Digital Disruption – April 1, 2013

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James McQuivey is an executive at Forrester Research a business advisory firm whose book Digital Disruption has apparently attracted considerable attention in the business community. The Wall Street Journal (WSJ) has reviewed it with the reviewer posing the question, “Is the age of the big corporation over?”  McQuivey argues that technology has made it possible to “launch companies without large amounts of capital, proprietary labor, tools or vast swaths of intellectual property. Increasingly, anyone with a powerful idea can assemble the tools to make his idea a reality.”

The WSJ reviewer makes the point that the corporation developed as a means of dealing with the transaction costs of running complex businesses in a market economy. (This point has been endorsed in the monumental work on the corporation, The Modern Corporation and Private Property by Berle and Means which I had to read in my final year at Cambridge).

McQuivey’ s main thought made convincingly in his slim 150 page book is that digital tools have reduced these costs, making it easier for people “to share ideas and coordinate complex efforts without a formal corporate structure”. For instance he quotes the case of Thomas Suarez a 12 year old who builds successful smartphone apps outside his school commitments. Or Guy Cramer who works from a modest office in British Columbia, Canada from where he sells military camouflage designs to governments around the world. McQuivey also quotes the example of the drug-development company Ferrokian BioSciences which sells a molecule that helps address blood disorders. Interestingly the company has no physical office. It uses wireless phones and home Internet connections to coordinate regulatory filings.

McQuivey’s argument is that digital tools now exist that “allow almost anyone to become a disruptive innovator.” His thesis builds upon the work of Clayton Christenson an Harvard professor who argued in The Investor’s Dilemma (1997) that large well run companies can be felled by disruptive innovators.

If McQuivey is to believed “Digital tools allow digital disruptors to come at you from all directions – and from all ages, backgrounds and nationalities … Equipped with a better mindset and better tools, thousands of these disruptors are ready to do better whatever it is that your company does. This isn’t just competitive innovation, it’s a fundamentally new type and scale and speed of competitive innovation.” The only defense to this massive attack is to “mimic the enemy.” The first step is for the CEO of the company to adopt digital disruption as a top priority. The company should then devise a plan to tear down the barriers between departments – “legal and finance approvals, regional sales structures, or gaps between engineering and marketing.”

The WSJ reviewer opines that we all know anecdotal cases of digital disruptors taking on “mighty businesses.” Skype versus the telecom companies; Airnb versus Marriott. The reviewer suggests that it would be helpful to have more evidence of how far and how fast this phenomenon is spreading.

Innovation is a factor which is ever present in all fields of human endeavor. This has been so since the dawn of time. McQuivey has marshaled some new ideas from which businesses of all stripes can undoubtedly benefit. The main idea one reviewer gleaned from the book was that while in the past it took money to make money, in the digital age that is no longer true. Digital disruptors can leverage their ideas with very little capital and outperform more heavily capitalized companies. That was McQuivey’s “amazing idea” that resonated with this reviewer.

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