August 15, 2015
Disruptive innovation has dominated business headlines for several years now. The death of print media. The debut of mobile apps, big data, Airbnb, Uber… the list goes on. These disruptive entities are super cool, hip companies that grow fast while eating the incumbents lunch and popular media paints the picture that there’s nothing we can do about it.
If you work at a firm that’s being disrupted, it feels like you’re under siege. The press has written you off for dead, you’re losing customers, and making progress seems like it’s one step forward and two steps back. It's twice as hard as it used to be. It may also not be clear what your next step should be. Do you push your company to be more like the disruptor? Challenge everyone to keep up with the competition by moving faster? Put your head in the sand? Ceed markets?
Companies have tried all of these responses (and more). But while these approaches can juice results in the short term, they seldom work over the long term. Your firm inherently lacks the combination of resources, processes, and capabilities to pull it off disruption from the incumbent’s seat, leading to a depressing 85 percent failure rate.
The reasons these approaches seldom work is they don’t address why disruptors are eating your lunch. Catchy phrases like “Software is eating the world,” may be correct, but they don’t inform a competitive response. To do that you need to dig deeper and understand what part of your portfolio is enabling disruption:
1. Your products are over-featured.
Microsoft Excel is my favorite example of an over-featured product. This software is an absolute marvel to me and I use less than 5 percent of its features. In this scenario, you’d be hard pressed to find someone who uses more than 40 percent of its features. Therefore, when someone offers a product with fewer features for less money (like Google Sheets), I jump on it.
Clayton Christensen has written extensively about this form of disruption, and his The Innovator’s Dilemma actually coined the term. Christensen elaborates on the problem of disruption from over-featured products that present companies with what are essentially marketing problems. If you’re struggling with being outdone by a more focused product, it’s time to consider launching a new low-end product that will appeal to customers who simply don’t need the features you’ve included in the original.
2. Your products are becoming modularized.
Ten to fifteen years ago, designing a nuclear power plant could only be done by a mega A&E firm. The firm needed deep expertise and 1,500-2,000 highly trained engineers over the project’s life because all the parts and their interfaces were custom. Over time, the parts and their interfaces have been standardized, allowing small niche firms to emerge and take on those projects usually reserved for the big guns. Now the coordination is simpler, so a power company can hire many smaller firms to build a plant. These smaller firms have equally good expertise within their domain at a fraction of the cost because of significantly better overhead.
Disruption through modularization represents an industry sea-change because customers can safely build solutions using smaller more nimble firms. The safe buying decision inside customer organizations goes from “Let’s buy from one throat to choke,” to “Let’s buy from small, nimble, best-of-breed solutions.” A combination of cheap infrastructure and API-driven development represents enterprise software’s own modularization.
3. You’re skipping the novel approach in favor of history.
Between 1990 and 1993, Cisco built the software that would take down two powerful, iconic firms, Bell Labs and Nortel. Cisco found a way for two dozen talented software engineers to achieve what it previously took hundreds of hardware engineers to produce. Bell Labs and Nortel were slow to react because they had a significant internal obstacle in the way: an 80-year legacy.
This kind of disruption is perhaps the hardest of all because it changes the rules of the game. Brands that once rested on laurels of high sales and satisfied customers blink to find their empires assaulted overnight. It’s doubtful that you can predict these changes before they occur. Rather, this situation calls for a quick and decisive response that balances today’s strengths with tomorrow’s realities.
If you’re being disrupted, stop and think before you act. You must understand why the disruption is working before you can address the root of the problem. Only then will you be able to invest in developing new resources and carefully jettison old capabilities that will allow you to counter the disruption within your own industry.
Image Credit: Flickr/Rodrigo Moraes
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