Over the last weeks the coronavirus disrupted the entire global economy and almost every business on the face of the planet. Yet, Covid-19 is a black swan and a once in a century event. When things get back to normal (yes, it will take quite some time), companies need to prepare for more common types of disruption. In this blogpost, we explain how you can systematically assess the risk of disruption with our Disruption Assessment Tool.
Even before the coronavirus outbreak in December 2019, disruption was a big concern to executives. A 2016 McKinsey study shows that 80% of executives think their business model is at risk. More recent studies indicate the same.
From our experience working with clients, we see that while the concern is real, most executives can’t accurately forecast how seriously their business model is at risk. That is why we developed the Portfolio Map, a new strategic management tool we’re introducing in our upcoming book, The Invincible Company. It helps make the risk of disruption of explicit.
In the book, we show how you can assess the disruption risk of an existing business, so that you can place it on the right spot in the Portfolio Map. Let me explain how we developed the assessment framework.
The Research and Design Challenge
Yves Pigneur pointed me to the most interesting research he had seen on this topic: How to identify your enemies before they destroy you, by Rafii and Kampas. That inspired us to create the first prototypes of a tool to assess the disruption risk of a business model. After a few iterations we tested the tool with innovation coaches and clients. We were getting good feedback, but for us something was not yet clicking with this prototype. Until Yves gave us the insight that took us to the next level.
When assessing overall disruption risk, we were aggregating risks from two different time horizons: early signs of disruption already materializing in a business today, and future disruption risks. And that aggregation led to flawed results.
To use an image, to assess risk more accurately you need to consider not one, but two waves of disruption. A first wave that is already hitting your business model. You can observe its impact with available data. A second, bigger wave on the horizon, that is likely to hit you. Its impact cannot yet be felt yet but it can be anticipated with careful observation of the business environment.
Most organisations already capture the data they need to measure the disruption wave that’s already upon them. The Performance Assessment questions help leaders make sense of this data and you can use it to assess immediate disruption risk as precisely as possible. An unexpected drop in customer base for instance would be an obvious manifestation of an immediate disruption risk that the company has to face.
In a second step, you need to constantly monitor your business environment to anticipate and assess if a bigger wave of disruption is likely to hit you. The Trend Assessment questions can then help you anticipate that future disruption risks. For instance, if a new regulation is to be enforced in 18 months that will impact the operations of a business then a big disruption wave is probably going to hit that business in 18 months.
In summary the disruption risk assessment tool uses close observation of current performance indicators and anticipation of future events in the business model environment, to help leaders assess the disruption risk of their business models. Once this disruption risk is made explicit and visible, leaders can more easily align on the most appropriate course of actions, set the right priorities and ultimately avoid those costly crises that a lack of anticipation leads to.
Caveat in the current context: I’m definitely not claiming that this tool has the magical power to warn your organization from a black swan event like Covid-19. It happened too fast. Yet, I’m convinced that leaders performing regular disruption risk assessment with this tool can at least have a head start. After all, we were already watching the news of the outbreak in Wuhan in December 2019. How many of us took actions then to improve and protect our business model(s) from that disruption threat in our business environment? When crises cannot be avoided, like the Covid-19 crisis, such a tool can at least help us enter the crisis better prepared.
You can find this tool and many others in our latest book
The Invincible Company