How businesses react to disruption
Technology is driving a huge wave of disruption and change in society. Key platforms such as global digital networks which allow instant collaboration and public cloud which has commoditised IT infrastructure, enable start-ups to compete with traditional businesses on a more level playing field. No longer do you need to spend capital investment or seed funding on expensive hardware. Not only this, but the rise of the smartphone has put the power in the hands of the consumer like never before. Today, it is possible to build a global development team and develop an application which will be downloaded by millions of customers, all from the comfort of your own home. Coming up with innovative ways to engage a connected audience is easier than ever. The only barrier to success is the belief in your idea and how it inspires your customers.
This is great news if you are starting from scratch, but what about the majority of existing companies? For an established business, the threat of disruption is very real. Being able to evolve and modernise is a significant challenge. You might have to adopt a new business model, find a new way to engage your customers, a more effective way of empowering your employees or perhaps all the above. This change brings uncertainty. Not knowing what the future holds can be terrifying but doing nothing is becoming increasingly riskier than trying and failing.
Some are embracing change. Take Nike for example, they realised that sports shoes, clothes and equipment are no longer a differentiator. Having a strong brand can only get you so far. They have made a clear effort to digitise their customer offering. So now the microchip in the shoes links to your smartphone or smartwatch app. You can measure your activity, upload and share your results and most importantly track your improvement. The products have been transformed into a sports and fitness experience.
Not every business has the resources and vision of Nike. Transformation often only takes place in response to disruption. If you think about the entertainment offering from Sky, would they have developed the NowTV streaming service if it wasn’t for the threat of Netflix? To learn more about adapting to change it is worth understanding the different phases of disruption and how it manifests:
Phase 1 – Paralysis
The first challenge is to realise that disruption is taking place. It is generally completely unexpected and many fail to recognise the warning signs. In fact, this is what makes it such a threat. For a market-leading organisation with a long heritage, it is almost inconceivable that a small upstart with a new way of engaging customers, will succeed. This complacency leads to a failure to acknowledge the threat and a delay in reacting. It is at this stage when the new contender has a chance to grow rapidly and start to gain crucial market share with the innovators and early adopters. The classic example of this was when Amazon first entered the market as an online book retailer. At the time, many retailers didn’t believe that customers would purchase something without holding a physical copy. This was particularly true in the fashion market. 15 years ago, it was universally accepted that customers would not buy clothes online without feeling the fabric or testing the fit. Today fashion and apparel is the fastest growing vertical in e-commerce.
The role which technology plays is at the forefront, particularly by making previous solutions obsolete. Take the case of London taxi drivers. For hundreds of years, their “knowledge” of local streets was what differentiated their service. However, GPS technology and community apps such as Waze have made it just as easy for any driver to find the most efficient route. This has meant that Uber and other taxi firms are now competing on a level playing field and the time investment required to study to become a taxi driver is becoming less and less important.
Phase 2 – Reaction
When a company or industry realises it is the subject of a disruption, the response can be fascinating. At this point they have identified the threat and typically decide to fight back. There are several ways this can manifest itself from political lobbying to cutting prices but the most common is a process of internal improvement. They embark on this process optimisation by focusing on marginal gains. This was made famous by UK cycling supremo Sir Dave Brailsford. The Team Sky racing team decided to focus on a massive series of small improvements, from selecting the most comfortable pillows (improving how a cyclist rests) to a rigorous procedure for handwashing (to reduce the risk of illness or infection) to having the best bikes with the roundest wheels (for on-road performance). The theory goes that by improving by 0.5% in many areas, the gains can add up to a significant difference in total performance.
This is fine and works well when the competition is bound by the same rules, but when the disruptive competition has a different business model or new way of engaging customers then it is a futile pursuit. Improving an obsolete way of working will not change things significantly enough to make a difference. A great example is the Amazon Web Services public cloud offering. They decided that customers could self-serve and buy cloud infrastructure using a web-browser interface. Traditional hosting organisations had relied on being the experts and advising their customers. AWS had the advantage of not needing a big staff to speak and advise their customers. They focused on developing product and features, which enabled them to scale quickly and efficiently.
Phase 3 – Transformation
The final phase for surviving businesses is to transform. This is a program of business modernisation which covers all areas of the organisation. The four main areas for improvement cover customer engagement, employee empowerment, process optimisation and product digitisation. Embracing new technology, tools, developing processes and building customer centric initiatives are all part of this evolution. Knowing where to start can be tricky, but most importantly is the reorganisation of teams. Establishing a digital centre of excellence (CoE) and the use of relevant metrics to help measure improvement are all winning strategies.
Transformation is a large scale, on-going program which touches every part of an organisation. Doing small projects in silos are less successful than a company-wide focus. For this reason, it is critical that it is sponsored from the office of the chief executive and becomes a key part of wider business objectives.
A great example of transformation in the UK is Argos. The catalogue retailer has shifted away from using physical media to integrating with applications, digital signage, digital order points in store and a complete process optimisation. To make the change more successful they built a digital centre of excellence away from the head office and key personnel from across all departments worked together to design and develop the in-store experience. If you look at their new store experience it is a significantly more customer centric.
n the UK 30% of organisations still have no plan for digital transformation which illustrates just how much of a challenge it is. For some, they have attempted to accelerate change through acquisition. Buying start-ups and hoping their ideology will rub off can be risky. In many instances the small company just gets marginalised and any advantage is lost. Having forward thinking executives and making digital programs a priority continues to be one of the most successful ways to start.
As the wave of change continues to accelerate, identifying the disruptive forces early is still one of the hardest things to achieve. By developing a digital strategy now, you can at least hope to be ready when it comes.
Mike Bainbridge is a technology evangelist demystifying the complex world of digital technology partners, cloud platforms and industry trends. He helps businesses realise their digital potential and become more successful online.