Digital disruption has seen innovations such as artificial intelligence, the Internet of Things certification certification, analytics, mobile solutions, and social media change the face of how business is won and done in every industry. We all read about what was said to be coming but many leaders complacently played down the warnings and continued to go about their business as usual – unprepared for what was hurtling towards them.
The warnings have been printed onto the pages of executive reading material since 1995, when Clay Christensen and Joe Bower published their HBR article “Disruptive Technologies: Catching the Wave”. Now that 32 year old notion of disruptive technology has become a harsh reality with painful consequences for the bottom line of many established firms. Those consequences being disappointing numbers in their annual reports, and as a result, some CEO’s have been sent packing and replaced, while others have been granted “time to turn things around” – but the clock is ticking for them, and the boards and shareholders to whom they’re accountable are becoming restless.
The problem for victims of disruption is that they tend to balance precariously on their back foot, as they are forced into a defensive mode. As they bleed profits, they desperately defend their corner as best they can with defensive tactics, but they often lack an offensive strategy. One where innovation is at the core. So responses are often lacklustre.
Meanwhile, as if in a parallel universe of carefree fun, digital economy insurgents are the entrepreneurs that continue to imagine a better world. One that pales incumbent offerings into antiquated obsolescence. They engineer new ways of doing things – unconstrained by dusty old processes, policies, hierarchy, politics, and limiting beliefs.
These entrepreneurs duck and dive, muck around with 20 crazy new ideas and arrive at “the one” – all in their own good time. They respond to new possibilities overnight, without the need for endless committee meetings. They move at lightening speed and they don’t care what anyone thinks.
They focus on micro-niches. Ones they learn to deeply understand and empathise with. Niches with customers they care passionately about and which they understand the psychology of. Meaning they know exactly where the incumbents are failing, why they are failing and exactly where and how customers want relief.
When that happens, customer expectations get raised by disruptive insurgents and because incumbents fail to meet those expectations with their old business models, modern fickle customers defect in their droves and profits evaporate in front of the eyes of CFOs. These disruptors are incredibly dangerous to incumbents because they quickly grow huge audiences and are agile enough to leverage their audience into business models that threaten incumbents in more than one market.
Dollar Shave Club is just one example. In just a few short years, the maverick style start-up sliced off a serious share of the shaving market for themselves, while Gillette was left red-faced and on the defensive. Court action and copy-cat tactics were the early responses from the P&G subsidiary – confident that their antiquated Goliath style tactics would win the day.
Then in 2016 Unilever acquired Dollar Shave Club in a deal said to be worth about $1 billion, and so Gillette and its parent company P&G were no longer facing off with a start-up. Suddenly they’re up against a powerful, which has vast resources to plough into the Dollar Shave Club business model.
This is happening over and over, and no industry or business is immune to digital disruption as innovative digital use-cases make the headlines on a daily basis.
Digital disruptors are able to innovate rapidly, first appealing to low-end or unserved customers, then go on to capture market share and scale far faster than larger more established organisations that tend to hold on to business models that worked well for them in the past. Some like Facebook never sell out, while others like DollarShave Club do. Either way, disrupted firms bleed profits and the noise kicks off inside those firms as the blame-game begins. Heads role, desperate leaders scramble unprepared to defend their market, often in a panic-stricken mode and very unprepared.
Large established, oligopolistic corporations are slow moving, stuck in the old ways of working, with an air of arrogance about their historic position in the market.
Their success depends on having a broad base of support to which they can play. They favour their loyal customer base while trying to expand it with some digital marketing, but often what they’re marketing is their antiquated business model. A business model that is one of rent-taking, where they capitalise on their dominant market position as their main advantage.
The problem is that the world is now awash with large firms proudly announcing to their…