Breaking Through Disruption

BREAKING THROUGH DISRUPTION Embrace the power of the wise pivot 1 BREAKING THROUGH DISRUPTION

AT A GLANCE Disruption is an inescapable challenge There is a better path: We studied how a for all industries. And when companies select group of companies confronted face it, they typically make cautious disruption in an unconventional way, by To make a Wise Pivot, moves. They raise barriers to entry pushing themselves outside of their companies need to instead of extending themselves comfort zone. reallocate their financial, outward. They rely on what’s worked for them in the past, in lieu of seeking They took charge of their own destiny, by innovation and talent deep change on the inside. They double making what we call an “innovation pivot” resources towards down on efficiency, rather than to truly change their position, with long- businesses of the future, committing to real innovation. term impact in mind. but without neglecting But while these are instinctual and How can today’s companies chart a their legacy. In this report, understandable choices, they don’t work. successful future? It starts with we show how successful They keep companies in survival mode understanding the distinctive nature of companies deploy an and away from actively shaping their disruption in their industry. And from innovation pivot to manage future. In fact, playing it safe amid there, more ambitious, bold innovation disruption effectively, over disruption is very risky: Our analysis of moves must replace protective reactions. time. 10,000 companies shows that $41 trillion in enterprise value is already exposed to 1 disruption today. 2 BREAKING THROUGH DISRUPTION

ABOUT THE AUTHORS Our team is at the forefront of helping organizations navigate a path through disruption to become leaders in the New. Omar Abbosh Paul Nunes Dr. Vedrana Savic Michael Moore Group Chief Executive, Global Managing Director of Managing Director of Thought Senior Principal, Thought Communications, Media & Thought Leadership at Leadership at Accenture Leadership at Accenture Technology Group Accenture Research Research Research Omar serves on Accenture’s Paul focuses on technology– Vedrana has wide-ranging Michael has broad experience in Global Management Committee driven innovation in business experience in strategy, strategy consulting and and was previously Accenture’s and marketing strategy. His management consulting and developing growth strategies for Chief Strategy Officer. He has research has helped to shape financial services. She is a energy companies. His research extensive experience in advising Accenture’s strategic vision as thought leader focused on looks at how companies can C-level and board level members well as its critical imperatives for innovation strategy, value understand, harness and scale across a wide range of change, spanning three creation in the digital age and disruptive innovation in support industries. decades. corporate reinvention. of inclusive growth. 3 BREAKING THROUGH DISRUPTION

CONTENTS At a glance 02 Time for courage 31 About the authors 03 The disruptability index 32 Decoding disruption 05 What the disruptability index measures 33 The new normal 08 How the disruptability index was built 35 Playing it safe—and faltering 11 References 36 How to boldly break away and start your 13 About Accenture 37 innovation pivot Create your next cutting edge 15 Fund your future bets 19 Find partners to scale with 23 Disrupt from the inside 27 4 BREAKING THROUGH DISRUPTION

DECODING DISRUPTION At-home augmented reality car shopping. Silicon- As Jorge Paulo Lemann, co-founder of 3G Capital, put it, based storage systems for renewable energy that can “I’ve been living in this cozy world of old brands, big power cities even when the sun isn’t out. Smart volumes, nothing changing very much, and you could speakers that know which products consumers need, just focus on being very efficient and you’d be okay, but even before they do. The way we live today is driven now we are being disrupted in all ways…we are running to by new innovations that we scarcely could have adjust.”2 dreamt of a mere generation ago. While consumers Top executives are right to be worried. Most of the are demanding more personalized and flexible 10,000 companies we analyzed—71 percent—are services, business leaders are left to navigate an ever- currently either in the throes of, or stand on the brink of, changing landscape. 3 significant disruption (see Figure 1). C-suite mentions of “disruption” during earnings calls, In our previous research, we found that disruption is not investor conferences, and company announcements completely unpredictable, it can be decoded—good have increased significantly over the past decade. And news, since understanding it better makes it more with it, the anxieties of executives across industries. manageable. Based on its current level of disruption and susceptibility to future disruption, each industry can be located in one of four distinct periods—Durability, Vulnerability, Volatility or Viability. 5 BREAKING THROUGH DISRUPTION

