What to Do When Industry Disruption Threatens Your Career

Disruption scholars have focused on how established companies, complacent in their industry position, fail to anticipate their collapse. The companies wither not because they are surpassed in their core capabilities but because they don’t recognize that the competencies that once made them distinctive no longer define success.1 These stories have a whiff of tragedy — companies that used to be front-runners are overtaken by a changing world and stick with the status quo rather than investing in capabilities that will bring the next win.

When volatility puts a leading company at risk, it also threatens the leaders, managers, and others who work for it — and that exacerbates the problem, because their insight is precisely what’s needed to curb the company’s tendency not to adopt new capabilities in the face of volatility.2 Companies of course can shift and enhance their institutional know-how by hiring new people, but individuals cannot swap out well-honed skills quickly enough to suit changing markets. As human capital theory tells us, even as people recognize their need to gain new skills, they seldom adapt rapidly.3 That’s largely because skills are accumulated slowly through years of formal education, training, and work experience. Learning simply takes time.

After World War II, managers who climbed the corporate ladder often had an expectation of implicitly guaranteed lifetime employment, as an inducement to deepen their institutional knowledge and their commitment to the company. Those personal investments made them more productive in their work for their current company but also limited their opportunities for alternative careers. Today’s executives, in contrast, rarely stick with one organization for a lifetime. As industry volatility has increased, the responsibility for career management has shifted from companies to individuals. Therefore, as you manage your career, you need to understand how broader trends in industry volatility affect your employability. You must learn how to preserve the value of your accumulated experience while carefully examining whether your current position is helping you acquire new, enduring skills.

In this article, we discuss how to diagnose the risks that disruptive industry forces pose to you — and offer suggestions on how to mitigate the threats. We base these recommendations on our recent analysis of individuals’ career histories in the professional services sector; our observations and others’ analyses in other settings, such as appliance manufacturing, oil and gas, health care, and education; and broader insights from previously published research on industry volatility and career mobility. (See “About the Analysis” for more detail about our evidence base.)

Diagnosing Your Industry’s Volatility

The volatility of the industry you work in directly affects the vulnerability of your career. The more things change in your field, the more likely that what you know today will be valued less tomorrow. But before you make any big changes, it’s important to ask two diagnostic questions: How volatile is my industry? And why?

How volatile is it? On average, industries are becoming more volatile. According to our analysis of Standard & Poor’s Compustat database, among the companies listed on the S&P 500 at the start of the 1990s, 70% were still listed there at the end of that decade. Over the course of the 2000s, the 10-year survival rate dropped to less than 60%. Companies within the S&P 500’s top 20% experienced a comparable shift: from 71% survival in the 1990s to 58% in the 2000s. Apart from this overall trend, turnover rates vary substantially by industry. (See “Volatility by Industry.”)

Your first step in diagnosing how much market volatility could affect your career is to look at the general trends in your own industry. Although no industry is immune to disruptive surprises, if you work in one that’s relatively stable, you can make deeper industry-specific investments in your professional development and worry less about facing skill irrelevance.

In major appliance manufacturing, for example, 80% of the market is controlled by a handful of industry leaders.4 Steep startup costs — for purchasing land, building manufacturing facilities, establishing supply lines for raw materials and machinery, and investing greatly in design and engineering services — insulate established manufacturers from disrupting entrants to some extent. Stable growth is also fueled by increasing demand for major appliances in some of the world’s largest developing economies, most notably China and India.

This stability affects human capital. The 2015-2016 U.S. Bureau of Labor Statistics report, which tracks job turnover by industry, shows that durable goods manufacturers had among the lowest industry percentages of new hires and separations.5 Therefore, people building their careers in that sector can take the time to deepen their expertise and knowledge within it, as demand for such capabilities shows no signs of subsiding.

But if you’re in a more volatile industry, you won’t have that luxury. The professional services industry, for instance, is among the most volatile in terms of company survival. That’s not surprising given that clients often solicit the help of professional services firms to respond to disruptive change in their own industries. Such support can be intense when called for, but demand can quickly cool after clients adapt.

Take, for example, large retail companies that seek to compete with local competitors by using big data analytics in order to make their stores more attractive to customers. By combining local sales and demographic information, retailers can customize their stores’ physical layouts to local tastes in a way that promotes sales.6 But they may not have the in-house skills to fully explore that potential. Hiring consultants with relevant expertise allows the companies to start using big data to make concrete business decisions and quickly capitalize on popular trends — without investing up front in internal capabilities.

That’s great for the retail company, of course: It can rely on outside support until it’s ready to bring analytics in-house. But what does that mean for the consultants who painstakingly acquired the expertise — and for their firms?

