Last time we talked about a single event — the Deepwater Horizon oil spill. This time, let’s talk about a lot of related events.
Quick question. What do Toys “R” Us, Ringling Bros. and Barnum & Bailey Circus, and Blockbuster Video have in common?
Okay, probably an easy question, but here’s the answer. Every one of these companies ceased to exist in the last decade. Each was a major, longstanding, seemingly-eternal brand — symbols that resonated with the public, icons to millions, big-bucks organizations. And they each disappeared in a puff of smoke and the wafting smell of disintegrating paperwork and red ink, leaving nothing but faded memories, nostalgic touchpoints, and cadres of disgruntled investors.
Many of the reasons for failure were much like those of any failed company: poor management decisions, bad investments, incorrect strategies. But, at the root of each failure was disruption — the failure to understand the disruption that was occurring within their industries, the failure to respond to that disruption in time to survive, and responding to that disruption in the wrong ways.
Toys "R" Us failed to innovate its business model, incorporate technology, and adapt to changing consumer behaviors. And when it did react, it only made things worse, getting in a long-term, one-sided agreement with Amazon, effectively putting themselves under the control of a major competitor. It inappropriately responded to the disruption occurring in retail markets.
Ringling Bros. and Barnum & Bailey Circus succumbed to the public’s increased sensitivity to the mistreatment of animals. In addition, peoples' standards for what constituted entertainment changed. Acrobats were no big deal (unless they were Cirque-du-Soleil’ed up), clowns and ringmasters were old hat, and the venues did not match the customers' desired comfort levels.
Blockbuster Video ignored the signs that people were consuming movies, videos, and DVDs in new ways. Netflix came to town, and people didn’t have to go to a store, walk the aisles, and hope what they wanted was at hand. And, if they did go out, there was always the ease of Redbox.
In each instance, disruption of the business, of the business models, and the industry were at the root of failure. And responses that were either wrong, too late, or nonexistent exacerbated the issues. In particular, the hubris of “we are No. 1 and it can never happen here” impacted the speed and effectiveness of decisions.
Okay, you already know all this. But what lesson did you learn when you heard about each of these (and the many other) failures? And, as an internal auditor, did you recognize the need to help your organization watch for and react to such disruptions? And what are you doing about it today?
Because, every single industry, every single organization, every single strategy will (not might, will) be under attack. They will face disruption — significant disruption, organization-ending disruption — at some point in the more-than-likely near future. And, if internal audit’s job is to help ensure that risks to objectives are identified and mitigated, then this is a pretty big one we should be taking a look at.
Don’t think it will happen to you? What happened to the music industry, what happened to publishing, what happened to taxi and transportation, what happened to travel agencies, what happened to banking and investment, what happened to newspapers, what happened to … well, I think you get the idea.
Here’s one example of disruption just around the corner for what I think is an unsuspecting group — one of the stodgiest of services, insurance. I just read an article (and it is buried behind a paywall, so I won’t bother giving you a link to look it up) about a recent university graduate who interned with various insurance companies. He could not believe how antiquated the processes were and, upon graduation, began developing artificial intelligence (AI) applications for insurance. This is not just crunching numbers; this is front-line AI. He has built interfaces that eliminate the need to use employees in first customer interactions with the insurance company — claims, sales, etc. They are fast, they are accurate, and they are extremely efficient and effective.
The insurance world is on the cusp of significant disruption and some major companies — companies whose commercials you laugh at nightly — will, in short order, be laughed at as they close the doors and sidle off into the sunset. Note, I’m not making any prognostications about any particular company. But, based on what has happened in the past, some will fail. There are various writings on various walls.
Insurance. Who'da thunk it?
Disruption is everywhere, and it will hit your organization square between the eyes (if it hasn’t already done so). Which means, as you sit in on discussions regarding strategies and the directions the organization will take, is anyone talking seriously about disruption? Is the organization looking forward to what may happen and taking appropriate steps? Or is disruption already occurring and management is burying its head crying “It can’t happen to us,” and “We’re No. 1,” and “We are the champions,” and “Nothing can ever take us down; we are too successful,” and other comments no one wants written on their corporate headstones?
(Okay, maybe you’re not important enough to be sitting in on those meetings. Yes, you the everyday, average internal auditor. That doesn’t mean you don’t have as much responsibility as anyone else to raise a warning, blow the trumpet, shout the gardyloo, find someone/anyone to listen, and spread the word. In fact, you are an auditor; your responsibility is greater than others'. Many an organization has suffered disastrously because people didn’t think it was their job or they thought they didn’t have the authority to step forward and say something. They lost their jobs just like everyone else.)
Every organization should make this risk its No. 1 with a bullet — the risk of not recognizing and properly responding to disruption.
And internal audit must be there to watch, warn, and act.
And, with that, we bring event No. 2 to a close. We’ve got at least three more to go, so join in next time and let’s see what happens.
By the way, if you have a vote for the event from the last decade all internal auditors should have learned from, be sure to share.
