As CIOs because of the importance of information technology it can be all too easy for us to put our heads down and focus on the issues that are right in front of us: securing the network, upgrading workstations, and building new data centers. However, one thing that can be just a little bit too easy to overlook is that there may be a black swan in our midst. A black swan is a rare event that could change everything – I’m talking about a disruption in the world of IT.
What Do Disruptions Look Like?
A fair question to be asking right about now is “just exactly what is a disruption?” I mean there are things going on in business all the time and so what is the difference between a normal change in events and this thing that we’re calling a disruption? A disruption is when something completely changes the way that your company runs its business. A great current example of this would be if you were the CIO of a taxi cab company. You would have been doing all of the normal things that a CIO does when the ride-sharing service Uber first showed up on the scene. When this happened, all of a sudden everything got turned upside down.
That’s exactly what disruptions do: they upset everything. There can be a lot of different reasons that a disruption happens. Advances in technology can play a key role. Oftentimes a person has an experience that goes poorly for them (waiting too long for a taxi cab) and then they have a breakthrough idea for how to create a new service that will better serve a market. The key defining factor of a disruption is that nobody sees it coming. You’re just sitting there doing your job and then all of sudden one day you look up and you discover that your company is under assault by a company that didn’t exist just 6 months ago.
Another good example of an industry that is dealing with a disruption is the mattress industry. If you were the CIO for an existing mattress firm, then you would have been dealing with issues like how to link your mattress showrooms together and how to equip sales people with tablets so that they could become more productive. What you would not have seen coming would have been the rise of the online mattress sellers. Don’t people have to touch and feel a mattress before they’ll feel comfortable buying it? The answer is no – it turns out that the younger generation is quite comfortable buying everything online including mattresses.
Why Don’t We Do A Good Job Of Dealing With Disruptions?
The big question that CIOs need to find an answer to is why, if the company that they are working for is already active in a market, then why are they not the ones who see the customer’s needs and respond to them? It turns out that the answer to this question is just a little bit more complex than you might imagine. Clearly these companies have both the staff and the cash to create the next great thing that will amaze and delight their customer. However, all too often they fail to do it. The reason for these failures is something that has come to be called the “stack fallacy”.
Stack fallacy happens when a firm that has established itself in one market starts to believe that it would be trivial to build a product that would occupy the “layer above its current products”. A good example of this would be Oracle which after having dominated the general database market for years saw that Salesforce.com was being very successful offering a customized customer relationship management (CRM) database tool. Thinking that it would not be that hard to create this type of product, Oracle has poured millions of dollars into creating a hosted database application. So far they have been unable to catch up with Salesforce.com.
So why do firms fail when they try to move up the stack? It all comes down to customers. The firms that are trying to move up the stack simply do not have the empathy fo understand what the customers who are one level above them in “the stack” actually want. What makes this so very interesting is that the opposite is not true. Since they understand their current market space so well, the CIO and the rest of the team appears to have very few problems moving “down” the stack and expanding into the markets that are currently occupied by their suppliers.
As CIO you need to keep in mind that the stack fallacy is exactly what it sound like: just a fallacy. What this means is that not every company is going to be bound by it. It is highly probable that your firm would be unable to extend itself into the stack layer above you. However, it’s not guaranteed that you won’t be able to do it. What this means for you as a CIO is that you need to keep your eyes open in order to determine how things are going. With your set of skills and expertise you need to let the company know if they are ultimately going to be successful in expanding into a nearby portion of their stack.
What All Of This Means For You
As the person with the CIO job, we can become very comfortable with the day-to-day activities that our job requires. If we are not careful, there is a very good chance that a disruption can occur that will upset our industry. If we don’t see this coming, then our company may quickly find itself in trouble.
It’s the job of the person who has the CIO position to understand what a disruption in their industry would look like. Uber is a great example of a disruption that hit one industry. Disruptions can be caused by changes in technology or by people deciding that they way that things are working is no longer the best way. The reason that established firms don’t do a good job of creating the products or services that can cause disruptions is because of what is called the “stack fallacy”. The stack fallacy occurs when a firm underestimates the difficulty of moving into the layer of the stack that is above them. It’s not impossible to be successful doing this, just very, very difficult.
CIOs have a lot on their plate already. Now that you are aware that a disruption can occur in your industry at any time you’ve got one more thing that you’ve got to be spending your time looking out for. The good news is that with some careful planning and a realization that you need to understand your customers you can carefully guide your company and boost their chances of being successful when they decide to expand into the level above them.
Question For You: What criteria do you think would indicate that you might not be successful in expanding into the level above your company in the stack?
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What We’ll Be Talking About Next Time
When you go into the office, how do you dress? Do you put on a suit, find just the right tie, and make sure that your shoes are polished? Or do you slide on that pair of jeans that you’ve been wearing for a couple of years now, grab the shirt that’s hanging over the back of the chair in the bedroom, find your car keys and you are off? Having the CIO postilion is a bit unique in so much that a lot of us have come up through the ranks where our company, realizing the importance of information technology, employed us for our brains – it’s what we could make happen that made us so valuable, not how we dressed. However, now that you are the CIO, things may have changed…
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