DURABILITY VULNERABILITY VOLATILITY VIABILITY Industries in the period of In the period of Vulnerability, In the period of Volatility, old In the Viability period, Durability demonstrate acute weaknesses in sources of industry strength embryonic or reborn broad resilience and achieve industries, from a lack of become weaknesses, as industries try to sustain high consistent performance, innovation to insufficient large disruptors enter to rates of innovation and enjoy while disruptors remain a investment, become unlock new sources of value. only short-lived competitive distant threat, for now. But apparent. It is in this period Most companies focus on advantage as new disruptors instead of purely sustaining where incumbents benefit resolving pressing issues in constantly emerge. Here the the status quo, this is the from the continued the core business; what’s opportunity lies not only in period where companies presence of high barriers to much harder is redirecting growing the core business by have a great opportunity to entry; instinctively many rely investment capacity to grow offering new products in seek and experiment with on these defenses to fend new businesses. existing markets, but also in new business ideas. off disruption. This blind expanding the footprint of spot distracts many from a existing products to new great opportunity: scaling up markets. new ideas and venturing into new markets. 6 BREAKING THROUGH DISRUPTION

FIGURE 1. MOST INDUSTRIES ARE EITHER EXPERIENCING DISRUPTION OR ARE SUSCEPTIBLE TO IT Disruptability Index Industry Sector Matrix – 2018 results 0-1 scale (1 = most susceptible/disrupted) 0.80 VIABILITY VOLATILITY 4 (18% of companies) 5 age (33% of companies) 0. er v 0.70 ION Comms & Media eighted A Infrastructure & T Retail Transportation Services P Consumer Goods U 0.60 & Services R High-Tech 018 W Insurance S 2 I Software & Platforms L OF D 0.50 Banking E 2018 Weighted Average Automotive V Travel E 0.51 Life Sciences Industrial Equipment & Machinery T L N Health E 0.40 Capital Markets R R U Chemicals Natural C Energy Utilities Resources 0.30 DURABILITY VULNERABILITY (11% of companies) (38% of companies) 0.20 0.20 0.30 0.40 0.50 0.60 0.70 0.80 SUSCEPTIBILITY TO FUTURE DISRUPTION 7 BREAKING THROUGH DISRUPTION Source: Accenture Research Disruptability Index 2.0.

THE NEW NORMAL? LONG-TERM DISRUPTION This year, we created the Disruptability Index 2.0 to understand how the nature of disruption evolved between 2011 and 2018 for 18 industry sectors. Our longitudinal research reveals that industry disruption is a persistent condition—not short-lived. 8 BREAKING THROUGH DISRUPTION

Extended exposure to persistent And in examining disruptors, we see disruption comes with serious casualties, competition increasing as venture- no matter the industry. Between 2011 and backed companies (amongst others) take 2018, 3,217 U.S. companies from across market share. Aggregate VC funding 4 across all industries increased almost the 18 sectors went bankrupt. Retail, which has been in the period of 5-fold between 2011 and 2018. 83% Volatility throughout 2011 to 2018, was hit For example, both the Consumer Goods of industry sectors especially hard, with 43 corporate and Services and Retail sectors, we analyzed spent bankruptcies recorded in 2018. Examples experienced more than a 30 percent at least five years in range from 125-year-old Sears to Nine increase in their level of disruption 5 between 2011 and 2018. This was based the same period of West , which is exiting its struggling shoe disruption between business, having missed the shift to on an almost 500 percent increase in the athletic shoes and sneakers. number of unique VC deals between 2011 and 2018. As these companies discovered firsthand, 2011-18, with total VC funding of just disruption is measurably on the rise under $12 billion in 2018. (Figure 2). Looking at incumbents, we find evidence of volatile and declining financial performance, with average 5-year revenue growth lower in 2018 than in 2011 for 10 out of 18 industries. 9 BREAKING THROUGH DISRUPTION

