During the Florentine renaissance, Niccolo Machiavelli described why disruptions are so challenging in government and politics. His quote can be readily used to describe why businesses and other human enterprises do not react even when they face enormous disruptions:
“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. For the reformer has enemies in all those who profit from the status quo, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from fear of their adversaries … and partly from the incredulity of mankind, who do not truly believe in anything new until they have had actual experience of it.”
Many well established industries have been badly hurt by the introduction of innovations. To confirm this fact we need only look at the US Postal Service (USPS). Over the last decade, e-mail had seriously impacted a profitable enterprise, by decreasing a significant percent of the USPS’s revenue. We could argue that the USPS had no excuse not to be prepared for this disruption, since email was not invented overnight, but the truth is that most companies and organizations, like the humans that comprise them, become dangerously ‘installed’ in their respective comfort zones and deny any possibility of major disruptions.
If you are still in doubt we can try a different example: try going out now and purchase a CD near your home. Most likely you will be unable to find a well-stocked store like you would have 10 years ago. Those stores do not exist anymore. The music industry as we once knew it is never coming back. It is true that radical technological changes have never been foreign to this industry: historically it has embraced the introduction of long-playing (LP) microgroove records, then audiocassettes, and finally compact discs (CDs), and each of these changes did indeed cause quite a stir. But for the past 70 years or so the prevailing constant has been that all of these changes were from one physical medium to another, so in other words the industry was always atom-based (selling physical objects). A major disruption occurred with the advent of Napster and MPEG Audio Layer III (MP3) recordings: the industry had become an information bit-based industry, forever departing from the world of atoms. Prior to this, the music industry had grown accustomed to a model where it had complete control over the songs that you bought. In other words, if you wanted a song in 1997 you had to also purchase 10 other songs that you probably wouldn’t like nearly as much or at all. All of these songs came in a CD that cost about $20 dollars. Needless to say, those days are over.
Both mail and music are fascinating, and often mentioned, case studies because they are successful industries that had previously been through unsettling changes before the dagger blows of email and MP3s. The USPS had previously adapted to the arrival of overnight packaging services provided by FedEx, UPS, and DHL, all of whom differentiated a once one-dimensional business model by offering package-tracking, on-time delivery, quality-control, and other unique services. The USPS eventually adapted to these changes, but email was a blow from which it could never fully recover. Similarly, although the music industry had adapted before to changes in audio mediums quite elegantly, it could never figure out how to respond to the new bit-paradigm that Napster ushered in at the close of the millennium. So the industry dragged its feet and its meek response was too little, too late––and the rest is history.
Scientific discoveries lead to technological innovations and these innovations often bring the promise to meet unmet market needs or replace existing solutions with better ones. They bring great discomfort to the incumbents who have their feet frozen in cement due to legacy investments and are paralyzed, fixated in old business paradigms. Often times the incumbent’s response are too late and their changes are not bold enough. Then they have no choice but to die as many other successful companies have died in the history of business. However, the market votes with its wallets favoring new providers who are able to change the order of things.
Machiavelli suggests that in order for real human growth to occur, we need to be able to give up our old ways of doing things, which can be uncomfortable. The pace of change of modern technology is staggering, and it’s not hard to see why the incumbents who have benefitted from the “old order of things” are resistant to change. Especially when that change means letting go of old paradigms and embracing new ones that have not always been fully tested! Adapting to the “new order of things” means changing investment priorities and shifting skills, which often leads to laying off workers, waking up out of our peaceful ‘auto-pilot’ and our agreeable, static comfort zones.
There are four particular sectors of human society that continue to avoid massive, or actually barely any, disruption: education, healthcare, government, and religion. These are the perennial arenas of a human civilization: human beings have always most fervently sought to satiate an innate curiosity for truth (education), be in good health and prolong life (healthcare), develop fair systems of social organization (government), and discern their purpose and meaning during the life journey and after (religion).
In all four areas well-entrenched incumbents have benefitted from an “established order of things,” extracting tangible and intangible benefits by preserving a status quo that is no longer workable. While these traditionalists are able to assert their control and influence, fractures are likely to become more gaping and develop faster in the developing world. Why?
The planet is set to add 2+ billion more people to a population today of 7 billion before mid-century, and most of this growth will take place in the emerging world. This dramatic demographic growth makes the aforementioned incumbents infinitely more vulnerable in places like Latin America, where enormous market pressure to meet societal needs across these four areas (education, healthcare, government, and religion) will enable new disruptors to bring their disruptive services to market and drive change.
Frugal innovation may unleash new and creative ways to reinvent these services at new price points, enabling them to be tested and perfected with high number of users. This in turn leads to better services developed from the ground up incorporating just-enough of the right and latest technology. The first half of the 21st century may very well be a time when emerging markets (obviously I am biased towards Latin America) shine and bring unique indigenous solutions for their emerging economies… More interestingly, many of these will be globally scalable to disrupt incumbents in the developed world!
Until my next posting – Carlos B.
 Niccolo Machiavelli (1469 – 1527), Florentine political philosopher and thought leader of the time, wrote The Prince, from which this quote was taken, after the Medici’s had recovered power and he no longer held a position of responsibility.  From 2006 to 2010, mail volume decreased by a hefty 20 percent. When the 3rd quarter of 2010 is compared to the same quarter in 2011 the volume of first class mail dropped by 2.6 percent. http://about.usps.com/news/national-releases/2011/pr11_094.pdf  Napster was co-founded by Shawn Fanning, John Fanning, and Sean Parker and offered its services for the first time in 1999.  The components of the Down Jones Industrial Average (DJIA) have changed 48 times in its 115 year history, and only General Electric (GE) remains in the index. As of 2011, GE has had the longest continuous presence on the index, with its latest addition being in 1907. Actually many of the companies that formed part of the index over 50 years ago no longer exist,  Asia is a likely contender and Africa to a lesser extent.  It is assumed that the basic Physiological needs are met according Maslow hierarchy of human needs.