The Problem
History is littered with companies that have once been giants, lost their way and then are never seen again. In short, many have been disrupted out of existence. For example, 40% of companies that were on the FTSE 100 20 years ago are no longer there. The cause is not always clear but improved technology normally had some hand in the demise. During this same period, the technology sector led the way, with an average annual growth rate of 18.2%*.
If we make the assumption is avoidable, given companies should know what to do to avoid the disruption, then what is the problem? It appears that companies are not scanning the competitive market often enough to spot the disruptors and once they identify them, they are too slow to make the changes needed.
We feel the starting point for companies to start addressing the issues facing them is to know who is disrupting them and where they are disrupting others. By actively mapping the ‘disruption continuum’ they are able to map their place in the spectrum. Once there is a visual view that firms are disrupting them, at least plans can be put into place to counter the disruption. A little like anyone with an addiction, the first step to recovery is to admit there is a problem and they are willing to make a change.
Potential Solutions
To help firms visualise the competitive landscape we find it useful to ‘plot’ the disruption continuum. Most of us are familiar with normal distribution curves. There is a famous piece of work done by Geoffrey Moore describing the path a new product takes throughout its life cycle. Most will remember his famous Crossing the Chasm. We leveraged this work and applied the thinking to disruption. Our Chasm (Disruption Gap) refers to the separation between firms who are in a position to be disrupted (~80% of the market) and the other 20% of firms who are disrupting others. This is not an exact science but by plotting your competition you will see your position on the continuum.
Taking a closer look at the extremes of this normal distribution curve we see on the far-left tail are companies where there is little chance the technology will be disrupting them anytime soon. These are usually artesian, handmade, or delivered products. Think about artists, shoe repairers, brick layers as examples of these types of businesses. Technology can certainly be used to enhance the business, around how it interacts with its customers, but tech is not normally going to ‘knock it out.’
On the far-right tail are few firms that are disrupting the disruptors. Amazon is widely seen as the quintessential disruptor in almost any sector they decide to play. Their ability in data management, automation and relentless customer experience improvement make them of the most feared company when they come to your sector. But I would argue that there are companies that are trying to disrupt Amazon by taking an element of Amazon’s services and doing it even better with technology. These firms are on the far right in the ‘tail’ of the normal disruption curve.
Conclusions The first steps in starting to de-risk disruption are to:
Admit there are firms that are disrupting you
Understand what firms are disrupting you
Once you have taken this first step to identify where you sit in the external space, it is critical that you now look at your own organisation and understand what is holding you back. That is our topic for next post :)
*Wise, H. 2020. The Top 10 Performing Shares on the Last Decade Revealed. [online] Available from: https://www.thisismoney.co.uk/money/investing/article-7895673/The-10-performing-shares-decade-revealed-Ashtead-earned-highest-total-returns.html