It used to be that organizations hired big name consultancies (think McKinsey, Bain, or Boston Consulting Group) for comprehensive, customized, long-term projects that involved thorough data gathering, analytical problem-solving, and specialized expertise. However, as clients have started to invest in creating and deriving value from their own big data repositories, they have begun to prefer shorter-term consulting projects that yield a more immediate return on investment. This trend has favored smaller boutique consultancies that have more standardized offerings, and it has pushed almost all consultancies to rethink the way they engage clients.

That’s why, during the past 15 years, McKinsey has invested in capabilities to build on client companies’ existing analytics efforts. Such offerings are challenging the old consulting business model that had remained largely unchanged for more than 100 years.7

For individuals who work at top-rated consulting houses, the path to becoming a partner once depended heavily on building long-term, broad-scope counseling relationships that facilitated the shaping of clients’ agendas. Today’s consultants must complement this approach by also developing minimally invasive, analytics-driven offerings that produce measurable results according to those same analytics. Consulting team managers who don’t embrace lighter, leaner models of engagement will limit their ability to build strong portfolios of client service, thereby jeopardizing their likelihood of making partner. Now more than ever, innovation in how services get delivered is defining what a successful partner looks like.

Congruent with this emphasis on innovation, firms like McKinsey have already started diversifying their sources of talent. Beyond the traditional talent pools of business school graduates, firms are also acquiring people with complementary backgrounds in areas such as design, creative services, data analytics, and digital services.8 And consultancies even sometimes acquire whole firms to achieve that complementarity. For example, in 2015, McKinsey acquired the product- and industrial-design firm Lunar. Such moves illustrate new career threats and opportunities that individuals in the consulting industry confront in the face of volatility.9

What explains the volatility? Once you’ve identified how volatile your industry is, you should examine the volatility’s source, to help determine whether industry dynamism represents an opportunity or a threat to you as an individual. Part of the rise in volatility across industries comes from greater interconnectedness. According to our analysis of trade flows among sectors using input-output accounts data from the U.S. Bureau of Economic Analysis, the average number of steps required to connect any pair of industries in the overall economy (so-called degrees of separation) shrank from 70 to 64 between 1998 and 2008.10 This greater interconnectedness means that individuals are exposed not only to shocks in their own industry but also to ripples of volatility from related industries.

Consider oil and gas, a very volatile industry in recent years whose swings from unprecedentedly high prices to historic lows have been accompanied by complementary volatility in employment. Executive turnover rose from 17% in the 1990s to 50% in the 2000s. And since 2015, more than 200 North American oil companies have filed for bankruptcy.11

The impact of cheap oil has extended beyond the petrochemical industry. Biofuels are believed to be a crucial alternative to corn ethanol, an oil replacement that has big effects on food agriculture. Recently, low oil prices undermined the attractiveness of biofuel production, leading to a seven-year low in investment and a drop in demand for skills associated with that technology.12 Green technologies, such as wind and solar power, also need high oil prices to be in the running as viable substitutes. Therefore, for green energy producers, volatility often originates outside their industry rather than from rivalry within it.

The companies can adapt by hiring people with more relevant skills as needs shift, but the individuals who already work for them don’t change as readily when market preferences evolve or new technologies appear. The degree of risk an employee faces in this scenario depends on where the volatility originates.

From a global placement firm, we obtained proprietary compensation data on 2,034 executive placements, from 2004 to 2011, across multiple functions, industries, seniority levels, and geographies. Using years of industry experience as a measure of accumulated human capital, we found that the return on that capital appeared to be linked to industry volatility. Specifically, greater industry employment experience (by one standard deviation, or 7.5 years) was associated with a 4% relative increase in pay for job-switching executives in industries whose top firms face high volatility from intra-industry rivalry. In contrast, there was almost no relative pay increase for the same experience in industries that had less internal rivalry.

Therefore, intra-industry volatility may not erode the value of human capital to the degree it chips away at the value of a company. In fact, to the extent the volatility fuels competition for talent, it could benefit individuals who have focused on honing their industry-specific capabilities.

With externally driven volatility, in contrast, individuals and companies face similar risks. For companies, such as those in the green energy industry, it’s clear how cheaper alternatives can erode their value proposition. But individuals working in this setting also find themselves threatened because their industry-specific capabilities are less valuable to the rival companies (in this case, petroleum-based energy companies). Using the same global placement firm’s data on executive compensation among job-switchers, we found that people in more isolated industries garnered an additional 3.8% pay return on their years of industry experience. In contrast, for people working in more highly integrated industries (with greater exposure to external shocks), their work experience did not command a measurable increase in pay.

