Positioning Your Company to Handle Disruption
Business Disruption is caused by innovative changes in the marketplace, and all companies, at some point, are going to be impacted by it.
When I refer to Business Disruption, I mean an innovation that eventually disrupts an existing market, displacing established market-leading firms and products.
As a leader in your company, you can influence whether any new market disruption will be your company’s demise…. or …… part of the next business model that reignites your company’s growth.
Let’s face it – most companies generally don’t handle innovative disruption very well unless they put in place a framework and culture to embrace it.
Innovation requires strong leadership
In fact, if you read about some of the biggest companies that were disrupted in the past 100 years, many of these companies had created prototypes of the solution that disrupted them years before the innovation went mainstream. The problem was that the forces of nature within the organization didn’t allow the innovation to get the attention it needed within the company until it was too late.
Even if your company does prepare for disruption, the process of introducing disruptive technology or a new business model into an established company will be a turbulent process. There are many reasons for this.
A few obstacles to overcome
#1 – The way disruptive innovation tends to enter the marketplace is at the market fringe. And often, it does not have a clear market audience when first introduced.
#2 – The disruptive technology often doesn’t have the same breadth and capabilities as the more mature solutions available, so your current customers may have no need for it at this time.
#3 – The forecasted market opportunity will generally be underestimated and projected to be insignificant vs. the company’s current market projection.
#4 – When a disruptive innovation is first introduced, the near-term market opportunity may be insignificant to your company’s overall revenues. Also, the overall margins may be much lower than your current product/service margin opportunity.
The biggest challenge is that it is very difficult for a company to divert serious resources into a disruptive solution that 1) initially, offers insignificant revenues vs. your current revenues; 2) May start out generating markedly lower margins that your company may not be able to support; and 3) Can possibly begin to cannibalize your current solution that drives considerably more revenues and higher margins.
For these reasons, the physics of disruptive innovation can be a force of nature that is almost impossible to overcome for most companies. It’s like trying to defy the very nature of the universe.
A culture change is needed
A culture of innovation is a top-down commitment starting with the CEO. Unless innovation is a top priority for a CEO, the chances of navigating disruption will be quite low.
Companies are increasingly setting up innovation divisions that are completely separate from the rest of the organization. The team mission in this innovation division requires a different set of objectives than that of the parent organization.
Your company may find it best to create a completely new company to bring a disruptive solution to the marketplace, a new company that focuses on a smaller niche opportunity and new customer base. An advantage of setting up a new company is the ability of the new company to handle lower initial margins while it is growing.
By setting up a separate company, this allows this new company to act like a funded start-up and put the full force of the company behind the disruptive solution. The company can then grow naturally along with the market acceptance of this disruptive solution.
Paul Benevich has been helping to re-imagine companies through innovation for the past 20 years. Paul can be contacted through his consulting company www.nonfictionbusiness.com or by emailing him at firstname.lastname@example.org