Detecting Signals of Disruptions
“ Those who do not remember the past are condemned to repeat it.” — George Santayana
Disruption has become the most used term in the business lexicon. Every company big or small either want to disrupt an existing industry or is scared from its impacts. In this frenzy around disruption, forward-thinking business leaders chose to rely on the strategic analysis of widely debated corporate failures from the past to scramble useful lessons. These strategic analyses in hindsight, often make us wonder how business executives in firms like Kodak, Nokia, Blackberry, Blockbuster etc. could miss these evident disruptive trends. How could market leader companies be so disconnected from the technology advances taking place in their backyards? The fact that Kodak had a prototype of digital camera in 1975 and Nokia had a touchscreen phone prototype prior to the launch of iPhone, highlights that it was not the lack of the innovation or the R&D investments that brought these market leaders on their knees. The primary reason that led to the demise of these companies was the inability of their business leaders to identify the significance of new technologies and its applications amid the noise of the shifting global business environment.
“First, the people running the old system don’t notice the change. When they do, they assume it’s minor. Then that it’s a niche. Then a fad. And by the time they understand that the world has actually changed, they’ve squandered most of the time they had to adapt.” ( Source)
The above statement highlights that the early detection of disruptions in any industry is the biggest challenge business leaders face in today’s world. In this blog, I will identify market patterns that may offer early insights to the business leaders in identifying signals of disruptions that may be headed towards their businesses.
Evolution of Underlying Enabling Technologies:
Over the course of history, we have experienced the evolution of enabling technologies like the steam engine, electricity, printing press, textile mill, and the microprocessor. These enabling technologies act as a catalyst to the rapid development of an ecosystem of derivative technologies. Derivative technologies in the current age of information technology and communication are the internet, cloud computing, and, communication infrastructure etc. This symbiotic ecosystem creates tremendous disruption opportunities and business leaders must keep a close watch on the advances in this ecosystem. As underestimating the rate by which these technologies may advance can cost dearly to their businesses. The failure of Blackberry to detect the early undercurrents of advances in the communication and infrastructure technologies is one such cautionary tale. Where the business leaders at Blackberry rejected the possibility of a fully featured web browser and email client in smartphones as impractical. They assumed that wireless carriers would never support the heavy internet consumption caused by these applications, as it will strain their networks.
Evolution of Consumer Preferences:
The next area business leaders should keep a close tab on is the evolution of the consumer preferences. In markets dominated by a few, leading firms’ sometimes products do not fulfill the specific requirements of the user segments with low paying capacity. Either the users in these segments go without the product or they have to stick with the sub-optimal user experience. This market state often points to a market ripe for disruption. As the incumbent firms in these markets leave an opening for the new entrants to create products that meet the requirements of small fractions of the under-served consumers. Nintendo used this strategy when they launch their product Wii. Wii was a product that was exclusively designed for non-gamers while the incumbent products Microsoft Xbox and Sony PlayStation were focused on meeting the demands of advanced gamers.
In addition, when new entrants attempt to target these under-served consumers they often leverage latest and advanced technologies in their products. These technologies allow them to design more user-centric solutions that offer a high degree of customization and personalization to the users. The early customer churn towards theese new solutions often goes unnoticed by the incumbent firm, as these early adopters do not contribute much towards their short-term revenues. However, when the core customers of the incumbent firms learn about the new value proposition being offered by the new entrant their mindset may quickly shift from passive consumer mindset to active value seeker mindset.
“Customers often don’t express a specific preference until they learn that it exists.”
The shift in consumer mindset surfaces in different forms in different industries where consumers may demand for higher customization or competitive pricing or advanced features or new data ownership clauses etc. The software industry is one textbook example of this mindset shift where a few years back customers were happy with the fixed subscription charges for digital services. However, with the advent of “pay as you use” pricing models, customers now show a high degree of preference for the products that offer transparent usage based pricing.
Evolution of Platforms and Business Models:
Business leaders looking to ensure the long-term survival of their businesses must explore the platforms that are evolving in and around their industries, as these platforms can quickly turn into major disruptive forces by harnessing the power of network effects and growth hacking tactics. In the last couple of years’ platforms have evolved as major disruptors in industries like content, knowledge, funding, transport, hospitality, etc. These platforms connect users and resources, facilitate social interactions, bring like-minded communities together, or act as a knowledge exchange. In addition, these platforms create innovative business models. Some examples of the new business models created by platforms are AirBnB’s collaborative consumption model, Zipcar’s mobilization of the underutilized assets, and Kickstarter’s new approach to fundraising etc.
However, early detection of the possible disruptions that may be caused by the evolving platforms can be a daunting task for business leaders. As most of the times, platforms challenge the established norms and the traditional way of doing business in any industry. Apple’s platform led disruption of the music industry and Craigslist’s disruption of the newspaper listing industry are some such cautionary examples where leading companies were unable to sense the disruption that headed in their direction. Business leaders may use the following patterns to detect early warning signals if their industry is prone to the technology led platform driven disruptions:
- If they are in an industry where limited number of companies are serving consumers with highly diverse needs. Ex. OpenDesk is a company working on re-imagining the furniture design and manufacturing industry. OpenDesk’s platform connects consumers and furniture designers to collaborate, customize and share digital designs of the furniture. These designs later are passed to the local manufacturers on the OpenDesk platform for manufacturing.
- If their core product or service offering has a potentially underutilized substitute available in an adjacent market. Ex. Zipcar platform effectively utilizes the cars outside the mainstream taxi industry to serve the commute needs of travelers.
- Businesses where a few powerful intermediaries control the industry and there is an opportunity for market participants to directly interact with each other. Recent market buzz around cryptocurrencies and blockchain based technologies offers an early technological disruption indication for businesses with this business model.
To conclude, this blog is not an attempt to add fuel to the already widespread disruption fire. It is an attempt to ensure that business leaders have a basic framework to detect early signals of the next rising wave of disruption that may be headed in their direction.
“We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” — Amara’s Law
What areas you typically look out for the signs of disruptions? Please share your thoughts, comments and suggestions in the comments. (Twitter @avinash1)
