Podcast transcript: How can you be both the disruptor and the disrupted?

Juliette Foster

Hello and welcome to The Better Question, the new series of podcasts that answers the better questions that will help you lead your business through this transformative age. I am your host Juliette Foster, and today we are direct from the annual EY World Entrepreneur Of The Year Forum in Monaco, where we are looking at disruption. We’ll answer the better question, “How can you be both the disruptor and the disrupted?”.

We’ll explain more in a moment. But judging by a new EY survey of business leaders from the world’s 5,000 largest companies, most of you feel that you are disruption-ready. But, this confidence is misplaced. The survey shows that business leaders who feel most disruption-ready are actually those that have done the least to prepare their organizations.

We’ll also be hearing about disruption in practice from Markus and Martin Villig . They are two brothers who transformed their ride-hailing app into a global player, operating in 30 cities across Europe, the Middle East, Africa and South America. Here’s Markus:

Disruption, in most cases, follows a pretty predictable path because customers oftentimes just want better service, they want the cheaper service and they want it to be faster. So, as long as a company just focuses on the end goal of what the customer wants, instead of the mechanism of how they deliver it today, I think that's really the key to success.

But now, let’s hear from EY’s Gil Forer about the results of the EY global survey on disruption readiness. Gil leads EYQ, the global think tank which has the objective of anticipating and shaping the future of EY work in the market and with their clients within the digital space.
I began by asking whether Gil feels that the world’s largest corporations are really ready to seize the upside of disruption.

Gil Forer

So, I don't think we are as ready as we believe we are. When you start to peel the onion, you find out about the actions that they have taken — either they've not taken action at all or they've taken some action, ones that we would call theater of innovation. So, they've done some stuff; but it's not anything substantial that is going to really change the business model, the structure of the company, the organizational structure, the talent base and so on. So yes, maybe they will put more money to invest in X or Y, but what does it really mean? So, I think that overall, if you look at the population that we looked at, which is a sample size of the 5,000 largest companies in the world, these companies are not where they should be.

Juliette Foster

Your study grouped companies into three broad categories of disruption readiness. Can you tell me about caterpillars, chrysalises and butterflies?

Gil Forer

So these, basically, are three groups of the population for the study that we did with CEOs across the globe. The caterpillars, for example, were the majority of the respondents, and they rated themselves as very high in disruption readiness. But when we started to probe with more questions in terms of what they had actually done, we could see that they were actually the least ready. The chrysalises were those who were on the right track — they were not there yet, they were at the beginning of the journey. They were undertaking a certain transformation of the company. They were concentrating on creating a culture of innovation, looking at the tail end and looking at the whole enterprise in terms of digital transformation; but they were not doing the full transformation yet. They were at the beginning of the journey overall.

But they were disruption-aware — they were definitely aware that they need to do something about it. The butterflies were the leading group. It was interesting since they were the group that was most ready and they actually took the leadership , but they rated themselves as the least ready. So they were not saying, “Oh, we are definitely ready and we're done.” They were actually taking action. They knew that the action is complex and understood that it is a journey that would take time. As we said, it’s a change — and sometimes, a painful change — in order to drive the company to be ready for disruption and take the upside of disruption.

Juliette Foster

Okay. So, in other words, the more you do to address disruption in your business, the more you realize how much you have still got to do.

And yet, for some businesses, success makes them complacent in this area. So Gil, how do you go about making a large, mature company disruption-ready?

Gil Forer

That’s actually a difficult task. If you have been successful for quite some time, if you have been the leader in your industry, if your financial results are quite good, then you tend to be more relaxed and you don't feel the urgency to change. This is, again, a natural reaction from anybody. But that's not the job of the CEO. The CEO needs to look ahead of the game, needs to look beyond the curve, and really understand what other threats and opportunities are present in the market. The CEO needs to understand the dynamics of the industry, across the industry, across the globe and actually see where the company is going. Can they really be successful?

We have to remember financial results are basically historical results, they are not predicting the future. Predicting the future, if you can, is to look at the various trends in the industry to see what start-ups are doing in your domain, to better understand the global environment, to look at the demographics, to look at globalization, to look at the technology and connect the dots to see what you are going to do next and how you are going to take the company forward. Saying everything is good because everything has been good means you are actually not doing your job.

Juliette Foster

There is a view in some quarters that to embrace these changes, businesses have to be nimble to be disruptive, but can they really be as nimble as a start-up?