FIGURE 2. LEVELS OF DISRUPTION HAVE INCREASED CONSIDERABLY SINCE 2011 55% Ranking of industries (2018), and percent change in index score (0-1), 2011-18 UPTION 37% 37% 31% 21% 22% 15% 15% 18% 18% 11% y s 6% l alce alets ave 4% sour apit r e T Industrial Equipment& MachinerNaturRCMarkChemicals ail e & s s e s gy s et ech e & alth R ationviceance vice T arorms t twf Ener -6% Utilitie -6% He Ser Insur High- Banking Plat utomotiv -8% astructuranspor & Ser Sof A e Science -11% r -13% Lif Comms & Media InfrT Consumer Goods % CHANGE IN CURRENT LEVEL OF DISR MOST DISRUPTED RANK OF INDUSTRIES BY LEVEL OF CURRENT DISRUPTION IN 2018 LEAST DISRUPTED 10 BREAKING THROUGH DISRUPTION Source: Accenture Research Disruptability Index 2.0.

PLAYING IT SAFE— AND FALTERING Industry participants are acutely aware of the threats posed by disruption. But how are they responding? We addressed this question by assessing an industry’s susceptibility to future disruption; we looked at whether its players are becoming more efficient, or more innovative, or whether they are building stronger defenses. All industries are focused on building greater resilience, with the biggest improvers being the Health and High-Tech sectors. They did this through a range of activities, from cutting operating costs, to improving innovation commitment and saving for a rainy day. Companies in High-Tech, for example, shaved on average 2.6 percentage points off their COGS/Revenue and increased the value of their cash and short-term assets by 40 percent. But they continued to see an increase in actual disruption, due to financial performance pressures and the merciless influx of disruptors. 11 BREAKING THROUGH DISRUPTION

What explains this paradox? Over time, incumbent companies have built up a reservoir of assets and routines and, unsurprisingly, they lean on those when responding to disruption, rather than staking out new terrain. This leads “Schneider is more than 180 years them down familar paths. They double down on efficiency. old. We started in iron and steel and They get defensive. now we are digital solutions for For example, as oil prices collapsed following supply- and energy, using automation. What demand-side innovations like new drilling techniques and we’ve learned is that there are two energy-efficiency technologies, companies in the Energy kinds of pivots: the pivots you sector focused heavily on reducing their asset and transaction initiate, which are good for the intensity. The value of fixed assets (measured as property, company, and the pivots the plant and equipment) relative to revenue averaged 207 percent in 2016; by 2018, this had fallen to 165 percent. environment imposes on you. Those Other industries, such as Infrastructure and Transportation are very painful. So our obsession in Services, sought to strengthen their defenses, increasing the the past 20 years has been to value of their intangible assets and building cash stockpiles. anticipate, to choose our pivots and The proven, familiar strategies may have served incumbents transform continuously as a well in the past. But they are not sufficient for prospering company.” through persistent disruption. There is a better path; an unconventional one that enables Jean-Pascal Tricoire companies to take charge of their own destiny, by Chairman and CEO, Schneider Electric courageously making what we call an innovation pivot. This is the way to truly change (not simply protect) their position, with long-term impact in mind. 12 BREAKING THROUGH DISRUPTION

HOW TO BOLDLY BREAK AWAY AND START YOUR INNOVATION PIVOT We know cruising along until a crisis hits, is not a smart strategy. So what is? What can we learn from those who are prevailing in this period of rising and persistent disruption? Which companies have managed to go their own way and outperform their industry peers? We used our time-series data to identify companies that continued to generate value despite their industries’ exposure to disruption. Specifically, we analyzed the way they responded to disruption and how these strategies differed from those of their peers. What we found was that the nature of disruption in your industry should inform, but not constrain, when and how you focus your innovation efforts. 13 BREAKING THROUGH DISRUPTION

FIGURE 3. START YOUR INNOVATION PIVOT: STRATEGIC CONSIDERATIONS WHAT’S THE NATURE OF DISRUPTION IN YOUR HOW CAN YOU BREAK AWAY FROM THE NORM? INDUSTRY? When your industry wallows in the Viability CREATE YOUR NEXT CUTTING EDGE period of disruption... Embrace new technologies to develop potentially disruptive ideas, in and outside of your current industry. When your industry hovers in the Durability FUND YOUR FUTURE BETS period of disruption... Progressively bolster and allocate your innovation investments so you can test and turn new ideas into commercial realities faster. When your industry struggles in the FIND PARTNERS TO SCALE WITH Vulnerability period of disruption... Commit to scaling new ideas with ecosystem partners who can provide access to technologies and specialized talent. When your industry flails within the DISRUPT FROM THE INSIDE Volatility period of disruption... Establish a specialized entity such as an “innovation lab” or a “digital factory” in order to bring meaningful innovation into your established business. 14 BREAKING THROUGH DISRUPTION

