I’m asked relatively often which industries are particularly threatened by upheaval. The list is comparatively long. And the question is two-dimensional: For one, the answer provides a lead as to where existing players should be particularly attentive. Secondly, it hints at which startups are especially good candidates for investing. Far more interesting than the actual list, though, is the recognizable pattern that lies behind the list – for it is actually quite simple.
Those of you who read my blog know that I don’t think too highly of these threat indicators when it comes to digital transformation. If I do have to make a decision I find myself on the side of the renewers, in other words those who try to revive and reinvent industries. And to be blunt about it, we are putting quite a lot of effort into thinking about where this could be particularly effective and where the effort is likely misplaced.
I think there is a pattern to recognizing which industries are ready for change. I would analyze the following parameters in more detail:
Proportion of repetitive tasks
The proportion of repetitive tasks of the entire value chain is a crucial factor. In this context there are two categories, repetitive manual and repetitive mechanical work. It goes without saying that repetitive manual work can be replaced by using technology. But, this is often the case with mechanical work as well.
The reason for this is mostly that much more efficient technology is available than is being utilized in the various industries. My rule-of-thumb: If systems are older than five years, then the chance is more than 50 percent that one can generate considerable business advantages with new technology.
That existing industries haven’t evolved further in this regard can usually be attributed to the fact that they simply haven’t been putting much effort into the matter. Systems from proven vendors are simply purchased. One orients oneself towards the competition instead of towards what is possible. The result is a methodological industry standard. It’s conventional to not be too keen to go down unthinkable paths, even at first glance.
Industries that adhere to tested and comprehensive industry standards are almost always interesting candidates. It’s an unmistakable sign that innovation must make way for evolution.
If an existing industry pays above-average salaries, then this is indicative that that industry generally doesn’t have to concern itself with a high level of competition. This factor is quite tricky, because the salary level can be attributed to a number of factors. These also include those factors that have nothing to do with the innovativeness of an industry. If, however, I read about high salaries, for example in legal consulting, then this is surely a motivator for me to examine this sector in more detail.
Unpicked, technological “low-hanging fruits”
It’s always of interest when a sector is obviously not using technological advantages. It’s important to note seemingly unimportant details here. Many industries screw up the customer experience with details. This is a popular point of attack for startups.
Customer hatred factor
In general, the more unpopular an industry is with its customers, the more interesting it is for startups. That customers don’t think too kindly of the existing player always has its origins in what that player is doing wrong. And this is potential that lies fallow.
The second dimension is the question of whether it’s worth it to do something in industry “XYZ”.
A large customer base, relative to the problem
I continuously encourage people to think in customer problems and to ignore product. An example of a problem would be to doing the laundry. I’m convinced that business engineering should continue to address these problems again and again, particularly regarding the following three questions:
Today’s corporate leaders make the mistake that they think far too strongly in existing products and thus in intellectually beaten paths. Because of this they are incapable of developing vastly improved products.
To get back to the laundry example. Here the question must be, “How can we solve the problems of doing the laundry today?” And not, “What will the washing machine of the future look like?”
Now, there are small and big “problems” of this sort. If a problem is small it is manifested by not all people being interested in it. For me, a large problem is one that, in the extreme, all people are interested in solving, if there were a solution. A solution for cancer, for instance, falls into this category.
The level of interest an industry holds for a new venture is dependent on how many customers the industry has acquired for solving the problem. Of course there’s an interaction between that and the solution offered and it is often difficult enough to separate the two.
Generally, though, the following applies: The larger the customer base for large problems is, the more interesting the industry.
The second item is the question whether new technology is available to solve these problems. This applies to the vast majority of cases. I know I repeat myself regarding products and problems. Taken in this context, new technology doesn’t mean an improvement of what already exists, but rather a new definition of the solution. This is why everything digital is so successful. Many problems can be solved easily and elegantly with software.
Average age of C-level Management
I’ve already written much about the leadership elite of Corporate Europe and why I think that this group isn’t suited to be an example of good entrepreneurship. To cut it short: The mentality of maintenance, of preservation and security-think represents a quorum of an entire series of generations. As tough as it sounds: I think this group is easy prey. These people neither have the mindset to launch truly new concepts nor do they have the motivation to do so (as they are thinking primarily of retirement and not revolution).
What therefore applies is this: The higher the average age of management in an industry is, the higher the probability that a new player can turn the market upside down within a short time.
The answer to the question of whether it’s worthwhile to introduce a new player depends to a large degree on the level of the entry barrier. I divide this barrier into the following categories:
Since I, as mentioned at the outset, am often asked, here is a short, non-exhaustive list of sectors that have potential (or are threatened as industries, if you prefer):