Take-Away: To survive disruption, companies should understand
both disruptive opportunity drivers and potential cost impacts. They should possess
capabilities that provide flexibility in how they navigate disruption.
Even the best managed companies can become victims to disruption.
In fact, in many instances disruptive technology
leads to failure of the industry leader [1]. In order to prevent an untimely end,
companies should be vigilant for the next disruptive opportunity or trend. They should also understand generally the adjustment
cost of disruption for their industry. Companies
should maintain mechanisms that allow for Research and Development, Acquisitions,
or “Spin-ins” where appropriate [2].
Understand the Mechanics
Having the “best” product does not mean that all customers
are happy. Traditionally, improving the
feature set is a concrete way to retain customers for established products, but
focus on customer facing activities is a great place to look for
disruptive opportunities [3]. It was not a better DVD but how it was
delivered that helped Netflix overcome Blockbuster. Simplicity, convenience, or a narrower
feature set (resulting in a lower price) are each indicators of a potentially disruptive
product.
[3]
Knowing what adjustment costs from disruption may look like
is also valuable. The higher a company’s
asset base, and greater the competitive intensity, the more expensive it will
be to navigate disruption. For example,
automotive manufacturers with significant assets have a high cost of retooling
while keeping sustaining products competitive.
In contrast, established software companies without heavy competition can
create new, highly scalable digital products with a comparably much smaller
cost impact. [4]
High intensity / low asset companies face intermediate indirect cost through cannibalization
and resource limitations, and high asset / low Intensity companies face intermediate indirect
costs acquiring requisite assets.
[4]
Tools to Adapt
Capabilities for navigating disruption need to be
considered. It is likely that necessary actions
addressing disruptive trends will be contrary to that of the core business, so bifurcation
or ensuring the autonomy of decisions needs to occur. Companies with resources and the appropriate
circumstances may utilize their R&D program, but this provides minimal separation
(and requires foresight). A company may alternatively
choose to acquire the expertise. This is
a good option if the company does not have expertise in-house, or if disruption
is already in motion. If the disruptive
trend sharply contrasts with the existing business, companies can “Spin in” a specialized
group or create a stand-alone entity that is free to carry forward with near or
full autonomy. As many disruptors
benefit from a start-up mentality, this can be an appealing option. Each of these options may be more or less
appropriate depending on the industry and circumstance, but having options provides
an advantage.
Disruptive trends are historically difficult to predict, and
to address them can require deviating from traditional management principles
and/or the core business. Having visibility
to possible disruptive trends, a grasp of how costly disruption may be, and viable
options to react and adjust are important tools a company should have to
successfully navigate the next disruption.
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