Nordic Disruptability Index - Accenture Research (LONG READ)

NORDIC
RESEARCH 2018
LONG READ ( 15 min.)

Copyright © 2018 Accenture. All rights reserved. 2
DISRUPTION IS NOT TO
BE FEARED – WHY?
THE CHALLENGE
Disruption is a fact of life for all industries. Long-term trend
lines, once reliably smooth, now more closely resemble
hockey sticks; five years is an eternity. Most management
teams recognise the inevitability of disruption in their
industry. Yet few are prepared to respond. Why? They lack
deep understanding of the extent of their exposure in an
industry context.
#1

BE FEARED – WHY?
OUR RESPONSE
OUR RESPONSE
#2To fill this gap, we have created a Disruptability Index.
Using the Index, we can pinpoint both the current level of
disruption an industry is experiencing, and its susceptibility
to future disruption. This enables management teams to
determine the extent of their exposure, where they are
specifically vulnerable and to plan an appropriate strategic
response.

BE FEARED – WHY?
YOUR NEXT STEPS
Our analysis highlights that not all industries are exposed to
disruption equally, at a given point in time. There are four
periods of disruption: Durability, Vulnerability, Volatility and
Viability. Each period has implications for the strategy
required to manage and control the impact of disruption.
Understand your period and you can begin to take control
of disruption.
#3

MOST KNOW DISRUPTION IS
COMING — FEW ARE PREPARED
ONLY 20% OF CSOS FEEL THEY ARE READY TO RESPOND
SOURCE: SURVEY OF 561 CHIEF STRATEGY OFFICERS BETWEEN NOVEMBER 2015 AND
FEBRUARY 2016, FROM THRIVING ON DISRUPTION, ACCENTURE, 2016
agree their industry
will be disrupted at
some point in the
next five years.
feel they are highly
prepared for
disruptive
innovation.
93 %
20%

WHAT’S STOPPING THEM?
PRIDE
Myopia afflicts a minority—the 7% who don’t see their
industry being disrupted in the next 5 years. Take Time
Warner CEO Jeff Bewkes, who once said of the threat of
Netflix, “It’s a little bit like, is the Albanian army going to
take over the world? I don’t think so.” That army now has
94 million subscribers in nearly 200 countries.
TOO MUCH
#1

PRESSURE
Many management teams focus on the status quo, having
incentives that encourage profit-and-loss leaders to
concentrate on near-term, “Horizon 1” performance across
existing businesses, rather than preparing for “Horizon 3”
possibilities.
TOO MUCH
#2

PERSUASION
Existing theories of disruptive innovation, based on
qualitative case studies, represent a blunt instrument for
management teams looking to make strategic choices
based on a robust fact base. Without a structured
method to fully analyse their exposure, many perceive
disruption to be too unpredictable to be manageable.
TOO LITTLE
#3

Copyright © 2018 Accenture. All rights reserved.
OUR NEW APPROACH CAN HELP
A MORE ROBUST APPROACH, BASED EN EXTENSIVE RESEACH, FOR
INCUMBENTS TO UNDERSTAND THEIR EXPOSURE AND PLAN ACCORDINGLY
Transaction intensity
(COGS/Revenue—avg. &
variance)
Labour intensity
(Labour cost portion of GVA)
Investment in R&D
(R&D/Revenue; R&D
investment per patent)
Positioning for the future
(Future Value proportion)
Brand dominance
(Prominence of incumbent
brands; Customer
acquisition)
Value creation
(Proportion of companies
with Trapped Value)
Asset intensity
(CAPEX/Rev.; Revenue
/Invested Capital; PP&E/
Rev.—avg. & variance)
Investment in new digital
technologies
(Spending on AI
technologies)
Openness
(Concentration of market
share; Regulatory
environment)
ABILITY TO OPERATE
EFFICIENTLY
PURSUIT OF
INNOVATION
SUSCEPTIBILITY TO FUTURE DISRUPTION
EFFICIENCY1 INNOVATION
PRESENCE OF BARRIERS
TO ENTRY
DEFENCES
CURRENT LEVEL OF DISRUPTION
Tech-propelled disruptors
(Incumbents growing fast or
disrupting other segments)
Start-up penetration
(Presence and valuation of
given start-ups in the
industry)
Venture capital
(Value of VC capital flows
into the industry)
PRESENCE AND
PENETRATION OF
DISRUPTORS
PERFORMANCE OF
INCUMBENTS
Profitability
(5-yr EBITA CAGR and
consistency)
Growth
(5-yr revenue CAGR
and consistency)
Volatility
(5-yr corporate
bankruptcy rate)
DISRUPTORS PERFORMANCE
28 INDICATORS - 19 INDUSTRY SECTORS - 4 COUNTRIES - 507 COMPANIES

