Innovating is no longer enough for businesses to stay ahead of the competition. Startups we see today have learned aggressive tactics of disruption, so at the moment, many incumbents are urgently reviewing their innovation strategies and figuring out ways of staying afloat. Innovation requires continuous experimentation, but many companies take a step back, preferring a defensive strategy. They act carefully and double-check every decision, but this can make the situation worse.
In today's business environment, established companies can be divided into two groups - challengers and defenders. Being associated with one type or another depends on how adventurous companies are with their innovative models. Challengers are businesses who exploit inventive models and make competition obsolete. Defenders, on the other hand, use a more careful approach and try growing their revenue with opportunities based on their existing customer base and resources. Recklessly jumping in the pool infested with disruptive startups or standing still - both are radical options, so the optimal solution would be balancing in between, but it's hard to achieve.
In order to survive in the disruptive market, companies need to understand the meaning of disruption first. The phenomenon was first introduced by the Harvard Business School Professor Clayton M. Christensen and described as a business action that builds a completely new market from the bottom up, by initially offering cheaper products. Most of the time, these products or services come with fewer features than competitors', but it's the price that drives interest. It quickly caught on and it's now hard to name an industry that hasn't been disrupted to some extent. Among the examples is Airbnb, the accommodation-sharing platform that essentially became a favorite amongst investors. The company has shaken up the conventional hospitality sector, by offering cheaper accommodation options and creating a completely new customer experience - disruption at its finest.
There is no such thing as being ready for disruption as in most cases, incumbents are unaware that it's coming, and the rest of the time it’s impossible to predict the consequences.
Since no one likes to be disrupted, everyone wants to become a disruptor. The appeal comes from fast value growth and that it's extremely hard for rivals to adjust their business model to achieve the same level of success.
Disruption is not only a startup's prerogative, but for mature companies, it's harder to achieve. Young projects have nothing to lose, which explains why they succeed in disruption. So from the incumbent's perspective, the main challenge is to be capable of experimenting with bold ideas, whilst also keeping an eye on disruptive entries in the market.
Disruption has its own anatomy, so companies need to acknowledge the main elements of the threat. In their strategy, firstly, they need to outline the functionality, price balance, and supply and demand of their products to get ready for taking the next step. Then, they need to identify the areas that may be disrupted. A new entry in the market may be capturing the underserved customers at the bottom of the market, by offering cheaper solutions but fewer features. It can also be coming from the top of the market, where disruptors offer more exclusivity for high-value customers. And lastly, it can be approaching from the side and capture the main chunk of the customers by providing extra accessibility, features, or offers at similar prices.
There is no universal model on avoiding disruption, simply because each incumbent has its own history, experience, strengths, and weaknesses. Thus, in order to get to the core of the potential problem in advance, it's worth monitoring the market performance regularly, as well as keeping an eye on financial and marketing metrics. Continuously working on your internal imperfections, whilst experimenting with new ideas is a good balance that allows companies to be the challenger and the defender at the same time.