Preempting Your Own Disruption

Taking refuge in a stable industry is not an option for many people, and stable industries may not remain so for the duration of your career. But you can take charge of your career trajectory by scouting for early signs of industry volatility and getting ahead of them at your company, identifying other companies in your sector where your skills will be in high demand, and developing highly portable skills that will travel across industries.

Scout for early signs of volatility at your company — and beat it to the punch. Whether the volatility in an industry originates from the outside or from within, self-initiated career disruptions at your company can insulate you against surprises down the road. We will present two examples of such moves that allowed people to avoid being blindsided by forces beyond their control.

First, consider the story of Ken, a lead stock analyst assigned to the telecom sector in the research division of a Wall Street investment bank. The major clients of such banks are institutional investors who have billions of dollars under management on behalf of corporations, pension funds, and individuals. If an institutional buyer deems the stock analyst’s research to be useful, the institution buys and sells its stock positions through the investment bank, which acts as a broker on the institution’s behalf. The more value the analyst adds, the more trading the institution does with the brokerage firm.

When Ken recognized in 2001 that the dot-com era had peaked, he asked to switch out of covering the telecom sector, even though such switches are uncommon and rarely successful. Although initially reluctant, the firm’s management allowed Ken to switch to the airfreight and surface transportation sector in early 2002 — and provided the resources and space required for him to grow in his new role.

Our analysis of the data from this era backs up the wisdom of Ken’s decision. We looked specifically at Institutional Investor’s annual All-America Research Team poll, which ranks the effectiveness of stock analysts.13 Notable changes in the number of ranked analysts in a sector provide a barometer of the health or volatility of that sector, potentially revealing where talented people may be at risk. We compared, by sector, the number of analysts ranked in 2000 and 2010, looking for large changes that would signal upheaval. The two sectors with the largest declines and lowest repeat awardees were telecom services and IT hardware. Our analysis of telecom services suggests that the decline in the number of ranked analysts (by 72%) and the number of repeat awardees (less than 6%) were due to both external and internal industry volatility. This sector faltered in the wake of the dot-com bust and the 2008-2009 financial crisis, but it was especially unhinged as the world shifted from analog to digital communications.

According to our analysis of content in Institutional Investor and the commentary that accompanies its stock analyst poll rankings, most of the telecom companies whose stock prices performed best in 2000 were acquired or went bankrupt by 2010. As the companies in the industry collapsed, equity research analysts tied to those companies also suffered. Ken and his employer clearly made the right call in switching his sector assignment.

Of course, a career move like Ken’s is challenging for both the transitioning individual and his or her company — it means displacing talent and exercising patience as the job-switcher faces a learning curve. For those reasons, companies are more likely to entertain such moves only for very strong performers who show a willingness to share the risk. Ken told us by email, “Switching industries allowed me to understand a broader part of the economy,” surely a value add for his employer in the long run.

Our second example is that of David, a stock analyst at a different Wall Street investment bank, who made a less stark move than Ken’s. In 2002, David switched from covering health care technology to focusing on pharmaceuticals because, he said in an email interview, he “wanted to take on a new challenge and cover a much larger market-cap sector.” The investment bank had wanted to fill the position internally anyway, if possible, and facilitated David’s switch, providing support to him while he learned the intricacies of the new sector.

David describes the learning curve as very steep, with a genuine risk of failure, but also as providing “intellectual stimulation.” The move proved to be advantageous to both him and his employer despite greater industry volatility than anticipated and, according to David, “significant underperformance of the pharmaceutical sector during the 2002-2009 period.” His move within the health care industry allowed him to leverage his existing expertise and proven performance record within his company.

Of the thousands of Institutional Investor-ranked analysts on Wall Street from 2000 to 2010, Ken and David are two of only a few who successfully made the transition from a top ranking in one industry to a similar ranking in another industry. (Ken was ranked No. 2 in telecom and remained at No. 2 after switching to airfreight and surface transportation; David was ranked No. 2 in health care technology and then No. 1 after switching to major pharmaceuticals.) The experiences of these high-performing people reveal how self-initiated, preemptive career disruptions can succeed despite the inherent risks.

For Ken and David, making a big move within the same company was sufficient to keep them on top. For other people, a more dramatic move may be in order, as long as the job-switchers understand the volatility of their industry.

Deploy your skills with another company in the same industry. Even when a volatility-driven career move is not self-initiated, opportunities for redeployment within an industry often abound.

