In the past, for a company to achieve excellent risk management, extensive research, meticulous analysis, careful planning, and flawless execution were required. It was a wise move to pay close attention to the optimization and continuous improvement of business operations.
However, today’s business environment has changed dramatically. Disruptive innovations in digital technology are constantly evolving, and this process seems endless. The pace of change is accelerating, and trends tend to grow exponentially rather than linearly. In various industries, new competitors are creating and seizing new value by leveraging powerful computing capabilities, machine learning, new ways to connect buyers and suppliers, and other cutting-edge technologies that are reshaping the industry landscape. Compared to those brands that are slow to transform or overly cautious, their risk of becoming disconnected from the times or even self-destructing has increased significantly.
Rishad Tobaccowala, Chief Digital Officer of Publicis Groupe and author of “Restoring the Soul of Business,” observed that over the past thirty years, we have experienced three waves that changed the way we connect and conduct business in the “Connected Era.” These three stages are: from e-commerce to smart devices, then to 5G, virtual reality (VR), cloud technology, and artificial intelligence (AI). Yet, we have barely begun to feel the revolutionary impact of generative AI. Now we live in a world full of rich choices, paths, and information, where purchasing barriers (such as making customer purchases slow, complicated, or expensive) are constantly being reduced, and may even disappear entirely. Companies that once relied on service-based products for their survival can no longer do so with ease—the revolutionary disruption of traditional taxi services by Uber, Lyft, and Grab is clear evidence of this.
In fact, the era of “good enough” has come to an end. When faced with profound change, merely offering products and services that are just a little better than before—a strategy some call “incrementalism”—increases the risk of failure. In this rapidly changing era, continuing to do the same things, only trying to do them a little better, might seem safe but could actually be the riskiest choice.
The so-called “Innovator’s Dilemma” refers to companies that underestimate the risks brought by disruptive technologies and challenging competitors. This concept was first introduced by Clayton Christensen in his classic 1997 work. As changes accelerate and innovation intensifies, the current Innovator’s Dilemma becomes increasingly tricky, leading to more severe consequences for those who fail to respond to this challenge.
Although survey data suggest that most transformation efforts end in failure—with McKinsey’s data indicating a 70% failure rate—the vast majority of senior managers are indeed aware of the crisis facing their companies. A McKinsey survey in 2021 showed that over 80% of executives believe innovation is one of the top three priorities in their organization. However, less than 10% of executives feel satisfied with their company’s performance.
AlixPartners found in their 2024 Disruption Index Study that most CEOs believe their companies are currently facing disruptive challenges:
- 65% of the surveyed CEOs indicated that their companies are facing serious disruption risks.
- 56% of CEOs expect significant industry disruption to occur in the next year.
- 61% of CEOs believe that their companies are not adjusting quickly enough to maintain a leading position amidst disruption.
- 78% of CEOs think that it’s becoming increasingly difficult to identify which disruptive factors to prioritize.
The new “innovator’s dilemma” lies in the fact that although many companies realize the need for change, they lack the determination and courage to take concrete action.
When choosing a path of development, if we are only satisfied with incremental innovation and overlook the breakthrough speed that revolutionary change can bring, we will gradually find that the gap between market demand and the products or services we provide continues to widen. Such a disadvantage makes it difficult for us to catch up with competitors who set more ambitious goals, act more swiftly, and possess exceptional boldness and insight.
In my forty years of career, most of which were spent in the retail industry in senior management, consulting, and strategic advising roles, this situation is particularly prominent. For instance, the market share of traditional department stores, once dominant in the marketplace, has been eroded by off-price retailers such as TJMaxx, HomeGoods, and Ross Stores, emerging beauty industry players like Ulta and Sephora, as well as the e-commerce giant Amazon, among so-called non-mall competitors, while also facing continuous impact from fast fashion brands.
Even though such industry changes have been underway for over twenty years, most chain retailers like Macy’s, JCPenney, and Nordstrom are still implementing a more conservative transformation strategy. They focus more on maintaining their mall-centric physical stores rather than undertaking radical reforms. They keep introducing new promotional measures while also closing hundreds of stores and cutting costs multiple times. However, this conservative approach has not stopped the continuous decline in market share, and customer loss has long shifted to those competitors who dare to rebel and innovate.
Take beauty products as an example, even though these products make up only about 20% of the sales revenue in most department stores, at the time of writing this article, Ulta’s market value has already far exceeded the total of North America’s top five department stores. Over the past five years, the stock price of TJX Companies (which owns budget brands including TJMaxx, Marshall’s, and HomeGoods) has doubled, while the stock prices of major department stores have plummeted. The key to Ulta and TJX’s success is their willingness to redefine the value proposition of traditional department stores, target more focused customer segments and product lines, and break geographic constraints, challenging the traditional notion that “big brands must sell in large shopping centers.”
Conservatism is the most dangerous choice in business strategy. I often ask my clients: “Considering the world is changing rapidly, why is your change so trivial?” Their answers are often complicated, but the core issue usually lies in the fear of change and the failure to recognize the significant risks of not taking bold action. As humans, we often struggle to understand the origin of our fears.
Re-examining the retail industry, we find that the main reason companies like Bed Bath & Beyond, Blockbuster, and Borders went out of business was their failure to recognize that sticking to the status quo was an extremely risky strategy. These once industry giants have fallen. The examples of retailers that have failed to transform successfully in the face of new era challenges continue to increase.
Facing reality, we must re-evaluate our relationship with risk and clearly understand the potential high costs of inaction. We should understand where the fear that causes resistance comes from. At the same time, we should embrace the beauty of imperfection, and remember the words of Seth Godin: “If failure is not an option, then success is not possible.” More importantly, we must take concrete steps to ensure that we can move quickly in this increasingly unstable world.
To foster a spirit of experimentation, we should strive to achieve “change in increments,” which means breaking down a complex and potentially overwhelming change into a series of more manageable steps. This way, we can fine-tune at each stage, determining whether we should stop, re-assess, change direction, or increase resource input.
If we accept the argument that caution often entails the highest strategic risk, we will realize that in this age of accelerated change, only by quickly creating greater value for customers and taking bolder and more rapid action can the chances of success be maximized. This does not mean recklessly conducting or continuously implementing grand project plans, nor is it entirely the “move fast and break things” ethos proclaimed by Silicon Valley.
As Graham Greene said, “Destruction is also a form of creation.” Often, old patterns must be broken to pave the way for new things, to allow more powerful new entities to emerge. However, as long as we can bring enough value to customers, taking quick action and subsequent repairs is also of great value.
Although everyone may have a different understanding of this viewpoint, if you find yourself in the midst of it, you might also want to start taking action immediately.