WHAT PERIOD
ARE YOU IN?Copyright © 2018 Accenture. All rights reserved. 10
WE HAVE THREE LESSONS FOR
NORDIC BUSINESS LEADERS
Industries are not equally exposed—disruption
has four periods: Durability, Vulnerability,
Volatility, and Viability. ~72% of industries are
either at risk of, or are already experiencing,
significant disruption in the Nordic Region.
FOUR PERIODS
OF DISRUPTION#1

HOW ARE YOU
EXPOSED?Copyright © 2018 Accenture. All rights reserved. 11
100% of industries have an Achilles Heel. In fact,
each industry segment has at least 3 fault-lines.
These will differ even for industries in the same
sector, with industries finding themselves in the
same period for different reasons.
EVERY INDUSTRY HAS ITS
OWN UNIQUE FAULTLINES#2

HOW SHOULDYOU
RESPOND?Copyright © 2018 Accenture. All rights reserved. 12
Understanding the extent of their industry’s
exposure will allow executives to plan the
appropriate strategic response. High variance
in industry scores can indicate potential growth
opportunities for pioneering incumbents.
A TARGETED RESPONSE
IS REQUIRED#3

FOUR DISTINCT PERIODS &
CHARACTERISTICS
1
0 1
VIABILITY
• High rates of innovation mean sources of
competitive advantage are short-lived
• Disruption has become the norm
VOLATILITY
• Incumbents have been slow to act on
warning signs
• Large disruptors unlock new sources of
value
DURABILITY
• Structural incumbent advantages and
consistent performance
• Relatively few large disruptors attracted to
the sector so far
VULNERABILITY
• Structural weaknesses expose the sector to
significant risk
• Barriers to entry inhibit disruptor penetration
for now but are slowly crumbling
CURRENTLEVELOFDISRUPTION

SO HOW DISRUPTED
ARE NORDIC
INDUSTRIES?
AND HOW SHALL
THEY RESPOND?

0
1
1
6AUTOMOTIVE
7
CHEMICALS
9
CAPITAL
MARKETS
10
CG&S
5
INDUSTRIAL
EQUIPMENT
& MACHINERY
8
LIFE
SENTENCE
DURABILITY
VIABILITY
3
HIGH-TECH
1
SOFTWARE &
PLATFORMS 2
MEDIA &
ENTERTAINMENT
4BANKING
11
COMMUNICATIONS
12
RETAIL
14
INSURANCE
13
ENERGY
15
INFRASTRUCTURE &
TRANSPORT SERVICES
17
NATURAL
RESOURCES
16
TRAVEL
18
UTILITIES
19
HEALTH
VULNERABILITY
VOLATILITY
CURRENTLEVELOFDISRUPTION

VIABILITY –
GROW THE CORE
CHARACTERISTICS OF
THE VIABILITY STATE:
• HIGH RATES OF
INNOVATION MEAN
SOURCES OF
COMPETITIVE
ADVANTAGE ARE
SHORT-LIVED
• DISRUPTION HAS
BECOME THE NORM
27% OF NORDIC SAMPLE COMPANIES
VIABILITY VOLATILITY
DURABILITY VULNERABILITYCURRENTLEVELOFDISRUPTION
GROW THE CORE PIVOT WISELY
TRANSFORM THE CORE SCALE THE NEW

VIABILITY –
GROW THE CORE
INDUSTRIES IN THE
VIABILITY QUADRANT:
• BANKING
• HIGH TECH
• MEDIA &
ENTERTAINMENT
• SOFTWARE &
PLATFORMS
“Media and Technology industries have
experienced fast technology development for a
long time. Now they also see disruption in their
business and operating models”
“Open Banking has made disruption the norm in
the Banking industry. Banks are turning into
diversified service companies that need to
partner with other players to create a new eco
system”
”
”
Accenture Industry leads on the industries:

OUR RECOMMENDATION
• Focus on the parts
of the business that
are still viable and
growing
• Rethink the value
chain, find your
place in the
ecosystem
• Create new eco-
system based
business models
• Transform operating
models for faster
response to market
demand
• Industrialize the
ability to transform
on a continuous
basis
• Let the high-quality
user experiences with
customized content
define your offerings.
Leverage technology
to increase efficiency
and customer
satisfaction in those
offerings
VIABILITY