Consider Arthur Andersen, which used to be one of the Big Six accounting firms until it faced rapid contraction in the wake of the 2001 Enron scandal. Despite those events, many AA employees landed at new firms where they were able to use their same skills. That’s because the world still needed accounting services as much as they ever did, perhaps more so because of additional reporting requirements that ensued after the Enron debacle. Many AA employees found their way to firms that had been their former employer’s rivals; others remained in the industry working for smaller firms.14 Indeed, although the survival rate of individual professional services firms is not high, the industry’s overall retention of employment levels is strong. That’s because employees who are shed by closing firms still have the opportunity to be absorbed by a surviving firm if their skill set remains valuable.15

Take the story of Brigitte, currently a health insurer CEO, who started investing in her skill set at the intersection of quantitative financial analysis and health care. “I considered that combination specific enough to be recognized as a distinct specialization,” she says, “but general enough to be valued in multiple contexts related to health care.” Brigitte has navigated multiple moves between the health care provider space and payer organizations that provide medical insurance, an industry where volatility is common.

“Before going to business school, I decided to leave my business management position in a prescription drug distribution company as management was contemplating different acquisition strategies,” she explains. “I just wasn’t sure what direction the company was going to take and what my role would be. I found that my expertise in financial analysis within health care could be valued in many contexts, including health care consulting and insurance organizations.”

Today, Brigitte faces another acquisition-driven uncertainty as her employer, a major medical insurer, considers merging with a large retail drugstore chain. “The roles I’ve taken on here have helped me learn the health care business more deeply, and that knowledge is not specific to my current employer,” she says. “I think that feeling like your value as an employee is tied to just one employer is dangerous — I’ve seen people make bad decisions when their professional future gets put at risk by a possible reorganization. Feeling comfortable that there are other possible options for me makes me a more clear-eyed executive in my current role.”

Bolster skills that make you attractive across industries. In addition to hiring many analysts with industry- and firm-specific knowledge, Wall Street firms also seek analysts with expertise in areas that extend across categories — people who focus on regulatory trends, small companies, quantitative know-how, portfolio management, economics, or accounting. Institutional Investor’s rankings of analysts show that in five of those six areas, retention rates in 2010 were at least 25% higher than they had been in 2000; only the accounting sector did not reach this threshold. And four of the six areas experienced increases in the raw number of ranked analysts.16

What inoculates these types of analysts from industry volatility is that their expertise is broadly applicable to a diverse and unrelated set of companies. For example, an analyst who focuses on economics and portfolio management would be able to apply that expertise across various industries ranging from currency markets to utility companies. That kind of analyst’s skills would include understanding the implications of macroeconomic trends and applying the latest quantitative research methods. Analysts specializing in applied accounting expertise can use their knowledge in just about any industry. For example, according to Institutional Investor, analyst Christopher Senyek has accumulated six top ratings in the accounting category since 2009. His specialization in rating companies by earnings quality can be broadly applied to the task of identifying riskier investments across industry categories.17

Although the skill set of these generalist analysts is somewhat distinctive, it is still not of the highest value because it’s not as rare as well-cultivated expertise in a particular industry. Nevertheless, because the expertise applies to many unrelated settings, it is more resistant to the whims of industry volatility. This avenue will not suit everyone, but it is another option when you want to hedge your bets against the forces of disruption. It just may require some creativity and retooling.

This principle of making yourself valuable across industries also applies outside professional services. Consider the case of Michelle, who became dissatisfied after six years working as a teacher in a public elementary school. After she resigned her teaching job to spend more time with her young children and complete an additional master’s degree, she used her teaching experience to move into the corporate training field. She now works as a trainer in a regional bank, creating and designing solutions-based instruction. Michelle views her new career as providing stronger opportunities for advancement and a better match with her desire to use her entrepreneurial talents. “One of the things that drew me to education in the first place,” she says, “was my desire to help others discover and use their strengths. I now get to teach and train colleagues in an environment that encourages creativity and innovation.”

Industry volatility often is a topic of debate about the survival of companies, but it has equally meaningful implications for the executives and managers who work for those businesses. In short, recognizing and, when possible, anticipating industry volatility are keys to sensible career management. Just as companies can become complacent with their strengths, so too can individuals. Resting on one’s laurels is always risky.

Motivated individuals can start by diagnosing the volatility in their own industry and then analyzing what internal or external forces explain that volatility. Next, of course, it’s time for action. Whether you decide to make a modest shift within your own company or within your industry — or to switch industries altogether — will depend on what your diagnosis uncovers, your own career goals, and what options are realistic for you. The only naive approach is to assume that industry volatility is just something for the company to worry about and not a concern for you as a sole actor. Simply understanding the broader landscape of existing and imminent volatility — and your place within it — is a vital first step. We suggest you take it, soon.