive for dinner, and the restaurant is closed, you might simply walk into an open restaurant that happens to be next door. The leadership psychology of this process is that, in gaining market share, there is a feeling that company performance is improving.

But the key question to ask about any given case of market share displacement is whether displacement has occurred because the company gaining share is genuinely performing at a level in which it should be rewarded with market share growth? Or instead (as it often is with digital disruption) is it because the total available market (TAM) in the category that company one and company two compete has diminished, putting pressure on both, and company two was simply the first to capitulate to that market pressure. In this second scenario the growth in market share for company one is likely a transient event as the long term digital disruption and associated reduction in TAM will continue. Thus the feeling of improved performance is misplaced and could lead to making the wrong strategic decisions, preventing the surviving company from actually changing to meet the demands of the disruption.

The analogy that I used to describe this in my book was based on a concept called punctuated equilibrium, which is used in both geology and evolutionary biology. In short:

"...the hypothesis that evolutionary development is marked by isolated episodes of rapid speciation between long periods of little or no change." -Oxford Languages

I used a geological example in my book because I felt like the visual element of the analogy would help bring this concept home to my readers, and make it very applicable in their thinking to their own companies' situations.

The story begins 20,000 years ago when ice sheets completely covered Canada and parts of the United States. The Cordilleran Ice Sheet (picture at the top of this article) is thought to have covered two and a half million square kilometers over Western Canada and the Northwestern US. Meltwater from this ice sheet formed an enormous body of water, Lake Missoula, held back by an ice dam at what is now the Clark Fork Valley. Periodically this ice dam would rupture scouring out channels, moving boulders the size of buildings, digging out huge potholes... reforming the landscape of Northern Oregon over an estimated 40 flood events.

So how is this an analogy for market share displacement? Imagine glacial Lake Missoula with great blocks of ice floating on its waters. One day there is calm, smooth water on the lake. But warm surface waters are slowly undermining the ice dam. At some point the dam collapses and the calm water becomes turbulent. Ice blocks floating close to the front of the lake are swept over the top... but a block of ice floating at a distance from the dam simply moves closer to the edge, and as the water level stabilizes, it returns to calmly floating on smooth water.

All of our beliefs and expectations about how we and our organizations function are like those blocks of ice -- we think of them as being stable anchors for our strategic planning and daily decision making. Disruption (whether it is digital, environmental, our recent experience of global pandemic, or anything else) should cause us to ask, "when will our beliefs and expectations become outdated?" When will we be swept over the top of the dam. But instead what we experience after a bit of turbulence is a return to what we think of as "normal." This is punctuated equilibrium -- we perceive a continuous state of equilibrium unless (or until) that "punctuating" event creates a direct impact.

Another thing worth noting about this process is that it typically does not progress at an even pace, but follows a curve that is slower at first and speeds up as the underlying trends gain momentum. The closer that the block of ice is to the edge of the dam, the more quickly it moves during a collapse of the dam. The same is true for our beliefs and expectations. So the longer that you wait to challenge yourself, the less time you will have to change.

The direct analogy I had in mind was that the flood waters backing up against the dam were the pressure for change that the disruption was accumulating. A break in the dam, sweeping some ice over the top does result in changing (or eliminating) those that go over -- but it results in little perceived change for those that remain. In fact they might feel that their position has been improved by the elimination of a competitor. But the reverse is actually true, they have actually moved closer to the edge themselves.

An approach to reducing the risk of being swept over the top of a dam in raging floodwaters is to constantly challenge ourselves, questioning the assumptions that we make every day, and asking "what would I need to believe to see this differently?" To return to the analogy -- scan the horizon and take note of whether those times of turbulence are ultimately going to sweep your iceberg over the edge and be willing and prepared to change to avoid that fate.

Where are you? Are you scanning the horizon?