When looking back on a major business collapse caused by industry disruption, a commonly used phrase to justify missteps by leadership of the disrupted company is that “hindsight is always 20/20”, opposed to foresight which is not so clear. Through his recent presentation to Product BC, Sauder Professor Tim Silk argued that although things are not always obvious, there are definitely ways through which established companies can avoid being disrupted out of business.
How can we define Disruptive Innovation?
Disruptive innovation is generally understood to be a product or technology that first creates a new market for that product and then moves into an existing market displacing established market leaders. Professor Silk clarified that disruptive products and companies are not necessarily aiming to be so and may be just trying to solve a seemingly new problem.. Disruptive innovations often sacrifice on some key performance measurement with their target audience while better satisfying other requirements. This also explains how potentially disruptive developments are often ignored by industry incumbents who are focused on established industry metrics.
Silk’s example of different sound technologies from the transistor radio, then tapes and CDs, all the way to MP3s and streaming services perfectly illustrated this trend in disruption. He also went a step further to illustrate how a company such as Sony with its Walkman can introduce a disruptive technology to market, and eventually end up being disrupted itself by future technologies such as digital music. Demonstrating the traits of a disruptive product, streaming music is much lower quality than that of a CD, but consumers are willing to sacrifice quality for the all-you-can-consume aspects of streaming.
What causes established companies with all of the advantages to be victims?
A key reason that Tim Silk cited for companies being defeated by disruptive innovation was too much of a focus on Net Present Value. (In other words, focusing too heavily on reducing development costs for future products at the expense of future innovation.)
His presentation illustrated that products with a long development time are at the greatest risk of being disrupted. Surprisingly, Uber was given as an example of a market force that is not a disruption.
Another way that companies can put themselves at risk is by being too strongly market oriented. This is not to say that companies should abandon market research, but rather to look beyond what customers ask for and drill deeper into their motivations for doing so. As goes the famous quote from Steve Jobs, “Our job is to figure out what (customers are) going to want before they do.”
How can established companies avoid becoming an anecdote?
Perhaps most important was Silk’s advice for established companies within an industry on how to avoid being disrupted by a new player. He instructed the audience to focus on outcomes. Using a power drill to illustrate his point, Professor Silk clarified that DeWalt is in-fact in the “hole” business, (the outcome,) and not in the drill business, (the product), and challenged established companies to bring this kind of understanding of their true value proposition into their strategic planning.
Additionally, he cautioned that to be dismissive of potentially industry-influencing technology was to invite eventual failure. Using the example of Blockbuster’s CEO not realizing the potential impact of broadband internet on his business, Silk encouraged the audience to look to experts and be efficient collectors and evaluators of information in as many fields as possible, even those only slightly related to their core business.
It would be inaccurate to say that every company that was ever disrupted could have avoided such a fate, as company failures are almost never the result of one single factor. However, as Tim Silk illustrated through his presentation, there are many actions that companies at any stage of being disrupted (even not yet being at risk) can take to avoid being driven out of business by a new player, and becoming just a childhood memory and meme topic.