Cre­ative self-dis­rup­tion

Financial Mirror (Cyprus) - - FRONT PAGE -

Like many read­ers, I still vividly re­call when Nokia was the dom­i­nant player in mo­bile phones, with over 40% of the mar­ket, and Ap­ple was just a com­puter com­pany. I re­mem­ber when Ama­zon was known only for books, and when dirty taxis or high­priced lim­ou­sines where the only al­ter­na­tive to public trans­port or my own car. And I re­call when the Four Sea­sons, Ritz Carl­tons, and St. Regises of this world com­peted with one an­other – not with Airbnb.

Now, I may be old, but I am not that old. Th­ese changes hap­pened re­cently – and fast. How did they oc­cur? Will the pace of change re­main so rapid – or even ac­cel­er­ate fur­ther? And how should com­pa­nies re­spond?

An in­dus­try can be trans­formed by top­down eco­nomic, fi­nan­cial, po­lit­i­cal, and reg­u­la­tory changes. But com­pa­nies like Airbnb, Ama­zon, Ap­ple and Uber, ex­em­plify a dif­fer­ent kind of trans­for­ma­tion: ag­ile play­ers in­vade other, seem­ingly un­re­lated in­dus­tries and bril­liantly ex­ploit huge but pre­vi­ously un­seen op­por­tu­ni­ties. Im­por­tantly and counter-in­tu­itively, do­ing so serves their own core com­pe­ten­cies, rather than those of the in­dus­try that they seek to dis­rupt.

In­deed, rather than us­ing ex­ist­ing ap­proaches and pro­cesses to com­pete, th­ese en­trants cre­ated rad­i­cal new game plans, rewrit­ing the tar­get in­dus­try’s rules. Their cre­ativ­ity and pas­sion en­abled them to sub­due – and in some cases even de­stroy – less adapt­able gi­ants re­mark­ably quickly.

Cen­tral to th­ese com­pa­nies’ suc­cess has been their un­der­stand­ing of a fun­da­men­tal trend af­fect­ing nearly all in­dus­tries: in­di­vid­ual em­pow­er­ment through the In­ter­net, app tech­nol­ogy, digital­isation, and so­cial me­dia. If ex­ist­ing com­pa­nies hope to com­pete in this new en­vi­ron­ment, shaped by both top-down and bot­tom-up forces, they will to have to adapt, pre­empt­ing dis­rup­tive new play­ers by fig­ur­ing out how to dis­rupt them­selves. Oth­er­wise, they could face a fate sim­i­lar to Nokia, which was dis­in­ter­me­di­ated by one tech com­pany (Ap­ple) and ac­quired by an­other (Mi­crosoft).

In this ef­fort, com­pa­nies must recog­nise that both de­mand and sup­ply fac­tors are or will be driv­ing the trans­for­ma­tion of their com­pet­i­tive land­scapes. On the de­mand side, con­sumers ex­pect a lot more from the prod­ucts and ser­vices they use. They want speed, pro­duc­tiv­ity, and con­ve­nience. They want easy con­nec­tiv­ity and ex­panded scope for cus­tomi­sa­tion. And, as the suc­cess of TripAd­vi­sor shows, they want to be more en­gaged, with com­pa­nies re­spond­ing faster to their feed­back with real im­prove­ments.

On the sup­ply side, tech­no­log­i­cal ad­vances are top­pling long-stand­ing en­try bar­ri­ers. The on­line car ser­vice Uber adapted ex­ist­ing tech­nolo­gies to trans­form a long­shel­tered in­dus­try that too of­ten pro­vided lousy and ex­pen­sive ser­vice. Airbnb’s “sup­ply” of rooms far ex­ceeds any­thing to which tra­di­tional ho­tels could rea­son­ably aspire. An ex­ist­ing com­pany would have to be highly spe­cialised, well pro­tected, or fool­ish to ig­nore th­ese dis­rup­tions.

One tra­di­tional in­dus­try in which progress is be­ing made is the au­to­mo­tive branch, where com­pa­nies are pur­su­ing digital­isation. Though new en­trants could dis­rupt in­cum­bents’ pro­duc­tion plat­forms – Elon Musk’s Tesla Mo­tors is a clear ex­am­ple – they are rare. Th­ese days, the more per­va­sive com­pet­i­tive threat comes from com­pa­nies in other do­mains that can erode the cus­tomer value propo­si­tion af­ter the car is sold. Com­pa­nies are recog­nis­ing that, over time, the dig­i­tal ex­pe­ri­ence in the cars they pro­duce will com­mand a larger share of the con­sumer sur­plus, ow­ing largely to the po­ten­tial for sub­stan­tial profit mar­gins and economies of scale. As a re­sult, they are adapt­ing their ve­hi­cles to the new shar­ing econ­omy, help­ing peo­ple to re­main well­con­nected in the car, ex­pand­ing the scope of af­ter-sale ser­vices, and pre­par­ing for the shift away from in­di­vid­ual car own­er­ship to­ward car shar­ing.

Banks are also adapt­ing, but much more slowly and hes­i­tantly. If they are to make progress, they must move be­yond sim­ply pro­vid­ing apps and on­line bank­ing. Their aim should be holis­tic en­gage­ment of clients, who seek not only con­ve­nience and se­cu­rity, but also more con­trol over their fi­nan­cial des­tiny.

In th­ese and many other in­dus­tries, the com­pet­i­tive land­scape is un­doubt­edly be­com­ing more com­pli­cated and un­pre­dictable. But four gen­eral guide­lines can help man­agers ef­fec­tively adapt their mind­sets and busi­ness mod­els to fa­cil­i­tate or­derly and con­struc­tive self-dis­rup­tion:

First, com­pa­nies should mod­ernise core com­pe­ten­cies by bench­mark­ing be­yond the nar­row con­fines of their in­dus­try.

Sec­ond, they should in­crease their fo­cus on cus­tomers, in­clud­ing by so­lic­it­ing and re­spond­ing to feed­back in an en­gag­ing way.

Third, man­agers should recog­nise the value of the data col­lected in their com­pa­nies’ ev­ery­day op­er­a­tions, and en­sure that it is man­aged in­tel­li­gently and se­curely.

Fi­nally, the mi­cro-level forces that have the po­ten­tial to drive seg­ment-wide trans­for­ma­tions should be in­ter­nalised at ev­ery level of the com­pany.

Com­pa­nies that ap­ply th­ese guide­lines stand a bet­ter chance of adapt­ing to what is driv­ing to­day’s rapid re­con­fig­u­ra­tion of en­tire in­dus­tries. The bot­tom line, once again, is sup­ply and de­mand: More than ever, peo­ple want – in­deed, feel em­pow­ered to ex­pect – cheaper, smarter, safer, and more ef­fi­cient tools to live a more self-di­rected life. Com­pa­nies that fail to de­liver will find that their days are num­bered.

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