If you’re in Software & Platforms, Communications & Media, or High-Tech (Viability)… Create your next cutting edge 15 BREAKING THROUGH DISRUPTION

Embrace new technologies to develop potentially disruptive ideas in and outside of your current industry. Financial performance is often strong for incumbents that have captured winner-takes-all markets, but new entrants have their eyes on growing profits. Industries in this period of disruption also have rapid product cycles and fleet- 35% footed customers. So, staying ahead of the curve is an imperative. of companies in the Surprisingly, relatively few Software & Platform companies are investing in Software & Platforms newer technologies such as edge and fog computing, or extended reality sector expect to technologies. Less than 40 percent plan to adopt any of those newer adopt quantum technologies in the next five years. computing over the We found that more ambitious companies go beyond today’s proven next 5 years. technologies to innovate at the next frontier, where they can discover potentially disruptive ideas. Ultimately, they understand that the best way to prepare for the future is to create it. 16 BREAKING THROUGH DISRUPTION

FIGURE 4. DISRUPTION TREND OVER TIME: SOFTWARE & PLATFORMS SECTOR 0.80 VIABILITY VOLATILITY (18% of companies) (33% of companies) N 0.70 Software & Platforms O I 2015 has remained in the T P U 0.60 2014 period of Viability in all R S I eight years that we D F 2012 studied. The industry’s O L 0.50 2018 E level of susceptibility V E L 2011 to future disruption T N 0.40 E peaked in 2012, amid R R fierce competition in a U C 0.30 fragmented market, DURABILITY VULNERABILITY but has since fallen (11% of companies) (38% of companies) back as dominant 0.20 0.20 0.30 0.40 0.50 0.60 0.70 0.80 players have emerged. SUSCEPTIBILITY TO FUTURE DISRUPTION Nodes represent annual scores for industry sector Software & Platforms 0-1 scale (1= most susceptible/disrupted) Other industry scores 17 BREAKING THROUGH DISRUPTION

STAGING A SECOND ACT: MICROSOFT How does one of the most successful companies of the 20th The company’s outlay on R&D increased by 43 percent from 7 century reinvent itself for the 21st? That was the question $11.4 billion in 2014 to over $16 billion in 2019. Microsoft Microsoft faced as it sought to bring new life to its thriving understood that it had to quickly reposition itself from selling operating systems business. incrementally improved “software in a box” to perpetually Since the appointment of Satya Nadella as CEO in 2014, updated software as a service. In transforming and continually Microsoft has refocused on organic innovation. The company growing its core business, Microsoft has kept up its profitable especially seeks to find the place where unmet customer legacy Windows business. And this has given the company a needs intersect with today’s advanced “technology curve.” healthy platform from which to invest in cutting-edge Nadella notes that “when those two come together, magic technology. In addition to investing in AI and cloud computing, 6 the company is developing innovations in areas ranging from happens.” The art of innovation is finding that precise “holoportation” to instant voice translations, and even an HIV intersection point. vaccine.8 Microsoft’s capital expenditure stands at 11 percent of revenue—eight percentage points higher than the industry average. 18 BREAKING THROUGH DISRUPTION

If you’re in Health, Life Science or Chemicals (Durability)… Fund your future bets 19 BREAKING THROUGH DISRUPTION

