Confronting a new-market disruption Part 2— Managers’ ineffective responses and what they should do instead
written by Thomas Bartman, Senior Researcher, Forum for Growth & Innovation
In my first post in this 3-part series, I presented an overview of New-Market Disruption. Here, I will explain the mistakes managers make and what they should do instead.
Most managers, skeptical that the innovation will take off, adopt a wait-and-see approach to the new market. As the entrant grows and it becomes more clear that the business model is viable, incumbents begin creating contingency plans. At the core of the ineffective responses is a belief in the value of the “fast-follower” strategy.
Fast following is a strategy that many people cite as highly effective. They note that Apple is almost-always a fast-follower. It didn’t create the MP3 player but dominated the market with the iPod, didn’t create the smartphone but now dominates it with the iPhone and didn’t create the wearables market but has revolutionized it with the Apple Watch. While these examples are valid, they don’t apply in this discussion because each of those innovations was sustaining to Apple’s business model. In sustaining competition, the fast-follower strategy works because success comes from leveraging existing resource and capability advantages; in essence, it sustains the existing competition. This heavily favors incumbents but won’t help in Disruptive competition.
Fast following requires, essentially, copying the entrant but improving on their business. This is classic sustaining strategy but, again, we’re competing against a Disruptor and everything we know about Disruptive competition tells us that we are unlikely to succeed by deploying a sustaining strategy to disruptive competition. We fail because the Disruptor becomes the incumbent in their market and the original incumbent becomes the entrant in the new market.
The incumbent firm’s managers believe that its significant size, resource and experience advantages will allow it to quickly quash the entrant whenever it decides to act. These managers view their company like a coiled spring, full of energy and able to respond aggressively and quash the new competitor as soon as they decide to act. However, when competing in a new plane of competition, the resources and experiences we’ve developed in our original model are unlikely to help us and may even hurt us.
Instead, these managers need to take a different approach. First, they need to be pioneers, exploring market adjacencies and creating new businesses that could disrupt themselves. Most managers avoid this because they’re afraid of cannibalizing their existing business but we’ve found that it’s better to disrupt yourself than wait for someone else to do it. Because the disruption creates a new market, it will always increase consumption meaning that there is often more absolute profit available, even if the market offers lower profitability.
If they don’t succeed in first disrupting themselves, they need to create a business that disrupts the disruptor. Creating a new disruptive business allows the original incumbent to regain the advantage and develop another new market. Creating disruptive businesses is the subject of significant parts of Clay’s work so I’m not going to go into detail here but I encourage all readers to regularly consult The Innovator’s Solution.
In my next post, I will look at an example to make this concept more tangible.
