Age of Disruption

Disruption is coming – and Canadian firms are not prepared.

The way Canadians live and work is about to change profoundly. Rapid advances in technology are poised to disrupt many of the sectors that anchor Canada’s economy. The impact will be felt across the country – and Canadian businesses are not prepared for it.

Disruptive innovation has the potential to impact each and every business, no matter its size, sector or location. The development and application of advanced technology is accelerating at such an exponential rate that people have difficulty coming to grips with the sheer pace of change. Among the key factors propelling these advanced technologies is the exponential growth in computer processing power – and, in turn, the staggering drop in the price of computer chips. In 1992, one would pay $222 for a million transistors; today the cost is $0.06.

Advances in technology have also increased the rate of business growth – and business failure. Since 2003, a new company has reached a $1 billion valuation every three months in the United States. Yet the time it takes to reach that valuation has shrunk considerably: Shopify took nine years; Slack took one.

As businesses are growing more quickly, they are also exiting much more quickly. In 1960, the average lifespan of an S&P 500 (Standard & Poor’s) company was 56 years; by 2014, it had dropped to almost 15 years.

Advanced technologies are driving the disruptive innovations that will bring significant and permanent change to Canada’s business landscape.

In a recent report released by Deloitte, Age of Disruption – Are Canadian Firms Prepared?, five technologies were identified for their considerable disruptive potential: artificial intelligence, advanced robotics, networks, advanced manufacturing and collaborative connected platforms.

Whether profound change comes from these specific technologies, others or some combination that has yet to be seen, the incredible disruptive potential of these five will illustrate the importance of being prepared.

For over a year, Deloitte studied the Canadian economy to better understand whether or not firms have what it takes to withstand significant technology-driven disruption. As part of this research, 700 business leaders across Canada were surveyed to gain their insights into the issue.

Each firm’s performance was evaluated in four areas that are vitally important to disruption preparedness, namely the following:

• Awareness: understanding changing technologies, the accelerating pace of change and the potential for technology-driven disruption in the firm’s industry and business environment;

• Culture: the extent to which a firm promotes, encourages and provides incentives for innovative behaviours and practices;

• Organizational agility: the ability to rapidly redeploy systems, assets and people to address external opportunities or threats; and

• Effective resources: the technology, human capital and financial assets that firms can use to enable change.

THE FINDINGS

Based on results of the survey, Deloitte discovered that a mere 13% of Canadian firms can be considered highly prepared for disruption, 23% are prepared in one area, but not others, 29% have started, but are struggling with their overall preparedness efforts, and, most disturbingly, 35% are completely unprepared.

The implication is dramatic. The survey shows that more than four out of five Canadian businesses are not well-prepared for disruption.

Compounding the essential lack of preparedness is the fact that a large number of firms – almost half – believe themselves to be more prepared than they actually are. This “perception gap” is based on firms reporting a lack of substantive activity in key areas of preparedness, while simultaneously arguing that they are, in fact, prepared.

LEADING BY EXAMPLE

To improve preparedness, consider looking to Canada’s best-prepared firms. One survey result that was particularly interesting was the diversity of the 13% of highly prepared firms themselves. They do not fit a single mould. They represent firms from every sector, of all shapes and sizes.

From a large bank to a small bakery, these firms are as diverse as Canada. However, there is one important similarity: they are all taking concrete steps to ready themselves for disruption from a future that can only be imagined.

By understanding what sets Canada’s highly prepared firms apart from their peers, it is possible to identify how the country’s numerous, poorly prepared businesses can change.

It has already been stated the highly prepared firms excel in all of the key preparedness areas: awareness, culture, agility and resources. Yet, it was also discovered that these same organizations exhibit attitudes and behaviours of highly productive companies, as identified in previous studies on Canadian productivity.

Specifically, highly prepared firms do the following:

• remain committed to research and development investment, and more than half of them plan to boost R&D spending over the next five years;

• are more likely than their peers to focus on national or international markets, which brings them into contact with new ideas and approaches and gives them a different perspective on how to create and sustain success; and

• were almost 25% more likely than unprepared firms to report revenue growth over the past five years.

The implication? Investments that can improve a company’s productivity today can enhance its preparedness for the wave of technology-driven disruption tomorrow.

THE PATH TO PREPAREDNESS

After reviewing the data, it becomes clear that Canadian companies can take concrete steps to dramatically improve their capacity to anticipate, respond to and capitalize on the disruptive storm that is coming.

• Cultivate awareness: Creating sensing engines to identify and assess the forces that have the potential to disrupt a business or industry better positions a firm to take action today to prepare for disruption’s impact tomorrow.

• Build the right culture for preparedness: Developing a resilient, innovative organizational culture can help companies withstand disruption in the future, and also offers important benefits today.

• Foster organizational agility: Embracing new ways of working and making decisions can help firms avoid becoming mired in the bureaucracy that can bring change to a screeching halt.

• Develop effective resources: Investing in advanced technologies and using resources effectively can increase companies’ resilience in the face of change. Acquiring and deploying the best people, technology and financial resources can help firms become more competitive as they prepare for future disruption.

THE TIME FOR ACTION IS NOW

Canadian firms are facing serious, significant challenges in their preparedness for disruption. But they also face incredible opportunities to improve their productivity and to become better prepared for what is to come. Research shows that the best-prepared companies share characteristics that other organizations can adapt for themselves.

If Canadian businesses, together with governments and academia, take concrete action today, the results will yield stronger, more profitable companies that are able to withstand – and thrive within – a storm of change.