It pays to study how companies successfully disrupt markets because it’s better to set your own course and be the master of your own business destiny, lest you find yourself in the disruptor’s wake. Recent disruptions have transformed, even destroyed, markets once dominated by established leaders that failed to recognize the coming disruption, and examples abound.
If you haven’t read part 1 – Self-Disrupt or Self-Destruct
Of course, not all disruption replaces entire markets, or stems from technical innovation; a different process or simplified method may be disruptive as well. Case in point: the recent announcement that Amazon, Berkshire Hathaway, and JP Morgan Chase are forming a non-profit healthcare company for their employees in the U.S. The news added more uncertainty to the health insurance industry already challenged by complexity, extensive regulation and harsh economic realities.
The announcement sent the stocks of established healthcare providers plummeting, triggering a wave of speculation about the overall impact of the new venture. Perhaps, we’ll have a better understanding of our own healthcare costs or easier access to medical records; or perhaps, it will usher in a new era of new and agile thinking about healthcare that was, until now, simply “just great ideas.”
When we speak of disruptive innovation, another example that is often mentioned is Uber, which was able to transform the taxicab industry. Taxi cabs today are in dire competition with Uber, Lyft, and other smartphone app-enabled rideshare services. For the consumer, anyone with a smartphone can use the Uber app to call for a ride – faster and easier than the old way of “calling a cab,” whereas contracted drivers have the “gig economy” flexibility to set their own hours and work only when they want and in the geographic areas they desire. Uber fees are cheaper than traditional taxi fares and pick up/wait times are generally far less than the typical taxi cab.
This goes to show that one clever innovation or a simplified business model can ultimately transform an age-old industry very quickly.
Organizations may differ in their disruptive approach, but they do share some common traits that enable them to out-innovate their competitors.
- Managers track trends in other industries. Good ideas can come from anywhere, so savvy business leaders keep up with developments in other industries.
- Executives study the practices of well-known disruptors. They examine the management, business development, marketing and R&D practices of companies such as Apple and Amazon and apply those practices to their own companies.
- Innovation is a line item in the annual budget. Like R&D, high-level strategic thinking has to be a regular activity, with adequate resources to fuel innovation.
- Ideas are road tested in a contained “sandbox” or laboratory environment. Just as software needs testing, so do new business models. Early testing in a regional market or a virtual market, helps prove or disprove the concept prior to broader rollout to reduce risk.
- They consider various disruptive strategies, not just technical innovation. For instance, People’s Express Airlines created a new market for budget fliers who might normally take buses rather than fly. The company operated in the 1980s in the East and sold its tickets onboard the aircraft, paid in cash, with additional fees for sodas and small snacks.
- Disruptive ideas are vetted by a team. Potential ideas are brainstormed and vetted by multiple employees from different parts of the company, including strategic planning, executive management, and IT.
- Performance is tracked with metrics. Successful companies measure performance and have key performance indicators (KPIs) for different areas of their operations. KPIs enable disruptors to identify potential market problems and opportunities earlier than competitors.
So, when is the best time to exercise your innovation? The short answer is: now. Many times, disruptive ideas come about as the “mother of necessity” in a down economy to address the need for a better, cheaper, and more efficient means of providing goods and services. And sometimes they come as a result of a merger, acquisition, or joint partnership, such as in the case of the new Amazon healthcare venture. But they can also arise in a strong economy. Recent wide sweeping tax reform is giving U.S. businesses access to a lot more capital, and many companies are quickly putting these new resources to work. For example, Exxon just announced it will be embarking on a $50 billion investment plan in its U.S. operations. Only time will tell if this stimulus will unleash a tsunami of innovation, but savvy businesses will work to get on the right side of disruption so they can ride this wave.