The world is awash with large firms announcing to their people and boards that digital is now core to their business strategy and that they have embarked on a journey to disrupt and transform their business. But are they disrupting or actually only defending? Are they transforming or actually only changing? These are simple questions but fundamental ones that every business needs to answer …and answer with honesty.
Workforces get sucked in by the digital hype, and boards are often so disconnected from all but lofty notions of disruption and transformation that they’re an easy sell for new and shiny initiatives being hailed as disruptive and transformational with overblown predictions of ROI.
On The Defensive
The fact is that many firms are being forced into responding to the digital economy threats that have crept up behind them and eaten into their market share. But most are not disrupting. They’re desperately defending their corner as best they can. Their profits are bleeding and they’re on the defensive.
Established businesses in every industry are now beginning to feel the consequences of disruption – a threat that many fobbed off as a joke, and so they went sleep walking complacently into the digital economy. But now they’re being woken by the shudder of plummeting sales and the increasing social chatter about better alternatives that have sprung up (seemingly) overnight.
In 1995, Clay Christensen and Joe Bower published their HBR article “Disruptive Technologies: Catching the Wave”, which introduced the notion of disruptive technology. Since then, “disruption” has become an overused and misused buzzword, synonymous with “change”.
Disruption is the result of innovation and digital disruption is the effect of digital technologies and business models on a company’s current value proposition, and the consequences of its position in the market. Digital disruptors are able to innovate rapidly, first appealing to low-end or unserved customers, then going on to capture market share and scale far faster than larger more established organisations that tend to hold on to business models that worked well for them “in the past”.
Disruption means using new approaches. New technologies, combinations, and business models. Not the same old same old. Disruption needs innovation-oriented leadership, a culture of promoting creativity and courage as well as processes designed to help people create something new. These simple concepts are difficult for incumbent firms to adopt, but without them, a firm will never disrupt. They will simply defend on their back foot, until one day it all gets too much and they fall over.
Being the disruptor is the best protection against disruption. In order to be able to turn the threat of disruption into an opportunity, businesses need to consistently strive for innovation. However, disruptive innovation is not the same as incremental change.
Gillette never saw the Dollar Shave Club coming until they began to hurt. In just a few short years, the maverick style start-up sliced off a serious share of the shaving market for themselves, while Gillette was left red-faced and on the defensive. Court action and copy-cat tactics were the early responses from the global Goliath. That didn’t stop the start-up growing as shown in the image below.
Then in 2016 Unilever acquired Dollar Shave Club in a deal said to be worth about $1 billion. And so Gillette and its parent company P&G was no longer facing off with a start-up. Now they’re up against another Goliath, which has vast resources to plough into the Dollar Shave Club and make life even more difficult for Gillette and P&G.
Graphs like the one shown above are appearing over and over in many industries, which means that incumbents are losing out. No industry or business is immune to digital disruption, as innovative digital use-cases grab the news headlines on a daily basis. The question that many firms need to answer is …
if we’re not the ones doing the disrupting, how long can we balance on our back foot, before being toppled?
Many large and established companies are good at the process of adding to or building on the things that already exist. They hold on to their past success and just squeeze harder on what they’re already doing. This is “change”. This is not “transformation”. Change fixes the past, while transformation creates the future.
While leaders are becoming increasingly aware of the fact that small companies have the opportunity to overturn incumbents and reshape markets faster and easier than ever before, not all of them are responding. They’re like rabbits caught in headlights – aware of the digital threat concept, but motionless and waiting for the impact. While some are responding, many of these responses consist of simply playing catch up and balancing on their back foot.
Their so-called transformations are change initiatives at best. By the time many come to life, a new innovation has appeared, and so the incumbent attempts to catch up again – all the time losing market share, along with the liquidity required to invest in the resources needed to innovate, digitise and transform.
It’s a slippery slope to a place that no firm wants to go, but unless incumbents invest in innovation, they will always be on the defensive and running change initiatives wrongly labeled as transformational.
Most of the executives I talk to are still very much focused on digital largely as a way to do “more of the same,” just more efficiently, quickly, cost effectively. But I don’t see a lot of evidence of fundamentally stepping back and rethinking, at a basic level, “What business are we really in?”
– John Hagel III at Deloitte
Sleepwalking Into Irrelevance
Leaders of industry disruptors are using digital technology to break into new markets, while leaders of other companies are sitting ducks waiting for their markets to be disrupted.
When that happens, customer expectations will have been raised by disruptors and because incumbents can’t meet those expectations with their old business models, customers defect and profits are pulled from under their noses. The disruptors are incredibly dangerous to incumbents because they quickly grow enormous user bases and are agile enough to leverage those users into business models that threaten incumbents in multiple markets.
Senior VP and Global Practice Leader for Digital Transformation at Capgemini consulting – Didier Bonnet, sent me an excellent line, which reads …
Companies that are still hostile to digital technologies today will, I believe, sleepwalk into irrelevance.
This really does encapsulate what will happen to so many firms, if their leaders don’t wake up and respond appropriately. But despite the threat of disruption, it’s often not seen worthy of board-level attention.
Executives who want to avoid sleepwalking into irrelevance need to act with a sense of urgency, to establish what differentiating capabilities or new value they will create through the innovative use digital technologies and new business models.
The fall of Eastman Kodak is a reminder to all companies that they should not become complacent and ignore the threats and opportunities that the digital economy present. Kodak was once one of the world’s leading brands, but it was forced to file for Chapter 11 bankruptcy protection in January 2012.
Innovate, Digitise, and Transform
Many firms are highly focused on digitising and changing, as opposed to innovating, digitising and transforming. They love the concept of digitisation but fail to invest in innovation; which subsequently means they only create a better version of the past (change) and fail to transform.
What is truly innovative and disruptive that your firm is working towards? Is it really set to disrupt the market? Or are you simply on the defensive (back foot)?