Dislocations-Drivers of Industry Evolution and Corporate Growth

Originally Published in The Journal of Strategic Change
By Soren Kaplan, Ph.D. & Robert E. Johnston

Virtually all companies are concerned with future trends.  Executives read the Wall Street Journal to gain insight into the forces that will impact their organizations.  Consulting firms are hired to create scenarios, conduct environmental scans, and present trend analyses.  The ability to anticipate the future is now an important competence in today's rapidly changing world.

To capitalize on the latent opportunities that reside within trends, organizations must move beyond a uni-dimensional understanding of the future.  Unfortunately, more often than not, the most fundamental and unquestioned assumption driving corporate strategy is that the future is linear, that trends crescendo in strength or decline in orderly recessions (the widespread reliance on quantitative forecasting methodologies epitomizes a practice based on this assumption).  Paradoxically, while strategy formulation is arguably leadership's most important activity, it can also be an organization's greatest liability.  For example, in the early 1980's Atari enjoyed unrivaled video game sales.  But because Atari executives assumed their unprecedented revenues would continue their forecasted growth curve, they overproduced and were blind-sided by market saturation.  Today, few have heard that in 1996 the ailing company merged with, and is now known as JTS Corporation.

To avoid the perils associated with linear assumptions-and subsequently create the markets of tomorrow-organizations must embrace a macro perspective of industry evolution.  Leadership must recognize the powerful dynamics of "dislocations," the forces that give birth to industries, foster their growth, and cause their decline.  Companies that are able to identify and organize around dislocations can create dominant designs that become industry standards within emerging growth markets.

Companies that help build industries around dislocations can enjoy proprietary leadership for years.  Motorola, for example, identified opportunities presented by trends relating to individuality, safety, personal communications technology, and fashion-the company now enjoys unparalleled leadership both in the consumer paging and cellular communications industries.  But even industry leaders must continue to seek out and capitalize upon new dislocations to remain competitive and sustain growth.

A Model of Dislocation Dynamics

According to Webster's Dictionary, a dislocation is the "disruption of an established order." Applying the concept to business, dislocations represent discontinuities in the orderly evolution of an industry or economy.  Like trends, dislocations can be seen as changes, shifts, or developments of technologies, social values, consumer behaviors, or government regulations.  The primary difference between trends and dislocations, however, is the abruptness and power of the change or shift.  Trends ebb and flow.  Dislocations can be considered trends gone awry; that is, trends that unexpectedly reverse themselves or suddenly emerge, often taking companies and industries by surprise.  Unlike trends, dislocations may emerge virtually overnight, and can be triggered by a single dramatic event.  And dislocations have significant implications-they may spawn, transform, or even annihilate entire organizations and industries.

The model presented here suggests that there are two types of dislocations-sudden and transitional.  Sudden dislocations can emerge over days, weeks, or months.  Transitional dislocations are more evolutionary and complex.  Though they may become dominant over several short years, it is often possible to identify the seeds of their existence years, or even decades, prior to their mainstream emergence.  Sudden and transitional dislocations each represent both an opportunity (positive impact) and a threat (negative impact) to established organizations and industries.  But even dislocations that have a large scale negative impact on an organization or industry usually present new opportunities on the other side of their disruption.

Sudden Dislocations

Sudden dislocations can emerge over days, weeks, or months and are usually precipitated by a single, or several related and dramatic events. The 1982 Tylenol tampering scare is a classic example.  This incident received more television news air time than any event since President Kennedy's assassination and resulted in a dislocation with widespread effects.  Though uncertain at the time, the Tylenol brand name survived.  A new era in "crisis management" consulting arose and opportunities for design and packaging firms to provide tamper proof packages exploded, not just for pharmaceuticals but for food and beverages as well.  Snapple, the company that established the ready-to-drink iced tea beverage category, even uses security pop-up tops as the foundation of its brand identity.

Another sudden dislocation was spawned by the Three Mile Island accident that destroyed the burgeoning nuclear power industry.  From this disaster emerged a new market for consulting-securing and maintaining the safety of existing nuclear power plants-and a greater interest in solar and other alternative power sources.  Other more recent examples of sudden dislocations include the forced break-up of AT&T, the passage of NAFTA, and terrorism on American soil.

In sum, sudden dislocations result from one or several events that challenge the conventions of a way of living or doing business.  While such developments may be deleterious to an organization or industry, they may create opportunities in industries related to, or even completely removed from the specific event.  Companies that are attuned to the external environment, that create contingency plans for the unthinkable, and that are flexible and able to act on a moment's notice are best positioned to capitalize on the opportunities presented by sudden dislocations.

Transitional Dislocations

While transitional dislocations do not materialize as quickly as sudden dislocations, their effects may be as, or more profound.  In fact, though transitional dislocations usually become mainstream over several years, clues of their existence are often present years or decades prior to their actual emergence.

The microwave oven is the classic example.  When the microwave was first introduced by Tappan in 1952, it was an obscure invention.  Even ten years after its introduction, it required wall or cabinet installation and was as expensive as a new car.  But given the trends of miniaturization and decreased costs, numerous companies have leveraged microwave technology to create a consumer product that today populates millions of homes and businesses worldwide.  This transitional dislocation has spawned incredible opportunities for the food and packaging industries.  And in a broader sense, it began the movement in society toward compressing time-coupled with today's information technology trends and the fact that a three month "web year" (the time it takes to release an updated version of software) has become standard, virtually any product that saves time is now welcomed by the marketplace. 

