Disruptors Wear Many Hats
The word disruption seems to be the most misused word I hear nowadays. It seems most people who use the term haven't ever done any amount of serious research on what exactly is disruption. Most usage refers to an example where meaningful changes have made incumbents in any industry fall or weaken. Harvard business school professor Clayton Christensen, the man behind the theory of 'disruptive innovation', described disruption as a process whereby a smaller company with fewer resources is able to challenge established incumbent businesses successfully. Join us on this journey as we will look at various ways in which we have seen disruption happen around us.
Eliminating barriers to value is what disrupts and upends old business models, and new technology excels at this. Over the last few years, we have innumerable documented examples illustrating this pattern. It was between the 80s and 90s when the US and other developed markets saw technology truly come into its own. Technology, as we know, has revolutionised and engulfed our daily lives in ways we could have never imagined. Often, in the form of instant money transfer, online ordering systems, online conferencing and communication tools, telehealth, turning laptop screens into classrooms. It has also changed how we entertain ourselves and meet each other. It is fair to say that we are all surviving this pandemic in the warmth of technology!
Let's refocus our attention on how technology has transpierced into the lives of business leaders and their businesses. Competition among companies is no longer limited to new products, services, or technologies but also to innovative business models. New business models disruptively replace the existing ones by emphasising unique value proposition through the products and services offered.
Disruption can adopt many different layers and dimensions. One such type is Technological Disruption; this occurs when technology is the sole reason for disrupting an existing business or a business model. A simple example of this is the technology used by digital watches and cameras, far superior to the manual winding watches of yore.
“You either disrupt your own company or someone else will”
Then there is Architectural Disruption, which, when it occurs, changes the architecture of the product or the service itself. A classic example of architectural disruption is the Sony Walkman. It wasn't any newly invented technology. Instead, Sony based it on a whole new architecture that shrank the existing music cassettes and records of those days. It completely changed how we carried and consumed music. A few decades down the line, the iPod did something similar to the Walkman.
Then there are cases where existing technology brings about Business Model Disruption. Airbnb is an excellent example as they deployed technology to create market efficiencies, which redefined the entire hospitality industry and the overall value proposition offered to the customers.
Technology also enables New Market Disruptions, which decimate markets that existed previously. An apt example is the Typewriter market, which was huge until digital word processors disrupted it, making them an indispensable tool today. Henry Ford's invention of the automobile changed the way of commuting from place A to place B and how people lived, worked and enjoyed leisure time at length. The advent of cars spelt doom for horse-drawn carriages. The invention of smartphones played havoc with various industries owing to its digital capabilities enabling access to maps, cameras, watches, music players, etc., seamlessly on the go. It has created a place for itself and forced changes down each of these aforementioned traditional industries.
Most of what we have discussed alludes to disruptions around products and services. A completely different paradigm of disruption is that which is triggered by Customer Experience. Amazon is the perfect testimonial of how this has been instrumental in completely changing the narrative for multiple industries. Named after the e-commerce giant, 'The Amazon effect' is the disruption of traditional retail caused by its domination of online shopping, leading to a massive shift in customer expectations at every point of the supply chain. They have redefined each step of buying behaviour by taking customer experience to an entirely different level.
“The best customer service is if the customer doesn’t need to call you, doesn’t need to talk to you. It just works.”
Business leaders in today's world have to equip themselves with a complete understanding of how technology impacts their business and industry. Comparing the present scenario with the one that existed not more than a decade or two ago, a CEOs dependence on IT teams to 'manage technology' in the business is no longer a sustainable option. Business model disruption has become a reality as newer business models make the older ones obsolete. Today, business leaders have intense pressure to question the suitability of their business model to the current truth, independently and in context with the new cutting-edge technologies coming along. CEOs have to identify how technological progress can be leveraged for delivering better products and services and continue satisfying their customers.
It is critical to catch the drift of what severe challenges incumbents face and what businesses can do to hold their ground. Business leaders need to be agile in responding to the possibilities and threats of new technologies introduced in their markets and realign their products, services, processes, skills and value network relationships, which are the essence of their business model while maintaining profitability. Business model disruption does not have to follow any new earth-shattering inventions. It can happen in any sector where traditional business models have become inefficient or cannot ensure customer delight.
“Longevity in business is about being able to reinvent yourself or invent the future”
Business model disruption is all around us, and most of us are customers of these newer models. We cannot visualise a world without these businesses and the conveniences they bring to us in our daily lives.
Uber:
Uber played a pivotal role in transforming the older business model entirely without fundamentally doing anything new. It simply met the old need of moving you from point A to point B in a relatively efficient manner. It offered a unique proposition and simplified customer experience by capitalising on the use of technology such as ease of online payments, a hassle-free tracking system, transparent pricing, simplified booking process, etc. This wholly crushed the business models of age-old cab companies and independent taxi drivers, which were technically not broken despite all the shortcomings until Uber came into the picture.
