The 4th industrial revolution is one that is typified by a rapid pace of change, and whilst there is some well deserved scepticism to this general Zeitgeist, it is perhaps understandable that companies are doing their best to protect themselves from the threat of disruption.

This is the topic of IMD Business School’s Howard Yu’s latest book, where he argues that incumbents in an industry are especially vulnerable to disruption when their knowledge becomes stagnant.  Yu’s theory is that the best companies at adapting to change are those who make intellectual leaps, and he uses the pharma industry to illustrate this in practice.  It’s an industry that has shifted from chemistry to microbiology to biotechnology and lately to genomics.

Making this shift is boiled down into 5 core principles that will guide your organization.

5 principles of change

1. Understand the foundational knowledge of your organization – It’s well known that incumbents fail to see new rivals on the horizon.  To better adapt, organizations must reassess the foundational, or core, knowledge that is central to their business, and appreciate it’s maturity.  In other words, you must begin by knowing where you are.
2. Acquire and cultivate new knowledge disciplines – I’ve written many times about the recombinative nature of innovation, where knowledge of disparate disciplines pays dividends.  Innovation, and competitive advantage, derives from the assimilation of new knowledge and the timely creation of new markets.
3. Leverage seismic shifts – Yu argues that historically there have been seismic shifts that transcend industrial boundaries, like the steam engine in the 18th century or electricity in the 19th.  We’re in the 4th industrial revolution where the number of possible shifts is considerable, and whilst many (most) are dabbling, there is little evidence that these will be scaled up.  Central to this is perhaps that organizations are followers of fashion rather than experimenting with purpose.
4. Experiment to gain evidence – The 4th point is an area that perhaps organizations are failing to deliver on.  There appear to be a substantial number of pilots or proof of concept projects being undertaken, but little in the way of scaling these projects up.  Any experimentation has to be done with a purpose, either of learning new things or achieving something much larger.  Experimenting for the sake of experimenting is little better than doing nothing at all, and often much worse.
5. Dive deep into execution – Insights are nothing without action, so execution is crucial.  Yu argues that this move to action is especially hard for incumbents as ideas can easily be filtered out as they pass up the corporate hierarchy.  It’s why it’s practically impossible to make the required leap into new areas without strong executive support.

“To leap, the most challenging aspect has always been the impossibility of rendering investment decisions into positive financial forecasts,” Yu says.  “Only the one at the very top of the company can legitimately say, “Money doesn’t matter, let’s just do it.””

Yu has spent both his professional and academic life exploring industry dynamics, and especially the shifts that occur when incumbents are displaced by pioneers.  There is no shortage of books and concepts around the need to innovate better, and advice on how to do so, but I think this is a welcome addition to that mix.