Progressively bolster and allocate your innovation investments so you can test and turn new ideas into commercial realities faster. The relative success of companies in these industries doesn’t mean they’re invincible, especially if fault lines and inefficiencies are ignored. Chemicals companies, for example, are performing strongly, with average annual revenue growth rates 64% of 5.7 percent over the past five years. But investment in the future is showing signs of slowing. This comes at a time of rising threats: unique VC deals in the industry of companies in the 9 have more than tripled, from 226 in 2011 to 691 in 2018. Chemicals sector Leaders in these industries focus on building a pipeline of new ideas rather than allocate innovation sweating their core assets. More importantly, they bolster and allocate the capital investments based necessary to ensure they can commercialize new ideas with future potential before on future potential. their competitors do. These industries have benefited from decades-old business models that served them well. Unsurprisingly, they aren’t prepared to let go of proven success formulas. Disruptors are kept at bay by the incumbents—for now. 20 BREAKING THROUGH DISRUPTION

FIGURE 5. DISRUPTION TREND OVER TIME: CHEMICALS SECTOR 0.80 VIABILITY VOLATILITY (18% of companies) (33% of companies) N 0.70 O I T Chemicals spent 2017 and P U 0.60 2018 in Durability. The R S I D industry’s levels of F 2015 O susceptibility to future L 0.50 2012 E V disruption peaked in E L T 2014 2012, at which point the N 0.40 2011 E 2018 industry was in a period of R R U Volatility. In this year, C 0.30 incumbents experienced DURABILITY VULNERABILITY higher transaction costs, (11% of companies) (38% of companies) 0.20 and corresponding 0.20 0.30 0.40 0.50 0.60 0.70 0.80 margin compression. SUSCEPTIBILITY TO FUTURE DISRUPTION Nodes represent annual scores for industry sector Chemicals 0-1 scale (1= most susceptible/disrupted) Other industry scores 21 BREAKING THROUGH DISRUPTION

MAKING NEW BUSINESSES A REALITY: BASF BASF has been innovating since 1865. From introducing And it is willing to be acquisitive when the right opportunity 13 synthetic dyes and fertilizers around the turn of the 20th beckons. In 2018, BASF acquired a range of agribusiness century, the €65-billion revenue German chemicals firm is assets from the pharmaceuticals giant Bayer. now a leader in fields from battery technology and This move consolidates BASF’s strength by bolstering 10 agrichemicals to the circular economy. Organic innovation capabilities in areas such as crop protection, biotech, and remains at the firm’s heart: 11,000 BASF employees now digital farming. BASF subsequently renamed its Crop work on roughly 3,000 research projects in 70 labs across Protection division to Agricultural Solutions, giving it the globe. prominence as the newly expanded business line. But BASF is also keen to look outside for new ideas to acquire and convert into new lines of business. It has set up 11 a venture capital arm , which invests in startups in niche areas of interest. It also partners judiciously, such as with Greentown Labs to advance innovation for the circular economy12. 22 BREAKING THROUGH DISRUPTION

If you’re in Banking, Capital Markets, Industrial Equipment & Machinery, Insurance, Utilities, Automotive or Energy (Vulnerability)… Find partners to scale with 23 BREAKING THROUGH DISRUPTION

Commit to scaling new ideas with ecosystem partners who can provide access to technologies and specialized talent. Most industries in the Vulnerability period have the Platform companies and startups, fueled by an benefit of being well-established and asset-rich. eight-fold rise in VC funding since 2011, are The incumbents in these industries tend to be perpetually trying to overtake incumbents. Some older than others: 64 years on average, compared innovations, such as ride-sharing, may even knock 67% with just 42 for those in the Viability period. demand off course. One shared vehicle may The new entrants that do emerge, initially attack replace eight privately-owned vehicles; by 2030, of automotive incumbents at the product and service level rather up to 40 percent of the profits in the industry may 14 companies expect than competing across the value chain. But for be picked up by mobility services. With cost of to actively engage most, the squeeze often isn’t severe enough to goods sold at 80 percent of revenues across the with ecosystem inspire substantial action. Incumbents often industry, relying on a core business of pumping out partners to scale ponder for too long and lack the risk appetite to incrementally improved cars looks like a strategy the most promising invest in new growth ideas early. that’s out of road. ideas faster, in the The Automotive sector has spent six years in the The opportunity exists for those companies that next five years. period of Vulnerability. But while incumbents may can see beyond the short-term pressures and set think they’ve applied the brakes to disruption by their sights on creating scalable businesses that revving up capital investment and easing up on will matter tomorrow. Large companies have operating costs, the industry could face a bumpy realized that to succeed, they need to commit to ride ahead. scaling new ideas with ecosystem partners who can provide access to technologies and specialized talent. 24 BREAKING THROUGH DISRUPTION

