Why Corporates Keep Getting Disrupted to Extinction
The digital and technological revolution has seen entire industries disrupted, with long established and dominant market leaders collapsing one after another.
15+ years ago I witnessed first hand the major record labels’ clamouring attempts to quell the digital disruption in music and to protect their own outmoded way of doing business.
Since then newspapers and magazines have seen their circulation decline to be replaced by digital first publishers like Thrillist, Vice and Vox, Netflix has upended traditional TV distribution and raised the bar on original TV content, travel websites like Expedia and Skyscanner have made human travel agents redundant, and Airbnb and Homeaway are rapidly growing and edging out the hotel industry.
“$36 trillion is the total market valuation of public companies in the ten industries that will be most vulnerable to change over the next few years: financials, consumer staples, information technology, energy, consumer goods, health care, industrials, materials, telecom, and utilities. Incumbent companies will either do the reimagining and lay claim to the markets of the future or they’ll be reimagined out of existence.”
Taken from Mui & Carrol’s — ‘New Killer Apps
(How large companies can out-innovate start-ups)
Knowing all of this; how could any established market leaders next on the disruption hit list not be doing something about their immediate threat?
1. Established companies focus only on ‘continuous innovation’
Market leaders establish their dominance and growth through continuous innovation — innovations that improve upon existing technology. This builds on their existing market position and technology, their existing scale making it difficult for entrant companies to break their dominance.
Technologies typically go through a period of rapid improvement in performance (or cost reduction) followed by another period in which the pace of performance improvements tapers off.
If a new ‘discontinuous innovation’ enters the picture late in the life cycle of an old technology, it stands a good chance of matching and then leaping ahead of the old technology, rendering the old obsolete.
So focusing only on continuous innovation leaves established players open to threat from discontinuous innovation.
2. ‘Discontinuous innovation’ creates brand new markets
Discontinuous innovation transforms existing industries in profound ways, often leading to the emergence of an entirely new market.
But it’s notoriously hard to know how profitable this new market will prove; you can’t measure a market that doesn’t exist yet .
A lack of market data and difficulty in forecasting emerging markets can make established companies wary, typically having a need to justify the required investment needed to enter new markets. This can lead to established market leaders being prone to missing out on discontinuous innovation opportunities — leaving them wide open to threat when their natural growth approaches its end.
3. Discontinuous innovations will take time to become dominant, but when they take off, they move fast
The time for discontinuous innovation to take hold has never been quicker, but like with the introduction of anything new it will still take time and some effort and some iteration to reach scale — illustrated by the ‘S’ curve. This, combined with the lack of new market data, can make early stage discontinuous innovation not look very threatening.
But, once discontinuous innovation takes off, it moves fast and takes no prisoners. The once market leaders will react, but those reactions will come too late. A point that has been proven again and again by the likes of Kodak, MySpace, Blackberry, Nokia and will no doubt continue to be proven by <insert name of next corporate collapse here>.
What can established companies do to avoid joining the corporate graveyard?
Given the advantage of available resource, established market leaders are in the prime position to shape the inevitable change and protect their competitiveness through discontinuous innovation by:
- Start disrupting your business, before others do.
- Think big, start small and learn fast:
Start asking where your growth will come from when the natural growth of your core business ends, and start placing some small bets that might just pay off in a big way.