‘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’ – the choice between sacrificing margins to match a disruptive competitor or allowing them to continue gaining market share unopposed.
Christensen’s examples of disruption (steel industry, pharma industry) are ‘pre-digital’, showing that disruption can happen in any industry 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 simply increased the occurrence and scale of disruption by enabling business model innovations, for example, platforms or product-as-a-service models. These new business models cut out non-value adding intermediary costs and allow the customer to configure what they want rather than take what they’re given.
Could you be a disruptor?
Yes! At the very least, every business leader should identify why and where disruption is likely to happen to them.
Common types of customer situations where disruption takes hold include:
- ‘take it or leave it’ – where there is limited choice of product features or service options
- ‘expensive and idle’ – where an expensive product is only occasionally used
- ‘channel inflation’ – where there are high non-value-added intermediary costs
- ‘binary setting’ – in the cases of an 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 disruptive competition.
How to turn disruption to your advantage
1. Think like a disruptor
Assume disruption is inevitable and be 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, scrutinize the end-to-end processes of your business to identify where these technologies can step change product performance and transform value for customers, then develop new propositions, even as the current business is doing well.
2. Invest in disruptive options
When disruptive opportunities are identified, be prepared for the business case to look different to conventional ROI. Capital spending, budgeting and performance management rules of the business may need to change so that disruptive ideas can be assessed correctly.
For example, one highly successful manufacturing business had to adjust its investment criteria to support new disruptive opportunities. The Board were familiar with business cases for new manufacturing product lines; however, they also saw 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 identified new IoT-based business opportunities that complement their core and provide options to introduce new business models based on data.
3. 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. Combine rolling annual refreshes with monthly strategy updates to test the assumptions in your strategy and make course corrections in-year.
4. Use all the talents
Becoming a business that is adept with digital and disruption doesn’t mean firing everyone over 40. 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. Try to develop a culture that prizes customer value, awareness of emerging technology potential, data-based decision making, and execution.
Turn disruption to your advantage:
1. Scrutinize your business for potential areas of disruptive threat or opportunity particularly through the application of IoT and AI.
2. Use appropriate investment criteria and terms to evaluate disruptive business cases.
3. Make sure your planning process is dynamic to deal with disruptive market threats and opportunities.