Gil Forer

Tens and thousands of people cannot operate like a company of 50. It's impossible, right? But, you can adopt a certain mentality, certain mindset and certain practices. For example, say you incubate the innovation unit outside of the organization. It doesn't mean that the organization has become a start-up, right? But, you are looking at a certain unit in your organization that is in charge of driving new thinking, new experiments and looking at the various technologies in the market; trying to incubate it; and then bringing it back to the organization. You measure them differently, you have strategic goals for them and so on. So, are you becoming a start-up? No, but you're taking certain practices from a start-up and are trying to apply it to who you are.

The other important thing is that start-ups are part of our ecosystem. It is not enough to have just partnerships or alliances, it's not enough just to have joint ventures or an agreement of licensing, but you need to develop an ecosystem that looks at the start-up community and the different hot beds (an environment that is ideal for growth) around the globe. You need to look at companies from other industries that you might want to do certain activities with. So, you need to develop an ecosystem that will allow you to re-drive collaboration in the market, drive more experimentation, and look at new business models, new opportunities and so on.

And, I think, what we also see is that you need to think of who is around you as well, have they got the right skill set to support you? Not your personal skill set, which is also important. But the people in your C-suite and the board. I think the board is important, but if you look at the composition of boards today and you look at the digital skill set of board members, it's far from where it should be. And so, if you are a CEO and you have a board, you need to make sure that you have the right skill set on the board. It's not just people who used to be CEOs before, you know, retired CEOs or retired senior executives. When was the last time that you had a 25-year-old on your board?

Juliette Foster

So, even large organizations can and should be looking to leverage the techniques used by start-ups to drive new thinking, whether it’s done internally, or ensuring that your company exists with an ecosystem where partnerships and alliances allow you to benefit from the agility and experimental approaches of start-ups.

Well, this seems a good time to bring Markus and Martin into the discussion. Markus wasn’t 25 when he launched Taxify — he was 19 years old; with Martin, his brother, 15 years his senior.

So, did Markus find that their combination of youth and experience helped them disrupt their industry?

Markus Villig

In order for you to innovate, you can't just come with a completely blank sheet. You need to know what has already been there, study what's currently happening and then you will also start to spot the things that have been done wrong. So, in that sense, it's cool for us to have a combination — from my side, a very new perspective that’s straight out of high school and then from Martin's, a perspective with 15 years of work experience from various tech companies. So, I think the blend of those is probably the thing that's really driving the innovation forward a bit better as well.

Juliette Foster

So guys, do you see yourselves as disruptors?

Martin Villig

I think that's fair to say. I think we jumped into an industry we didn't know anything about. We started aggregating taxis, working with taxi companies being just tech guys. When we started in Estonia, the biggest taxi company had 300 cars. Now, in five years, we have 500,000 drivers — they have 250 cars.

Markus Villig

Coming from tech, if you’re thinking about the business in a scalable way, then it's possible to grow like a 1,000 times faster than just doing things the traditional way.

Juliette Foster

So, tech gives you that disruptor’s mentality?

Martin Villig

Yeah, if you look at data and look from totally different angles, the business of taxi companies has always thought of how many cars can be rented out. Because most of the taxi company businesses rent out cars, keep them in order and so on. We don't know anything about that, and we don't really care about that. We think of how to increase the drivers’ earnings; how to make cars available in specific times at specific points so that customers get it when they want. So, these are the things that we care about versus the whole industry — about fleet management. So I think, maybe, that's the totally different angle in a somewhat similar service.

Juliette Foster

With technological developments allowing for extraordinary rates of growth in companies that successfully manage to disrupt their sectors, an important area to consider is that of ethics and regulation.

So, how would you define your own ethical approach to business?

Markus Villig

For us, it means that we're not in it for any kind of short-term gains — which is what we have seen a lot of companies, in our space, do before. But we were wondering of how to build a product that customers are going to love in a decade as well. So, I think that set us up for a very different type of business model. It means, we're not greedy as some other companies today on the market are. So, I think that's what ethics means for us. We're building something that people will love in a decade as well.

Martin Villig

But we also have very interesting challenges, let's say regulatory wise. So, let's say private drivers versus classic taxi drivers. We strongly believe that the current taxi regulations are really outdated, and we see that there are private drivers working on a market — they make good income, customers really love them and they are really much more efficient, providing better service than taxi drivers — what should we do as a business? In some markets, we might know that they are either illegal or this type of service is not regulated at all, because it's a new type of service that wasn't there before. So, how should you tackle that situation as a company? Should you wait for years, explain to politicians that maybe it's time to update the law? Versus, you put these cars on the street, you show live that the service is very well maintained, there are no problems and the laws should be updated. We believe that, in that case, it's easier to prove it in real life and the laws come faster, rather than just talking about possible future, but no one can touch it and use it. We think that there are interesting challenges in the regulatory space.

Juliette Foster

Let's talk about research and development (R&D) and more specifically, the ratio between success and failure. How comfortable can you afford to be with failure when you are innovating?