VOLATILITY –
PIVOT VISELY
CHARACTERISTICS OF
THE VOLATILITY
STATE:
• INCUMBENTS HAVE
BEEN SLOW TO ACT ON
WARNING SIGNS
• LARGE DISRUPTORS
EXPLOIT TO UNLOCK
NEW SOURCES OF
VALUE

VOLATILITY –
PIVOT VISELY
INDUSTRIES IN THE
VOLATILITY QUADRANT:
• COMMUNICATIONS
• ENERGY
• INFRASTRUCTURE &
TRANSPORTATION
SERVICES
• INSURANCE
• RETAIL
“Disruptors like Tesla push the energy industry
to move faster”
“Communications has already seen strong
disruption, but more will come”
“Insurance is behind Banking in terms of
maturity and start-up activity”
“The rise of e-commerce brings new entrants
challenging retail incumbents, which so far have
not put enough force into their innovation”
“The logistics industry has introduced digital
innovation at a slower pace than other industries,
which brings enormous risks looking ahead”
”
”

OUR RECOMMENDATION
•Focus on how to
decisively change
the course and
reposition the
business. Adopt a
holistic approach
and mindset to
change
•Make a decision on
focus business,
divest non-core
businesses
•Align all business
models and all
operations to the
strategic choice
regarding the future
•Adopt an outside-in
perspective. Focus
on the customer
experience and let
the customer focus
cut across the
organization
•Speed up
development and use
of digital
technologies, across
all areas
•Find ways to
collaborate rather
than compete with
global giants like
Amazon
VOLATILITY

DURABILITY –
TRANSFORM THE CORE
INDUSTRIES IN THE DURABILITY
QUADRANT:
• CG&S
• INDUSTRIAL EQUIPMENT
& MACHINERY
• LIFE SCIENCES
• AUTOMOTIVE
• CAPITAL MARKETS
• CHEMICALS
“Following the e-Commerce growth, the
Consumer Goods & Services industry is blurring
with Retail. Companies experience disruptive
threats from many directions, and will need to
change their business models to stay relevant”
“The leading Industrial Equipment & Machinery
companies are advanced in their digital
transformation efforts and have produced several
digital solutions”
“Automotive has long cycles, so it will still take
time for emerging disruptive technologies and
new business models to impact industry
performance”
”
”

OUR RECOMMENDATION
• Review all parts of
the business when
setting strategy to
build or sustain
sources of
competitive
advantage
• Consider which
competencies will be
needed for the
future, develop a
plan for how to
acquire those
• Rethink value chains
as e.g. online direct
sales models will
redefine roles
• Invest excess cash flow
to drive a shift across
business areas.
Advance automation
initiatives and speed up
adoption of intelligent
systems
• Focus on outcome
economy, customer
experience, predictive
analytics and as-a-
service models
DURABILITY

VULNERABILITY –
SCALE THE NEW
HARACTERISTICS OF THE
VIABILITY STATE:
• STRUCTURAL WEAKNESSES
EXPOSE THE SECTOR TO
SIGNIFICANT RISK
• BARRIERS TO ENTRY INHIBIT
DISRUPTOR PENETRATION
FOR NOW BUT ARE SLOWLY
CRUMBLING

VULNERABILITY –
SCALE THE NEW
INDUSTRIES IN THE
VULNERABILITY QUADRANT:
• NATURAL RESOURCES
• HEALTH
• UTILITIES
• TRAVEL
“New outcome-based business and financing
models will have a transformative impact on the
dynamics of health payor- and provider sectors”
“Nordic natural resources companies are more
advanced than their global peers in R&D
investments and innovation”
“The Utilities industry is at the beginning of a shift
where heavy assets will no longer be required,
lowering barriers to entry; and alternative power
sources such as solar will gain traction”
”
”

OUR RECOMMENDATION
• Decide what role
the company wants
to play in the future
• Understand how to
better use current
assets and
capabilities to keep
an advantage vs.
new entrants
• Develop processes
to rapidly turn good
ideas into viable
businesses
• Focus on digital
tools (like AI) that
augment
capabilities to
decrease variation in
outcomes
• Be cost
conscious/cost
effective
• Use digital
technologies to get
closer to and
understand the
customer
• Focus on integrating
data to create new
products and
operating models
VULNERABILITY

27
IN CLOSING
of companies are
experiencing
disruption1
of companies are
highly susceptible
to future
disruption2
58% 45%
in Enterprise Value
disrupted today &/or
at risk tomorrow3
€1.2trillion
1% companies from sectors scoring above median on ‘current level of disruption’; 2%
companies from sectors scoring above median on ‘susceptibility to future disruption’; 3362
(71%) unique companies with Enterprise Value (Market Cap + Net Debt) of €1.2tn (out of $1.9tn)
are either experiencing disruption &/or are highly susceptible to future disruption. Sample =
507 = all publicly listed companies with Nordic HQ in Capital IQ with TTM revenues above
£50mn.