FIGURE 6. DISRUPTION TREND OVER TIME: AUTOMOTIVE SECTOR 0.80 VIABILITY VOLATILITY (18% of companies) (33% of companies) N 0.70 O Automotive has spent all I T P but two years in the U 0.60 R S period of Vulnerability. I D F Current disruption rose O L 0.50 to its highest level in E 2017 2018 V E 2018, as ever greater L 2016 T N 0.40 2015 levels of venture capital E 2011 R have flowed into the R U 2012 C 0.30 sector, fueling new 2014 2013 competitive threats, and DURABILITY VULNERABILITY (11% of companies) (38% of companies) squeezing incumbent 0.20 0.20 0.30 0.40 0.50 0.60 0.70 0.80 margins. SUSCEPTIBILITY TO FUTURE DISRUPTION Nodes represent annual scores for industry sector Automotive 0-1 scale (1= most susceptible/disrupted) Other industry scores 25 BREAKING THROUGH DISRUPTION

MOVING FAST ON EMERGING POSSIBILITIES: TOYOTA Can an octogenarian company lead the way in an The company is also working with Accenture and telecoms industry that the biggest tech companies have their eyes firm KDDI, to develop an AI taxi dispatch system that on? It helps if you have a record of innovation—and a war predicts consumer demand to optimize usage and reduce 16 chest of cash and short-term investments worth $45 customer waiting time. billion. But the critical element of the company’s strategy Its ambition for unlocking more value for consumers is strong partnerships. doesn’t stop there: in 2019, the company launched a Toyota is partnering with Panasonic to develop electric- subscription driving service, Kinto. What distinguishes Kinto 15 vehicle batteries at scale and smarter homes. The two is the introduction of a “gamified” element to encourage 17 companies will commit 3,500 employees to the joint good driving. Through IoT and monitoring technologies, venture, which will sell batteries to other manufacturers the company plans to award points to drivers for “safe and as well as supplying Toyota. ecological” driving, which can be redeemed in the form of future payments. 26 BREAKING THROUGH DISRUPTION

If you’re in Consumer Goods & Services, Infrastructure & Transportation Services, Natural Resources or Retail (Volatility)… Disrupt from the inside 27 BREAKING THROUGH DISRUPTION

Establish a specialized entity such as an “innovation lab” or a “digital factory” in order to bring meaningful innovation into your established business. Industries in the Volatility period of disruption Many industries here realize it’s time for a rapid re- feel the pinch. Financial performance has think. In a separate study we conducted, we found dropped off, as fault lines that developed that 80 percent of companies in the Retail and amongst incumbents have been exploited by CG&S sectors had altered their strategy as a disruptors who are eating their market share. 19 consequence of disruption. And there is little sign of abatement—the future Some of the incumbents in this disruption period looks equally difficult as inefficiencies and show tenacity, while others jump the gun and try underinvestment in innovation are exposed. They to do too much too soon. Leading companies face difficult prospects, requiring them to make juggle the twin challenges of prolonging the radical choices in their core business. lifespan of their legacy business while also In the Retail sector, ever-growing platform-based investing in new areas. The former requires a competition has forced some hard choices. The restructuring that supports continual internal historically slow innovation displayed by disruption in order to mitigate external threats. traditional retail players is changing—$5 billion is 18 expected to be spent on AI technology in 2019. But more than a digital veneer is needed. 28 BREAKING THROUGH DISRUPTION

FIGURE 7. DISRUPTION TREND OVER TIME: RETAIL SECTOR 0.80 VIABILITY VOLATILITY (18% of companies) (33% of companies) N 0.70 O I T 2017 P Retail has spent the U 0.60 R 2016 S I 2018 2015 past seven years in D F 2014 Volatility. Peak levels O L 0.50 E 2013 of current disruption V E L occurred in 2017, as 2011 2012 T N 0.40 growth slowed and E R R bankruptcies U C 0.30 proliferated. DURABILITY VULNERABILITY (11% of companies) (38% of companies) 0.20 0.20 0.30 0.40 0.50 0.60 0.70 0.80 SUSCEPTIBILITY TO FUTURE DISRUPTION Nodes represent annual scores for industry sector Retail 0-1 scale (1= most susceptible/disrupted) Other industry scores 29 BREAKING THROUGH DISRUPTION

