Is your company up for disruption? Possibly not
For the best part of the past decade consulting firms and doom mongers have been heaping scorn on established companies and large corporations. Disruptive technologies and upstarts are wrecking havoc far and wide, they warned, and (unless you hire us) you will be the next to go. For those slow on the uptake, there was a special trump card: Remember Kodak.
The sentiment is certainly not baseless. Over the past decade, industries far and wide, from publishing, advertisement, music, retail, hospitality and transportation seen revenues diminish and/or potential customers flock to new competition from teenage and toddler companies like Amazon, Google, Facebook, Uber, AirBNB, Netflix and Spotify.
But on further examination, how bad has it really been? Most media companies are still amongst us, web-retail may be flourishing but brick and mortar is very much the norm, and the hotel business is in rude health — despite — or maybe thanks to — the emergence of AirBNB and the like. Banks, the mightiest industry said to be in peril, seem to have weathered the storm fairly well. Certainly. Not everyone had their Kodak moment.
How come? Well, undoubtedly, the consulting firms helped. Established companies rejigged operations, shed some fat and learnt to be all things digital. They now tweet, on mobile, collect big data and learn deeply (Current technology terms have an unwittingly infantile twang)
Yet there is more to it. The fact is that many companies were not in such dire straits after all.
It was easy to be distracted with all the awe directed to the magical lands of silicon valley where unicorns roam free. The fantastic valuations of a typical startup makes respectable earnings elsewhere seem feeble by comparison. (I had recently participated at a silicon valley event where a $ 20M exit was portrayed as an insult and a failure). No wonder everybody wants to be a startup.
Startups — or atleast the best of them — are indeed wonderful beasts. They attract the greatest talents and push technology and innovation ever further offering unparalleled value to consumers. Their greatest strength is a deep understanding of consumers real needs and how these could be solved with new technologies. But established companies are not without merits.
- They have established and well known products, markets and consumers
- They have connections with suppliers and distributers
- They know the way around regulations
- They often have unique knowhow and patents
- They have internal processes and organization
The last point is particularly vital. Startups usually find it difficult to scale up due to their adhoc processes, and because they are lousy at dealing directly with regular people who (like most of us) might not be as brilliant and remarkable as the startup founders and senior staff.
(There may be a social element to this. The rise in esteem of startups at the expense of the regular firms seem to have exacerbated a sense of alienation amongst the technologically and digitally challenged pushing them into the arms of politicians that peddle entitlements and fantasies instead of empowerments and facts.)
Sometimes new technologies, business models and social changes erode the established advantages of firms — but it is easy to exaggerate that effect. Companies are usually more resilient than they were given credit for. The best way to express this is with the rebel within’s disruptibility curve.
There are two axes to the curve. The Y axes denotes the natural monopoly status the company enjoys thanks to regulations, processes, brand, connections etc. The X curve denotes the responsiveness to customers real needs.
The equilibrium fields is the region around a down sloping curve. Companies in this region have little to fear — so long they can maintain their level of protection. At the high left end of the curve are companies with absolute monopoly. Typically a politically connected company in an autocratic state. (often belonging to the president’s daughter or wife). Their position is secure so long they can guarantee the survival of their dictator and his good grace. They have little need to innovate or pay heed to customers. At the low right side are startups. They have little connections or other natural protection but succeed due to superior knowledge of their customer needs. They have strong need to innovate. In the middle of the curve are everybody else. Take an average bank for instance. They are protected by their infrastructure and government regulations. This protection enables them to extract income and further defend their position. What innovation they have is mainly about cost cutting and value reassurance.
Falling under the equilibrium curve sends you to the danger zone. Maybe your dictator has lately been toppled, maybe technology reduced the strength of your connections. Such companies face destruction in the hands of startups.
The next blog post will cover the dynamics of the disruptibility curve and how it is used to define the correct innovation portfolio a company should have.
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