Are Robots Disruptive? … or Could They Be the Saving Grace for Ageing Societies?

The evolving social and digital media platforms and highly innovative and relevant payment capabilities are causing seismic changes in consumer behavior and creating equally disruptive opportunities for business.

Howard Schultz

As regular readers of the Absolute Return Letter will know, we run a list of structural mega-trends which will form the world as we know it for many years to come – and that list drives our investment strategy. A couple of weeks ago, we added Disruption to that list, taking the total number from six to seven.

Now, what is disruption? Let me offer one definition, although there are many. Disrupters originate in low-end or new-market footholds. Disruption doesn’t happen overnight but is a process and, because disruption takes time, incumbents frequently overlook disrupters until it is too late. (Source: “What Is Disruptive Innovation?”, Harvard Business Review, December 2015).

The mantra “disrupt or be disrupted” can lead to erroneous business decisions. Incumbents do need to respond to disruption, but they should not overreact by dismantling a profitable business.

Some disruptive businesses succeed whereas others don’t. It is a misconception that entrants are disruptive by virtue of their success. Success is not built into the definition of disruption. Now, that is about how Harvard Business Review defines disruption, but there is more to the story than that.

The number of years to fully disrupt incumbents is falling precipitously (Exhibit 1). I remember the days of proudly showing my new Eastman Kodak to anybody who cared. I had just received my first ever monthly salary, most of which was spent on this fancy camera. Those were happy days, but suddenly disrupters took the fun away. My Kodak was no longer smart. It was hopelessly outdated, and I couldn’t convert to a digital camera quickly enough. Of course, digital cameras have since been disrupted by smartphones, but that is another story.

Kodak may have been one of the first victims of disruption, but is far from the only one. Think Netflix and what that company has done to Blockbuster, what iPhone has done to Blackberry, or the damage Amazon has done to retailers all over the world. And, now, Amazon has decided to enter the retail industryafter years of disrupting other retailers.