CREATING—AND LEARNING FROM—LIVING LABS: WALMART Retail in general may be severely disrupted, but Walmart has The store is staffed by 100 employees who leverage resisted the trend. Staying ahead on innovation is one reason artificially intelligent sensors and cameras to monitor why. While a spate of acquisitions has boosted Walmart’s online inventory and replenish stock, which frees up much needed 20 22 presence significantly , the retailer is not neglecting its physical time to spend with their customers. stores. Walmart continues to solidify its organic growth plans by In the words of Mike Hanrahan, CEO of the new lab, opening its first AI-enabled Intelligent Retail Lab (IRL) location. “Technology enables us to understand so much more, in real Developed by the company’s innovation incubator, Store No. 8, time, about our business.” This is creating a virtuous circle the new store will be used as a testing ground to experiment within the company, where what leaders learn from new with emerging technology.21 developments like IRL feeds Walmart’s evolving strategy. 30 BREAKING THROUGH DISRUPTION

TIME FOR COURAGE No longer can companies assume that disruption is just a passing storm they need to ride out. As Bob Iger, Chairman and CEO of The Walt Disney Company, once said: “We have to be different when that 23 storm clears. We can’t be the same.” Responding to persistent disruption requires a radical departure from familiar strategies. Your path to repositioning starts by understanding the disruption trends: How disruptable is your industry today? How has disruption evolved in your industry over time? It takes shape when you put innovation to work in ways that enable you to set the right pace—whether you create your next cutting edge earlier than others, fund your future bets to turn new ideas into commercial reality, scale ideas faster through new partnerships or develop world-class in-house innovation capabilities. Then your company will not only be different once the storm clears: It’ll be stronger for the next one. 31 BREAKING THROUGH DISRUPTION

APPENDIX 32 BREAKING THROUGH DISRUPTION

WHAT THE DISRUPTABILITY INDEX MEASURES The Disruptability Index measures an We therefore measure industry susceptibility industry’s current level of disruption as well to disruption along these three dimensions, as its susceptibility to future disruption. assessing how innovative, defensible, and To diagnose the current level of disruption, efficient incumbent businesses are. we “follow the money” along two dimensions: The index assesses 18 industry sectors and from incumbents, where we look for evidence then 106 industry segments within them. We of declining financial performance; and to use a combination of industry-level and disruptors, where we search for evidence of company-level performance data, with the new competition. latter informed by analysis of the 10,000 Our research shows disruptors are successful largest listed companies (based on revenue). in three ways: they deliver significant innovation in products and experiences for consumers; they break down incumbent defenses and barriers to entry; and, they dramatically lower historic prices through new cost structures. 33 BREAKING THROUGH DISRUPTION

PERFORMANCE DISRUPTORS INNOVATION DEFENSES EFFICIENCY Has the financial Have incumbents been Is there an opportunity to Is there an opportunity to Is there an opportunity to performance of challenged by new players? drive superior product and capture market share, or drive a step-change in incumbents declined? service innovation? circumvent regulations? efficiency? Based on industry: Based on industry: Based on industry: Based on industry: Based on industry: • Growth and expectations • Disruptive startups • Commitment • Brand prominence • Transaction intensity • Profitability • Disruptive capital • Digital effectiveness • Openness and strength • Asset intensity • Volatility • Disruptive titans • Positioning for the future • Value creation potential • Labor intensity MEASURING THE CURRENT LEVEL OF DISRUPTION MEASURING SUSCEPTIBILITY TO FUTURE DISRUPTION 62 18 106 10,000 2011-18 12m+ indicators industry industry companies time series data points sectors segments 34 BREAKING THROUGH DISRUPTION

