Winner of the PathFinder4 student blog competition, University of Hertfordshire student Georgie Fairweather, explores the role of company size when disrupting existing markets.
It can happen at any time, by anyone, anywhere – and it will almost always take you by surprise. Disruptive innovation is a force not to be underestimated; it remains the sole suspect for countless company downfalls and is held responsible for several product demises. So, what is it that appears to have companies shielding for safety? Clayton Christensen defines disruptive innovation as “an innovation that creates a new market, eventually disrupting an existing market by displacing established firms”. To expand, disruptive innovation lives up to its name by causing high-degree market penetration and impact. This innovation changes a process or model drastically and as a result, eliminates a market through causing major changes to consumer wants. Often committed by outsiders and entrepreneurs, this type of innovation carries high-risk and often arrives undetected, with their biggest victim being market-leading companies.
Today, we will be exploring how technology and digitalisation act as drivers to disruptive innovation as well as considering real-life examples of disruption within the marketplace. I’m also going to be discussing the implication of disruptive innovation on different size companies and answering the age-old question, does size really matter?
Onto the technology
Studies show companies aren’t lasting as long anymore. In 2012, the average organisation only just reached adolescence with a recorded lifespan of 15 years, compared with our older generation of companies managing to survive until the ripe-old average age of 75 in the 1930s. But what is happening? Technology changes fast, leaving slow-moving organisations behind with little remorse.
A high rate of technological progress politely holds the door open for disruptive innovation to enter our markets and catch us off-guard; disruption thrives off periods of instability and with technology constantly changing, we can be described as anything other than stable. Technology combines with social and environmental factors to form a vector of disruption, or in simpler terms an opportunity for disruptive innovation to occur, and this interaction has acted as an accessory to several market murders.
The impact of technology is most predominant in stagnant markets that fail to harbour much movement, leading us swiftly onto one of the most recognised example of disruptive innovation. Californian company Uber managed to embrace and befriend technological change, rejecting the traditional process of taxi ordering and changing the market to depend solely on a smartphone App. Combining a consumers’ ‘moment of need’ with the possibilities of technology, Uber pulled off one of the most successful market heists in history.
Everything is digital
The world is going digital. And with digitalisation of goods and services proving to be a cheaper, more efficient and faster alternative – who would protest? Philippe Lemoine identifies three main types of digitalisation; automation, dematerialization and changes in the value chain. Or, in simpler terms, the introduction of more automatic equipment, stamping out physical materials for virtual resources (i.e. the internet) and the digitalisation in factory processes.
Nicknamed ‘the age of digital natives’, a generation of consumers have grown up immersed in digital technology and a world before digitalisation seems like nothing but a bad dream. Others are immigrants of the digital world; these consumers have welcomed digitalisation with open arms and embraced the new-age changes. Although digitalisation is so prevalent, some consumers find themselves disengaged due to a lack of understanding or acceptance, providing a resistance to disruption within certain markets.
The process of digitalisation invites disruptive innovators to enter and re-shape markets with faster, more efficient processes. Netflix, the online film company, is an example of dematerialization digitalisation helping to encourage a new disruptive process. Eliminating rental DVDs and replacing them with an on-demand, online film portal took the rental industry by storm, with a quarter of UK households subscribing to the service by 2016 per statistics collected by the Guardian.
Does size really matter?
“Disruptive innovation is no longer the domain of industry leaders. Just about anyone can disrupt the market; all it takes is a good idea” - Ford Motor Co (2013)
The short answer is no. Disruptive innovation isn’t exclusive to larger industry leaders or small smart-ups. With technology, digitalisation and possibilities almost unthinkable 50 years ago, opportunities to be disruptive within your market are everywhere.
According to Clayton Christensen, disruption is most commonly caused by outsider start-ups or entrepreneurs, however this does not restrict larger companies or hinder their ability to cause some damage. With existing market-leaders, however, disruptive innovation does not come easy – organisations must factor in the high risk, copious amounts of effort and internal resistance that comes with a venture such as disruption. Introducing new processes that cannibalise the old ones or snatching away profits from their original products to be disruptive can be a decision hard to make for already successful companies. A build-up of people and assets can also act as a hindrance, creating barriers for a company attempting to become more flexible.
Start-up companies with disruptive ideas are huge threats to larger companies, with existing organisations often experiencing stages of denial, alarm and usually leading to them frantically waving a large amount of cash in the hope to buy the start-up before the damage is done – if you can’t beat them, join them.
But if anyone can disrupt a market, big or small, what does it take? A starting point. A good idea, often combining new-age technology, embracing digitalisation, reviewing what your company lacks and what your consumers are crying out for or a complete revamp of an old process. These ‘starting points’ enter a market and are ready for war; they attack existing technology, create barriers of entry, destroy consumer relationships and claim their land – companies who become disruptive often evolve into an eco-system, such as the empire of Google, Google Maps, Gmail, Google Apps, Google Chrome, Google Alerts… the list goes on.
Time to present the evidence
Netflix, Uber, AirBnB, Wikipedia – all familiar names that altered the way we do things forever. Take Netflix as an example of a start-up successful enough to disrupt an entire market. So successful, in fact, that it forced one incumbent company in its market to bankruptcy in 2010. Clayton Christensen refers to Netflix as a “classic example” of disruptive innovation, eliminating a market of physical DVD rentals and altering consumer needs into a completely different direction. Before Netflix, consumers were not aware they needed on-demand access to a portal of online movies, yet after its introduction a Netflix consumer would ask for nothing less.
And start-ups are not the only ones at it. Apple is a great example of a market-leading, well-established company who manage to continually disrupt their market with new branches of their business. Several of Apple’s products wouldn’t be considered as disruptive – innovative, yes, but disruptive, no – however the idea of apps, created by other people/companies/organisations and available to purchase on the ‘App store’ carved a brand-new market and changed the way consumers shop.
So, what about you?
We’ve looked at disruptive innovation in all its glory. We’ve discussed when it occurs, why it occurs and how it occurs. We’ve covered who can and who can’t. But, how can you use this information?
- Review processes. Whether you are wanting the role of disruptor or disrupted, it’s important to review your company processes, services or products. Are there needs my consumers have that I’m not fulfilling? Am I leaving a gap for outsiders to enter my market? Is there a cheaper, easier, more efficient method for my consumers to use my services? Ensuring an air-tight operation can deter disruption, or stumbling across a problem can help you make the splash yourself.
- Embrace digitalisation. It’s coming – and there’s nothing you can do to stop it. Keep an eye out on digital trends, recent changes and consider low-cost and efficient options. Start-ups can easily threaten established companies and remaining knowledgeable and aware can be an aid to survival.
- Think a little deeper into vectors of disruption. Use these opportunities to your advantage to embrace innovation; factors such as technology, digitalisation, consumers are all sending you an invitation to disrupt or be disrupted. RSVP soon.
- Think future. “Companies get so caught up in everyday operations that they don’t take a step back to think what future may hold” - Professor Rita McGrath. It is easy to get lost in the everyday when running a business, but casting your mind ahead to future possibilities can help you arm your business towards possible threats.
- Never underestimate a threat. “Neither Redbox nor Netflix are even on the radar screen in terms of competition” - Blockbuster CEO Jim Keyes exclaimed, three years before Blockbuster closed for good.
Interested? To read more on Clayton Christensen and his concept of disruptive innovation, click here: http://www.claytonchristensen.com/key-concepts/
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