It’s no secret that there’s been a significant amount of economic activity happening on the West Coast of the United States. In fact, five of the ten most valuable companies in the world are headquartered in this area: Google, Apple, Facebook, Amazon, and Microsoft.

It is important to acknowledge that these innovation giants are no longer just pure-play tech companies – they’re now in the business of disrupting multiple industries. Google is recently known as a retailer and mobile services provider. Apple is manufacturing mobile phones and distributing music. Facebook is entering the financial services arena. And Microsoft has a presence in gaming entertainment.

We spoke to Mark Zawacki, founder of 650 Labs and speaker for our upcoming #IntraCnf Stockholm, to find out how Silicon Valley emerged as the world’s center of industry disruption and what businesses can do to drive the same change. 

Mark, how did Silicon Valley become this industry-disrupting force?

What started out as technology companies are now platforms for reaching billions of people worldwide and competing with industry incumbents. This started ten years ago when Apple first introduced iTunes. Steve Jobs didn’t go to the music industry to license his iTunes technology; instead, Apple entered an entirely new market, created a niche for itself, and found an untapped competitive edge. More recently, Uber and Airbnb fused their groundbreaking digital innovations to take on transportation and hospitality incumbents.

This idea that we can build global platforms and make it part of a much larger business model for an entirely new industry is bringing an enormous economic benefit. Although there are startup communities all over the world, there is something unique happening in Silicon Valley, called the network effect. People from a variety of countries are converging in this one area to pull their knowledge, resources, and talent together to build the next big disruptor.

In turn, the cost of building these platforms are lower than ever before, and the recipe to innovating successfully is becoming more known. Now, the only question left is how corporations can handle the same level of innovation.

The big battle is always the same: Will startups and scale-up get distribution before the incumbents react and truly innovate?

What can businesses outside of Silicon Valley learn from the likes of Google, Apple, Facebook, Amazon, and Microsoft as well as smaller startups?

The general business response is to change the culture. Personally, I think “culture” is a strange word. It’s a vague concept for most people. I think “behaviors” is a more precise word. When you visit Google, Apple, Facebook, Airbnb, Uber, or Tesla, for example, you will find that they all subscribe to dramatically different management, leadership, and organizational behaviors – which are quite unrecognizable by incumbents globally.

Incumbent businesses in virtually every industry know that digital disruption is coming. They know the world is different and need to innovate their business model to evolve with the market. To take full advantage of these changes and new ideas, companies must be able to separate the “what” from the “how.”

For example, every large bank in the world knows “what” they need to do. They have to focus on blockchain, big data, and customer experience. All of these trends are such buzzwords that they can and will be just as quickly commoditized. If every bank in the world leverages blockchain, then where is the real advantage? The actual difference is in the “how” blockchain is implemented and which adopted behaviors can help the business succeed. The “how” is the soft stuff, changing organizational behaviors to do things differently.

Unfortunately, most large incumbents engaged in corporate innovation are still using an industrial-age management model. All of their thinking around people management, leadership, and talent development is using the same logic, mindsets, ordered structures, and processes that were used to build and run businesses 300–400 years ago.

Despite this traditional view, the companies that are creating the most shareholder value are designed for the digital age – which is drastically different than anything we’ve seen before. And I don’t think that incumbents have figured that out yet.

Can you explain more about the difference between the industrial-age and digital models of running a business?

A significant difference is how digital companies build platforms, not apps. They think about the world in terms of 7.4 billion people – of which 3.5 billion are online. They understand that there is a huge market that the world can consume, not just a national geography or a confined demographic.

On the other hand, industrial-age models think about their legacy, targeted customer segments, and regulators. Suddenly, instead of opening themselves up to a global market of 3.5 billion customers, courting only 18 million potential customers if they are in the Netherlands or 65 million potential customers if they are in UK. This is industrial age thinking that simply doesn’t work in the digital age.

WhatsApp is an excellent example of a digitally minded business. The company created a technology that could have been developed by any of its established rivals. Orange, Vodafone, Telefonica, and many other mobile operators had the resources to create this same innovation. But because of existing SMS revenues and industrial age thinking, they didn’t have a clear picture of the gaps and potential resolutions before WhatsApp handled them. Now, WhatsApp is used more often than the SMS messengers that the incumbents operate.

Another distinction can be found in how organizations practice open innovation. Corporates usually interpret this as a hackathon or some other type of startup competition. But if you look at Google X, where all of Google’s advanced R&D projects are ran, you will find that researchers and innovators are very transparent.

By putting a part of an idea – not all of it – out in the public domain as a form of crowdsourcing, Google X is accelerating innovation by exposing a vast swath of its R&D agenda for all the world to see. What incumbent company thinks like this?

Incumbents are still closed/proprietary when it comes to strategy and innovation. Every incumbent management team ought to ask themselves why Google is so open with their advanced R&D projects. Although this approach is the antithesis of the conventional view that secrecy means competitive advantage, executives all over the world value Google’s practices.

How can companies steeped in industrial-age thinking evolve into a digital age business? What would they have to do over the next 18 months?

Jack Welch coined this great saying, “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.”

And right now, so many leadership teams of incumbent multinationals are beginning to feel that pressure.

Leaders have to collectively agree that business as usual is no longer sustainable. Then, they have to be honest with themselves to understand how they need to change – as a team and individually – before they shift the business culture.

By studying the DNA of successful digital companies, they can start acquiring and modeling the behaviors needed to engage the entire business ecosystem into this new mindset. Eventually, the managers who report directly to those transformed executives will adopt those same practices, which will then gradually filter throughout the rest of the business. Let’s just hope for them they’re getting this right on time.

If you’re keen on understanding the fundamentally changed business landscape and learning from Silicon Valley disruptors, come and chat with Mark after this Trending Topic Talk on Digital Disruption during #IntraCnf Stockholm.