HOW THE DISRUPTABILITY INDEX WAS BUILT Framework and indicators: Normalization: Aggregation and weights: To develop the framework for the index, All 62 indicators are normalized based on The Disruptability Index computation is we conducted a comprehensive literature a min-max approach. This converts each based on successive aggregation of review and spoke to subject matter indicator into a unit-less score ranging the normalized scores from the advisors about the nature of disruption. A from 0 to 1. The closer the score to 1, indicators up to the overall scores for total of 62 indicators are used to measure either the higher the level of current current level of disruption and each factor in the framework: 24 to disruption, or the higher the susceptibility susceptibility to future disruption. After measure the current level of disruption to future disruption. The min and max generating normalized scores, we used and 38 to measure the susceptibility to values are derived from statistical analysis the indicator weighted average to future disruption. 13 indicators are based of the distribution of the data from across calculate dimension scores. Weighting on statistics provided by reliable external 2011-18, using a process of winsorization adjustments were made to grouped sources suppliers, including CB Insights, that helps account for extreme values. indicators (e.g. average, dispersion, and OECD, Gallup, Oxford Economics, IDC, This means that the min and max values change), and to ensure no indicator and Brand Directory. 49 indicators are stay constant for the computation of the had too much impact based on the based on aggregated company-level index across the time period, enabling us variability of the underlying raw data. analysis, using a database of the 10,000 to compare scores across each year. After generating dimension scores, the largest, publicly-listed companies in each arithmetic average generates the year. This data is drawn from Capital IQ. current disruption and susceptibility to future disruption scores. 35 BREAKING THROUGH DISRUPTION

REFERENCES 1 Percentage of companies from sectors scoring above the 10 BASF weighted average on ‘current level of disruption’. This equates to 11 BASF 4,889 unique companies with Enterprise Value (market cap + net debt) of $41tn (out of $75tn). Sample comprises the largest (by 12 EurekAlert revenue) 10,000 operating, publicly listed companies, with 471 13 BASF excluded because they are multi-sector holding companies or in industries out of scope 14 Accenture Research estimates based on interviews 2 Milken Institute’s Global Conference 2018, ‘Strategy and 15 Reuters leadership in an age of disruption’ 16 ZDNet 3 Percentages denote the proportion of companies in given year that are in an industry that is positioned in the particular 17 TechCrunch disruption period based on the given year’s weighted averages 18 IDC for Susceptibility and Current Level of Disruption 19 Accenture Strategy, Striking Balance with Whole-Brain Leadership. 4 Capital IQ data on all US-based companies that have gone Based on a telephone survey of 200 C-suite executives conducted in bankrupt France, Germany, Italy, Spain, the UK and the US between February 5 Washington Post and April 2019 6 20 Business Insider Hearst 21 7 Capital IQ Walmart 8 Microsoft, Skype, Microsoft 22 TechCrunch 9 CB Insights 23 Barron’s 36 BREAKING THROUGH DISRUPTION

About Accenture About Accenture Research Accenture is a leading global professional services company, Accenture Research shapes trends and creates data-driven providing a broad range of services and solutions in strategy, insights about the most pressing issues global organizations consulting, digital, technology and operations. Combining face. Combining the power of innovative research techniques unmatched experience and specialized skills across more than with a deep understanding of our clients’ industries, our team 40 industries and all business functions—underpinned by the of 300 researchers and analysts spans 20 countries and world’s largest delivery network—Accenture works at the publishes hundreds of reports, articles and points of view every intersection of business and technology to help clients improve year. Our thought-provoking research—supported by their performance and create sustainable value for their proprietary data and partnerships with leading organizations stakeholders. With approximately 477,000 people serving clients such as MIT and Harvard Business School—guides our in more than 120 countries, Accenture drives innovation to innovations and allows us to transform theories and fresh ideas improve the way the world works and lives. into real-world solutions for our clients. Visit us at www.accenture.com For more information, visit www.accenture.com/research Copyright © 2019 Accenture. All right reserved. Accenture and its logo are registered trademarks of Accenture. This document makes descriptive reference to trademarks that may be owned by others. The use of such trademarks herein is not an assertion of ownership of such trademarks by Accenture and is not intended to represent or imply the existence of an association between Accenture and the lawful owners of such trademarks.