Lifespans of top companies are shrinking. Iconic companies are regularly removed from the S&P 500 Index and replaced with newer ones that have emerged with huge market capitalisations. Disruption is a critical element of this churn. From the positive and negative aspects of disruption a typical pattern emerges, as new technologies come to market and subsequently take hold.
At the outset, I ask you to keep the lessons of history in mind. The most value creating incumbent growth businesses originated through disruption. Companies such as Toyota, Wal-Mart, Intel, Southwest Air, Microsoft, Oracle, Cisco, Bloomberg, Best Buy, Amazon, E-Bay and Salesforce.com were the disruptors of their generation and industry sectors. And like in the preceding two decades, there is a high probability that most large companies of today will not exist in the next 20 years
So how do incumbents go down in the disruption valley of death? The reasons are varied but key strands run through them. These include overconfidence, a sudden collapse, too little, too late and ongoing decline.
What are the hallmarks of disruptive innovators? We have seen that they broadly fall into five types.
1. They are introduced by an “outsider.”
2. They are less expensive than existing products.
3. They target under-served or new markets.
4. They are initially inferior to existing products.
5. They advance by enabling technology.
But the most important characteristic is that disruptors seek exponential performance increases whilst incumbents seek linear performance improvements. According to Clayton Christensen, one of the world’s foremost
authorities on disruptive innovation, “Sustaining innovation is controlled by incumbents, but disruptive innovation is owned by new companies.”
There is a high probability that most large companies today will not exist in the next 20 years
The exponential growth in performance of SMACT technologies enables any SMB to disrupt an incumbent
Value exists in identifying the response and emotions surrounding each phase of the innovation pattern, because, as with disruption itself, the actions/reactions of incumbents and innovators play important roles in how parties progress through innovation. We can describe four stages that comprise the innovation pattern for technology products: Disruption of incumbent; rapid and linear evolution; appealing convergence; and complete re-imagination.
The exponential adoption of innovative propositions creates a virtuous cycle of continuous disruption. This is exacerbated in digital disruptions through propositions that are better, stronger and faster. For SMBs, the network and algorithm are key enablers in the disruptive space. The exponential growth in performance of SMACT technologies enables SMBs to disrupt an incumbent.
When you’re the incumbent, your key decision is to choose carefully what you view as disruptive or not. The business team needs to develop a keen understanding of the dynamics of competitive offerings, and know when a new model can offer more to customers and partners in a different way. When you’re the disruptor, your key decision point is really when and if to embrace convergence. Once you make the choices — in terms of business model or product offering — to embrace the point of view of the incumbent, you stand to gain from the bridge to the existing base of customers.
In summary, SMBs disrupt incumbents through:
1) Accessing resource’s that they don’t own.
2) Treating information as their greatest asset.
And the message for senior executives is clear: if you aim to maintain control of your corporation and deliver value to shareholders and customers, you must embrace creative destruction rather than wait to become a victim of this unstoppable force.