And who could forget the personal computer?  The introduction of the PC and desk top word processing destroyed the typewriter market as well as the typewriter supplies industries.  Shortly thereafter, however, computer printers, computer labels, and ink jet and laser cartridges became ubiquitous commodities.  Though the word "inkjet" is virtually synonymous with Hewlett-Packard today, the technology was actually discovered in 1977 by Canon.  Hewlett-Packard, however, was the first to recognize and structure around the significant role of printing in the emerging computing environment, thus helping shape the computer printing dislocation to its advantage.  Other companies, recognizing the revenue potential here, created symbiotic products with HP printers.  Avery Dennison, for example, became dominant in the printer supplies market with its laser printer labels and printer products while Adobe developed professional quality publishing software for do-it-yourself amateur graphic designers.

Breakthrough Innovation and Corporate Growth

It is relatively easy to describe, retrospectively, organizational successes and failures related to historical dislocations.  It is much more difficult, however, to identify opportunities that help create or leverage emerging transitional dislocations-the dislocations that hold the greatest opportunity for organizations seeking long-term growth.

The following methods can be used to identify potential dislocations or spot new opportunities that can become the seeds of emerging dislocations and lead to breakthrough innovation and growth.  Corporate strategists and researchers should view these methods as guides-philosophies and approaches to strategy and innovation that, when applied to a specific organization-with its unique history and culture-can enable new levels of opportunity identification.

Challenge Assumed Boundaries

Though transitional dislocations are difficult to identify in their early stages, companies that are willing to explore industries, technologies, and trends outside of their traditional business boundaries can often identify opportunities unseen by competitors.  Because longer term trends that intersect and result in dislocations often surprise organizations, leadership must support the exploration of seemingly obscure trends in seemingly removed industries; it then becomes possible to determine the ways in which near- and intermediate-term strategies should address the most critical trends.

Searching for opportunities in tangential industries consumes time and resources, and involves uncertainty and ambiguity, which is often used as an excuse for ignoring this fertile arena of opportunity.  Ideas for new applications almost always result when technical and marketing experts are exposed to trade journals, market research reports, or expert speakers that reveal emerging technologies and trends in industries that represent tangentially related forms of customer value. 

Who would have guessed HP would make a move into the photocopier business?  Or that Casio would attempt to become one of the first players in digital photography?  Or that Charles Schwab would leverage a booming stock market by becoming a provider of virtually the entire spectrum of mutual funds?  Each of these companies identified ways to leverage existing competencies in new markets to provide new forms of value-value based on superior products that leverage technological, social, and behavioral trends.  Companies that actively scan the environment for emerging technologies and trends related to, yet tangential to their industries, can often create new products that represent new categories of value for the organization.

Think differently

How many managers regularly consider the question, "what could kill my business?"  Fighting for marketshare is an incremental activity; jockeying to become the cause of an industry altering dislocation requires new ways of thinking-about the organization and about the future.

New thinking results from asking new questions.  When unconventional and provocative questioning becomes part of an organization's strategy processes-as well as everyday activity-insights into new opportunities inevitably result.  Some questions that may inspire new ways of thinking include:

Considering questions like these help challenge assumptions about what is, and can be the business of the organization.  Exploring and stretching current assumptions helps foster a receptiveness to thinking differently about both the organization and the future.  Thinking differently can be organized and promoted.  Formal "innovation summits" in which cross functional groups come together, discuss the future, and identify opportunities create sanctioned settings that foster non-incremental new business insights.

The examples described in this article suggest that, difficult as it may be, leadership must recognize the inevitability that current opportunities will eventually mature.  Just as the quill pen was replaced by the typewriter and the typewriter was replaced by the word processor and PC, it is probable that PCs will eventually be replaced, possibly by "dumb terminal" network computers powered by a computing utility.  Once leadership internalizes a broad perspective on industry evolution, the business near-sightedness that characterizes sustained crisis management and incremental change will subside, and a mandate to identify breakthrough new opportunities will naturally follow.

Many organizations have difficulty embracing the notion of obsolescence.  While it is appealing to think of obsoleting competitors' technologies, corporate inertia often makes technical cannibalism a significant challenge.  One company, German multinational Siemens AG, strives to live by the philosophy (as translated from German), "we eat our children"-thus, one way the company manages dislocations is through continually replacing its own technologies with both incrementally and radically new products and services.

Infusing a new "common sense" into organizational culture can help foster a climate of InnovationPoint.  Models that suggest technologies (and organizations) are born, grow, and die can provide new meaning for the organization as a whole.  Technology lifecycle frameworks, the "S" curve, and other models of macro industry evolution can provide new insight into the importance of opportunity identification.  To understand that one's current products are entering the end of their lifecycles can be a humbling experience-one that can inspire a new sense of urgency, and a dedication to renewal.  When the majority see current success as finite, many more people-beyond the corporate strategist-assume the role of strategic innovator, and ideas, which may become the seeds of new dislocations, proliferate.

Summary

In sum, dislocations may result from changes in government regulations, the introduction of a new technology, social shifts, environmental disasters, or even media hype.  They may be one time events, like the Tylenol scare.  As longer-term phenomena, they usually result from the intersection of two or more trends.

 Organizations that are dedicated to continually challenging linear assumptions about the future are better able to leverage opportunities presented by dislocations.  By challenging conventional industry boundaries and exploring tangential trends, by continually asking unconventional and provocative questions about the organization and the future, and by incorporating macro models of industry evolution into organizational culture, leadership can move toward achieving the kind of opportunity identification that results in breakthrough innovation.

Only when leadership recognizes that the future is anything but linear can dislocation identification become an underlying fabric of the strategic architecture that guides the organization.  And only then can truly breakthrough new business opportunities that reside within, and on the other side of dislocations, be realized.  For those who can consistently anticipate, innovate, and quickly respond to dislocations, industry leadership results.