What is disruption?
‘Disruption’ sounds painful and it is when you are running a business that suddenly finds itself losing profit and market share to a competitor providing a product or service that makes yours look expensive or obsolete.
Harvard Business School professor Clayton Christensen coined the term ‘disruption’ in his 1995 book The Innovators Dilemma. The dilemma is ‘damned if you do, damned if you don’t’ – choosing between sacrificing margins to match a disruptive competitor or allowing them to continue unopposed.
Most of Christensen’s examples of disruption (steel industry) are ‘pre-digital’, showing that disruption is not only a digital phenomenon, it can happen in any industry at any time where a new product or way of doing things provides the customer with the outcomes they want at a much more affordable price.
Digital has increased the incidence and scale of disruption because it enables business model innovations, for example, multi-sided platform, direct-to-consumer, product-as-a-service, etc. These new business models remove non-value adding intermediary costs or allow the customer to configure exactly what they want as opposed to the set product at set price.
Could you be a disruptor?
So given that disruption is not new and is increasing, should every business be using it to their advantage and ensuring their organisation, in terms of processes and culture, aligns with it?
Yes, we think so.
Every business leader should understand why and where disruption is likely to occur in their case. Common types of customer situations where disruption takes hold include:
‘take it or leave it’ - limited choice of product features or service options
‘expensive and idle’ - expensive product used occasionally
‘channel obesity’ - high non-value added cost of intermediaries
‘binary setting’ - offline product that can’t adjust to use conditions
In the past these kinds of business features were regarded as positive ‘barriers to entry’ or profit levers, forcing the customer to pay more. Now they are strategic vulnerabilities and invitations to competition.
How to turn disruption to your advantage
Think like a disruptor. The key is assuming disruption is inevitable and being self-critical about your business model and vigilant about technologies that could challenge it. For example, the internet of things (IoT) and artificial intelligence (AI) have the potential to disrupt all industries through a combination of connectivity and analytics. Rather than wait on disruptors arriving with new products using these technologies, leaders should scrutinize the end-to-end processes of their business to identify where these technologies can step change product performance and transform value for customers, then develop new propositions – even if the current business is doing well.
Invest in disruptive options. When disruptive opportunities are identified, be prepared for the business case to look different to conventional. Budgeting and performance management rules of the business may need to change so that disruptive ideas that challenge the existing way of doing things get a fair hearing.For example, we know of one highly successful manufacturing business that is adjusting its investment criteria to support new disruptive opportunities. The Board are familiar with business cases for new manufacturing product lines; however, they also see the emergence in their industry of new information services and platforms using the data generated from manufactured units to provide enhanced control and prediction. Rather than allow a disruptive competitor or third party platform to collect and manage this data for the customer and marginalise their role as the manufacturer, they are looking at new IoT-based business opportunities that complement their core and provide options to introduce new business models based on data.
Speed up planning and performance management. The traditional annual planning and performance management cycle is too slow to capture disruptive opportunities or adjust your assumptions and plans. We suggest combining annual refreshes with monthly strategy updates to test the market movements and cause-and-effect assumptions in your strategy and make the necessary adjustments in-year.
Use all the talents. Becoming a business that is adept with digital and disruption doesn’t mean firing everyone over forty. The reality is that most workplaces today are multigenerational. X-gens and boomers may not be as digitally native as millennials but their experience gives them a deep understanding of the business model and ability to see patterns across time and business cycles that help sense disruptive opportunities and threats. Leaders should aim to develop a culture that prioritises customer value and data-based decision making.
Turn disruption to your advantage by:
Scrutinising your business model for potential areas of disruptive threat or opportunity particularly through the application of IoT and AI.
Developing an understanding of SaaS and data-enabled business models and be prepared to flex investment criteria to bring this new kind of business into your portfolio.
Making sure your planning and performance management processes are fast and flexible.
Developing a culture that prioritises customer value and data-based decision making.