Disruption, what does it actually mean?

Disruption refers to a situation in which new entrants to a marketplace or industry use new technologies or business models to take from the traditional established players. Although existing players are in most cases taken by surprise, disruption actually follows a predictable yet largely unknown pattern. It is this pattern that this blogpost uncovers.

We don’t need to look too far for examples; Netflix, Tesla, Uber, SpaceX, and AirBnB are all truly disruptive. But these are just the east to find and well-known examples. In their best-selling book ‘Dare, the mindset for successful innovators in the digital age’ our colleagues Eric de Groot and Matthijs Rosman have described many more inspiring examples.

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 that have the largest potential for disruption and impact.

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

A business can be disrupted by

  • new market disruption, which means a disruptive product or service addresses a market that previously couldn’t be served or 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 become a disruptor yourself, 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,
  • mobile and then Voice over IP (VoIP) has disrupted the Telecommunications industry,
  • the Airline industry from low-cost business models,
  • the Banking industry from online payments…

And considering all that is going on around us we could make the list a lot longer. And there will doubtlessly 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 may be higher, and so maybe the other key components required for disruption to happen. There are many 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

But be aware, all these – in itself – valid arguments display the biggest risk in becoming a disruption target: complacency. Most disrupted industries never thought it would happen to them, they got complacent and that was precisely the moment that the disrupter was waiting for.

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 also an opposite 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 travellers.

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 travellers 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.

Brace for disruption: become your own disrupter

At RevelX we help companies to define disruption strategies. Over the past years we have learned that one of the best ways to define a disruption strategy is to invent your nightmare competitor.

We do this in by means of a game (of workshop if you wish) in which we design the company that will disrupt your industry with you in it. It’s called the DirsuptR, and should you be interested in what it’s all about, please click here.