Markus Villig

I think accepting failure is really a prerequisite to do anything that's innovative. So, I mean you never know with any kind of high certainty up front that something is going to work because if you knew, then probably somebody has already done it before. So, that means you need to take a lot of small bets — some of which will work out, some of those will not work out. But at the end of the day, it's important to keep doing them. And, we also had a lot of failures in terms of the products we launched, or in terms of the countries we launched, where we just need to then iterate, go back and start from scratch. But, we see that it's a lot better than just trying to minimize risk and not take any chances, because it's clear the world is moving faster and those companies will just cease to exist.

Juliette Foster

So, how can companies that are disruption-aware become disruption-ready?

Markus Villig

Disruption, in most cases, follows a pretty predictable path, because customers oftentimes just want better service, they want the cheaper service and they want it to be faster. So, as long as a company just focuses on the end goal of what the customer wants, instead of the mechanism of how they deliver it today, I think that's really the key to success. So, in our case, what that means is that, we started off with taxi companies, with the same goal of providing to the passengers the cheapest and the best service within the fastest time. But then a few years in, we realized that taxi companies aren't the best way to provide that. And then, we switched to private hire drivers, or basically allowing anybody with a car to offer this type of service. But we already see that model in some countries is getting outdated as well. So now, in some countries, we are actually offering motorcycle taxis, which are even faster and even cheaper. In some countries, we're now looking at maybe providing bikes or scooters, because that's again even cheaper and even faster. So, I think that every company should just focus on the end goal of what they want to achieve and not that much on how they actually achieve it today.

Juliette Foster

I want to look at some of the markets where you’ve got a footprint, especially in Africa. Do you find that it's easier to be more innovative in markets outside the developed world? Do you think they are more receptive to what you do?

Markus Villig

Yeah, I think that's definitely true for mainly two aspects. One of those, for sure, is regulation. So, in Europe, it's typically harder to bring some new products to the market, because they haven't been regulated yet. And Europe expects you to only operate within the defined framework. While in Africa, in many cases, it’s actually much less defined and therefore you have more freedom to operate as a company and bring these innovative products to market; which is very true, for example, with drive hailing and now also looking at the next products. And secondly, what matters is, what's the existing status quo? So, in Europe, in our case, there is very good public transport already available. Here, the need for a ride sharing type of service is much less than it is in Africa, where in most cities, public transport is much poorer. So, in that sense, people are much more welcome to actually try out new services and therefore they will also be growing faster. At the end of the day, I think that it's, of course, not as interesting to know exactly what somebody else is doing. But if we see that there's room to be significantly better, then it doesn't matter if somebody has done the similar product before. So in our industry, we see that there are already thousands of drivers who are using different kinds of platforms, but if we see that we can do something better — make sure the drivers receive more pay, for example, or passengers pay less or they get a faster service, or a better service — then it doesn't matter what has been there before. It matters what we can do.

Juliette Foster

How far ahead does your boardroom planning go? Some companies look 5 or 10 years ahead. Do you?

Markus Villig

I think we definitely have some vision for what's going to happen in 10 years, but being honest, I don't think anybody in any industry knows. Things are just changing so rapidly nowadays with technology. So a few years ago, nobody was thinking that, for example, people are really willing to share bikes a lot. But now, in China, that industry has ballooned to be even bigger than ride sharing in just a couple of years. So, I think, rather than planning too much ahead of what will happen in 10 years, it's more important to just be really looking at what's happening already today and how you can integrate things that can be useful in a few years already. So, I just think the pace of innovation is so much faster than before.

Juliette Foster

When you look at the idea of innovation and disruption, it smacks of excitement — but at the same time, uncertainty. Looking at the wider picture, how do you construct a business culture that is comfortable with that uncertainty?

Markus Villig

At the end of the day, it all comes down to incentives in any organization. So, if people are incentivized not to make any mistakes, then they will not make any experiments and therefore you will not innovate. But if some sort of failure is accepted and you actually give people room to do tests and try out new things, then they will. So, it's really about incentivizing people to come up with new products on a daily basis.

Juliette Foster

And that’s it for today’s episode. The answer to a better question often leads to more questions. So, let me leave you with a few to ponder:

Is your business strategy fit for a digital world?

How well does your C-suite and board of directors understand the dynamics of disruption both inside and adjacent to your sector?

How do you and your competitors compare with the 5,000 global companies examined in EY study?

And finally, have you assessed your disruption readiness gaps?

I’m Juliette Foster, and thanks for listening to The Better Question podcasts.

To download the research relating to this episode’s better question and search for the answers to many others, go to www.ey.com.

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Until next time, goodbye.