28
The aggregate Enterprise
Value of Nordic companies
currently experiencing
disruption and/or are highly
susceptible of future
disruption is a staggering
1.2 trillion Euro. This is the
value at risk if companies
are not prepared for and act
on disruption.
IN CLOSING
And yet, independently of which
period of disruption your industry is
in, disruption is not to be feared.
Instead, it is an opportunity. An
opportunity to manage wisely for
the future so as to keep thriving as a
business. By using this opportunity,
instead of being a bystander, your
company can even have a hand in
shaping future disruption.

ABOUT THE
RESEARCH
AND THE RESEARCH
FRAMEWORK

11 DATA
SOURCES
with experts on policy,
economy and digital
business
LITERATURE
REVIEW
Identifying the main risks of
disruption within existing
theory
INDUSTRY
SECTORS
across the Nordics
19
INSIGHT
INTERVIEWS
with Nordic Accenture
Industry leads.
13
COMPANIES
across the Nordics
507
ABOUT THE RESEARCH

In order to create the Disruptability Index, we
analysed financial data on 507 companies from
19 industry sectors across the Nordics, along with
sub-industry or industry-level data.
The results were then discussed with 13
Accenture’s Nordic industry leads in order to
derive further insights as well as actionable
recommendations for business leaders in each of
the four different periods of disruption
ABOUT THE RESEARCH

32
ABOUT THE RESEARCH
Country
(% split)
24
7
48
19
1
Comms, Media & Technology
Financial Services (ex. Banks and insurance)
Products (ex. Retail, Automotive and Life Science
Resources (Ex. Energy and Utilities)
Health & Public Services
46
18
15
21
Sweden
Finland
Denmark
Norway
Sector
(% split)

Transaction
intensity
(COGS/Revenue—
avg. & variance)
Labour intensity
(Labour cost portion
of GVA)
Investment in R&D
(R&D/Revenue; R&D
investment per
patent)
Positioning for the
future
(Future Value
proportion)
Brand dominance
(Prominence of
incumbent brands;
Customer acquisition)
Value creation
(Proportion of
companies with
Trapped Value)
Asset intensity
(CAPEX/Rev.;
Revenue /Invested
Capital; PP&E/ Rev.—
avg. & variance)
Investment in new
digital
technologies
(Spending on AI
technologies)
Openness
(Concentration of
market share;
Regulatory
environment)
ABILITY TO
OPERATE
EFFICIENTLY
PURSUIT OF
INNOVATION
EFFICIENCY1 INNOVATION
PRESENCE OF
BARRIERS TO
ENTRY
DEFENCES
CURRENT LEVEL OF DISRUPTION
Tech-propelled
disruptors
(Incumbents
growing fast or
disrupting other
segments)
Start-up
penetration
(Presence and
valuation of given
start-ups in the
industry)
Venture capital
(Value of VC capital
flows into the
industry)
PRESENCE AND
PENETRATION
OF DISRUPTORS
PERFORMANCE
OF INCUMBENTS
Profitability
(5-yr EBITA CAGR and
consistency)
Growth
(5-yr revenue CAGR
and consistency)
Volatility
(5-yr corporate
bankruptcy rate)
DISRUPTORS PERFORMANCE

TELL ME MORE
DENMARK:
Claus Wilkki
Nordic Director, Marketing and Communications
claus.wilkki@accenture.com
FINLAND:
Pekka Vanne
Managing Director, Accenture Strategy in Finland
pekka.vanne@accenture.com
NORWAY:
Pål Ødegaard
Managing Director and Strategy Lead in Norway
pal.odegaard@accenture.com
SWEDEN:
Agneta Björnsjö
Senior Principal and Nordic Research Lead
agneta.bjornsjo@accenture.com
VISIT: https://www.accenture.com/dk-en/insight-accenture-360-live
WHO TO CONTACT TO
KNOW MORE:RESEARCH AUTHORS:
Agneta Björnsjö
Senior Principal and Nordic Research Lead
Accenture Research
Nanna Svahn
Research Specialist
Accenture Research
Tomas Nystöm
Managing Director and Global Lead for
Emerging Technology
Accenture Technology

Nordic Disruptability Index - Accenture Research (LONG READ)

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