Netflix:
In earlier years, there were home video rental stores. One would visit the video store, browse the selection to see what movie was available, pay in person, watch it and return it. In India, the model had just started with local video stores and parlours. Meanwhile. a company called Blockbuster had proliferated in the USA, having a nationwide presence with nearly 9,000 to 10,000 retail stores. When Netflix launched their service, customers could browse options online, and Netflix would mail the movie using regular postal service, forgoing the requirement for you to visit the store physically. The biggest differentiator was that Blockbuster earned a significant chunk of its revenue via late fees, while Netflix did not levy any delay charges. Netflix's model ended up changing the game for players like Blockbuster!
Music Industry:
Innovations have disrupted the music industry with digital distribution platforms, file-sharing systems, etc. It seems like ages ago, but not too far back, we had record stores to buy music records like Circuit City in the USA, our very own Rhythm house in Mumbai, etc. The emergence of digital file-sharing services like Napster and Kazaa soon replaced these stores. These disruptors were replaced by the newer MP3 technology players like iTunes and direct online music sales. The prevalence of streaming services was quickly picked up by more contemporary players like Spotify and SoundCloud. In addition to impacting record stores and retailers into oblivion, on-demand music streaming players have upended the business models of musicians, record labels, and music producers and ultimately altered how we consume music today. These are all excellent examples of how technology has evolved and how business models have joined technology on this natural progression.
Amazon:
Before Amazon, Sears dominated retail for decades for the major part of the last century. As Sears' dominance grew, a new competitor emerged, Walmart. Walmart readily adopted technology and innovated its supply chain, allowing them to provide items cheaply at a much larger scale and delivered a unique experience to their customers.
Technology had started unfolding itself when Amazon set its foot in the market. By leveraging technology, they decided to innovate the supply chain along with the entire customer experience. With its 'two-day delivery promise', Amazon Prime essentially put every other competitor in a fix due to the impracticability of the model to deliver smaller value products in such a short window while still maintaining profitability. But Amazon was convinced that increasing use of technology coupled with scale would be the real game-changer. And the rest is history!
Jeff Bezos lives by an elementary belief – "customers are always beautifully, wonderfully dissatisfied", which is part of Amazon's DNA to keep giving better experience so that people keep coming back. Simply putting the customer experience first has transformed many business models across industries, including retail, software, grocery, healthcare, finance, etc.
In all of these examples, technology removed some of these constraints and seamlessly delivered what the customer desired. This, in a nutshell, is what technological disruption is all about! If you are a newcomer in any industry or any business, technology's capability to eliminate constraints is what you will play on. If you are an established player or industry, this sort of disruption is what you need to watch out for. Newcomers are prime to gain customers by tearing into parts of your businesses that are not robust. In simple terms – disruptive technologies and innovations bring in more straightforward, more convenient and more affordable products and services by lowering costs and achieving scale to create new markets successfully. These will cause the failure of dominant companies in those existing markets and gain a competitive advantage that would last. And if it fails to sustain, it will be replaced by the Netflix and Amazons of the world.
“Disruption causes vast sums of money to flow from existing businesses and business models to new entrants”
In the past, new technologies of the day created behemoths. The invention of telephones made AT&T; the internal combustion engine resulted in another giant, General Motors; Intel grew on the back of a computer chip. Their business models evolved very naturally, with the capacity of selling more and making more money out of it. Nowadays, many technology companies are shifting their gaze to newer business models to deliver products and create sustainable businesses. Google did this by coming up with paid searches; Facebook came up with advertisement technologies; Salesforce, with its cloud-based subscription service in the place of an on-premise large software installation while Slack transformed how we work!
It is therefore not surprising to see most business leaders grappling with paradigmatic challenges like:
Why did these large giants not succeed? Why did they not see disruption coming?
Why were they not able to prevent disruption from happening?
What can be better than what we are today?
How can we disrupt ourselves while maintaining the current profitability of the existing business?
And even if they ask these questions, large organisations or significant parts of these organisations find it challenging to think on these lines. And when you are unable to see how you can get extinct, there is minimal incentive to disrupt what you are currently doing, especially when what you are doing is already profitable!
“At least 40% of all businesses will die in the next 10 years, If they don’t figure out how to change their entire company to accommodate new technologies.”
Experience has shown that large organisations, at best, tweak the existing business model, product or service and try to better the customer experience in small steps.
Peter Theil, Founder & CEO of Paypal, said it best, "Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from 0 to 1. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange." This dimension of progress means building something new that didn't exist before. This is the kind of breakthrough innovation that creates companies like Google, Amazon, Uber, Netflix, and the like. A new product or service comes into the world and radically changes how the whole industry was working!