First, what do we mean by disruption?

Disruption describes a predictable pattern where new entrants to a marketplace or industry use new technologies or business models to take or disrupt business from the traditional established players.

We don’t need to look too far for examples; Netflix, Tesla, Uber, SpaceX and AirBnB are all truly disruptive. But have you ever thought of the commonality between them? Each of these winning examples disrupted a traditional industry. They severely disrupted the DVD rental market, car market, taxi market, aerospace market and hotel market. One might conclude that traditional industries (typically conservative, high-entry barriers, digitally underdeveloped, asset heavy) are the industries who have the largest potential for disruption and impact.

There are two different ways you can be disruptive to your industry:

  1. A business can disrupt by new market disruption, which means a disruptive product or service addresses a market that previously couldn’t be served.
  2. By low-end disruption, which means the product or service is simpler, cheaper or more convenient alternative to yours and what else is already out there.

There are no safe zones – every organization is open to disruption. So, whether you work in one of those industries, or want to disrupt, here are the 5 essential steps to disrupt.


1. Target an Industry that is ripe for disruption

Some industries have already been famously disrupted; the Media and Publishing business is unrecognizable because of the internet, first mobile then Voice over IP (VoIP) has disrupted the Telecommunications industry, the Airline industry from low-cost business models, the Banking industry from online payments… we could go on and on and doubtless there will be other opportunities to disrupt. However, we will see disruption increasingly happening in non-digital business; manufacturing, construction, automotive and transportation. Here the traditional barriers to entry are higher, but so are the other key components required for disruption to happen: incumbent players that believe their industry is immune to disruption because;

  • Their market dominance creates too high a barrier
  • The business or technology is too complex
  • The investment in required assets is too high
  • It hasn’t happened yet, so it won’t happen

2. Identify a disruption strategy

Disruption can come in many forms; you need to identify which strategy to take.

The most obvious and well used strategy is to disrupt the business model by introducing a lower-cost version or a free / freemium / premium model or by making it free for the user by getting someone else to pay – when you use Google products for example, there is an illusion that it’s free, but of course your use is being monetized, just by someone else.

There is however a counter strategy: create a superior offering – go into a highly commoditized marketplace with an idea that creates new value. A good example of this is Tesla electric cars. They certainly weren’t the first to market but where the established players brought out small, quirky-looking, utilitarian models, Tesla broke the market with a luxury high-spec (and expensive) vehicle

The next strategy is to disrupt the customer experience. Uber is a great example of this disrupting what is, compared to tech and telecoms the highly unglamorous (but huge) taxi marketplace. They completely changed the customer experience by putting the consumer in charge.

The last strategy, and perhaps the most important one for mature industries is to be the first to digitize a process. Emerging technologies like 3D printing will not only have a profound impact on the manufacturing industry, but also the transport and haulage industry because if you can make something at the place it’s needed, you no longer need ships and lorries to transport it from the factory to the consumer. While the need for ships and lorries won’t disappear overnight, artificial intelligence and robotics will be undoubtedly disruptive because they will and driven by robots.

3. Find a New Tribe / New Value

Disruption doesn’t have to be about ‘stealing’ someone else’s customers or putting people out of work. I’ve already mentioned briefly the Airline industry which was disrupted by new entrants that brought in low-cost business models. Ryanair is a great example of this. There’s little or no evidence that they grew by stealing customers from Lufthansa or KLM. By offering routes no one else did at prices that competed with trains and buses they created an entirely new market of budget travelers.

Thomond, Herzberg and Lettice from Cranfield University in their paper, “Disruptive Innovation: Removing the Innovators’ Dilemma” described how the low-cost, point-to point no frills strategy introduced by Ryanair proved a hit with European travelers and by the mid-1990’s other airline newcomers such as EasyJet were taking hold. It took the established airlines another 10 years before they realized that consumers were more content with not having a free meal served, or paying extra if they wanted to put their baggage in the hold in return for lower ticket prices.

So, an important step in disrupting traditional industries and marketplaces is to find new value that will attract new customers.


4. Fight from within

Hire insiders, experts in the field. Don’t try and disrupt a mature industry from the outside. If you are on the inside – that you work for an established organisation, then the mantra is, “disrupt or be disrupted”.


5. Exploit your greatest advantage against their greatest disadvantage

Large organizations, despite them being full of clever people, are vulnerable to disruption because of the very things that have made them large and profitable: by focusing on maximizing shareholder return.

Start-ups by comparison can operate with speed and urgency, make decisions with incomplete information, identify customer needs/problems and relentlessly seek-out product/market fit by pivoting rapidly. If you are the disruptor, you need to do all you can to make the most of this inherent advantage and scale as fast as you can.

If you are reading this and you work for an organization that is under threat from disruption, you need to take decisive action. The most sustainable strategy is to hive-off a team that can work and act like a start-up unencumbered by the processes and culture that re-enforces the status quo.

That might mean partnering with an Incubator. Good examples of this approach are Disney, Microsoft, and Barclays who, among other things, partner with the leading Incubator Techstars.  Other corporates take the approach of building in internal Incubator or Center of Excellence where multi-disciplinary teams of intrapreneurs develop ideas, experiments and prototypes. Good examples of this are organizations like MasterCard, Hallmark, and BMW.

Conclusions

In this highly globalized digital World disruption is an inevitable fact of business. Start-ups that can re-envision how an industry can operate and grow, focus on better value propositions and business models either at the low-end undercutting cost structures that result in customer migration or at the high-end create products and services that never existed before can grow from zero to market leader in a matter of years.
The opportunity isn’t just for the outsiders. If you are in an established business, then attack is the best form of defense.

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