How to Avoid Getting Disrupted!
Updated: 5 days ago
Disruption and disruptive companies are a real threat to established companies. Disruptive companies destroyed many great firms, such as Blockbuster or Nokia. That was why Business Harvard School Professor Christensen come up with the groundbreaking theory of disruption. In this article, we want to speak about what companies can do to avoid this crucial destiny of getting disrupted. To read more about what disruption is, click here.
Two aspects make this topic interesting. First, disruption poses by its nature a great risk for incumbents. Thus, it occurs the question of how to manage the threat of getting disrupted. Second, leveraged by evolving digital technologies combined with more knowledge about disruption and business modeling, more companies might choose a strategy to disrupt, which shows us the relevance of this topic.
How to anticipate disruptions
It is acknowledged that risk management should be integrated into strategic management (for example, in the management framework of COSO ERM 2017). Strategic risks should be identified during the strategy setting. Strategic management should also use goal-setting as a tool to identify, assess, and react to (potential) strategic risks, such as getting disrupted. Having the risk identified, companies should scan their environment for weak signals and early indicators to detect a possible disruption as early as possible. Once a potential disruption has been detected, it should be carefully monitored since the risk of getting disrupted is threatening to kill an entire business model. Disruption causes critical damage. Even great firms fail when getting disrupted. Despite the low likelihood of getting disrupted, the risk should not be neglected as it can cause immense damage or even bankruptcy.
Companies will be facing more disruptions in the future
The risk could increase in the decades to come. Evolving digital technologies are the foundation for plentiful disruptive strategies. Managers know more and more and more about business models and the dynamic business environment. Together with the knowledge of how disruption works, the digital transformation might enable managers to choose disruptive strategies and disruptive strategies to prevail. (Abbosh et al. 2018/2019)
What could be possible measures to take?
To respond to the risk of disruption is no simple endeavor. First of all, a company might want to prepare for disruptions by becoming capable of anticipating and responding to disruptive competition, which would make the company more resilient and robust. Being a learning organization and able to innovate as well as knowing the market well could enable the company to act when necessary or wanted. Knowledge about the low-end market and niche markets should not be neglected since disruptions often start from there.
2. Proactive measures
A company could act proactively to avoid getting disrupted. The incumbent could offer satisfying low-cost propositions to low-end customers. For niche segments, a company could offer satisfactory solutions for their individual needs. Doing that could make it harder for a possible disruptor to start in the low-end segment or at niche markets. Furthermore, incumbents could pursue a disruptive strategy by themselves. By doing so, established companies could preempt possible disruptive competition. Of course, this is quite a bold move. However, according to Prof. Christensen (2012), frequent disruptive innovations is the key to long term success in the dynamic market environment.
3. How to react in case of disruptive threats (Rogers (2017))
When facing disruptive competition, incumbents can embrace and/or evade the disruption. It is quite possible to use more than one of the following options at the same time.
Strategies when facing a disruption
Source: Rogers (2017)
Embracing the disruption could be done with the whole company or by a dedicated business unit. The bigger the company is, the more advisable it is to embrace the disruption through an independent business unit as it gets easier to act and adopt an adjusted strategy faster and tailored to the new market situation. Incumbents could also buy a disruptive rival as a strategic move. Being your own enemy is better than having a disruptive rival. Next to this, the company quickly acquires the necessary new competencies.
To evade disruption, incumbents could adjust their focus. They could primarily focus on customers who most likely remain loyal. If the entire business of an incumbent got disrupted, the incumbent is still not out of options. In this case, an incumbent could diversify its products, services, and business models and/or possibly even find an unrelated new market in another industry. Fujifilm, for instance, refused to get disrupted by digital cameras (as did Kodak). Instead, they survived by the creative solution of looking for business opportunities at different markets such as flat screens and displays. The last remaining option for the incumbent is to accept its fate by giving up and quit.
Abbosh, Omar / Nunes, Paul / Savic, Vedrana / Moore, Michael (2019): Breaking through disruption, accenture.com/us-en/insights/consulting/business-disruption-innovation [12.5.2020]
Abbosh, Omar / Savic, Vedrana / Moore, Michael (2018): How Likely Is Your Industry to Be Disrupted? This 2x2 Matrix Will Tell You, hbr.org/2018/01/how-likely-is-your-industry-to-be-disrupted-this-2x2-matrix-will-tell-you [12.5.2020]
Christensen, Clayton (2012a): Clayton M. Christensen on Disruptive Innovation, YouTube, published 1.7.2012, youtube.com/watch?v=WxwR_TTuKdc [12.5.2020]
Christensen, Clayton (2012b): How To Escape The Innovator's | Keen On... Clay Christensen, YouTube, published 2.4.2012, youtube.com/watch?v=gfr3uLbC22Y [12.5.2020]
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Christensen, Clayton / Raynor, Michael / McDonald, Rory (2015): What Is disruptive Innovation?, hbr.org/2015/12/what-is-disruptive-innovation [12.5.2020]
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