10 Apr 2017
Three signs that your business is ripe for disruption
Have you (and your industry peers) fallen into a bit of a pattern?
Mehul Shah, Strategy
A few years ago, I interviewed an expert in the financial services industry and I broached the topic of ‘Disruption’ and how he saw it impacting his business. After getting over the initial discomfort, he went to great lengths to explain how disruption was seen negatively in his business. “The people who are funding you will expect you to be a stable operator who plays by the rules of the game. They don’t like surprises. They see them as risks.”
Soon thereafter, we began hearing of a slew of new business models in the FinTech space that were flush with funds and the same capital that was shying away from risk before, was sinking its teeth into something that seemed well off the beaten path. I bumped into the expert last month and reminded him of our conversation. He was gracious enough to admit that they should’ve seen it coming; old ways were bound to give way to the new. All of this got me thinking, “Is there a way to predict when an industry is ripe for disruption? Can the conventional players foresee it coming and therefore be the orchestrators, as opposed to being the sideline spectators of the change?”
My curiosity led me to some diverse readings and after a few rich discussions with the team, we agreed that there are three definitive signs that a business is ripe for disruptive ideas to enter and change the game.
You (and your industry peers) have fallen into a bit of a pattern
Have recent innovations in the business been truly game-changing or incremental in nature? Are there stories of players trying audacious new things and failing, or have most players grown safely and steadily? Is the talent in the industry drawn from diverse backgrounds or do they all have similar backgrounds and profiles?
If the answer to these questions is the latter and not the former, then your organisation and industry are stuck in an incremental growth pattern. New ideas are not coming in from left field and people are playing it safe rather than experimenting. Such a situation makes you ripe for disruption. You might be number one and growing well, but you’re still vulnerable. In fact, you’re more vulnerable than the rest because you have the most to lose and others are eyeing your position.
Last year’s Russell-Reynolds survey of over 2000 C-level executives revealed interesting insight into how leaders of large organisations are viewing the prospect of disruption in their business.
While sectors like Industrial, Healthcare and Education thought themselves less vulnerable to digital disruption, they are already seeing signs of new technologies and ideas like EdTech and 3D printing taking root and promising to change the landscape. A McKinsey survey from 2014 revealed that almost 75% of patients in developed markets were already using unconventional, tech-enabled channels to avail of healthcare services. Even in sectors where the threat of disruption seems remote, disruption is probably already underway. It’s just a matter of time before it explodes onto the surface.
What can an organisation do to keep pace in such a situation? There are several critical vectors which drive a long-term strategy to remain competitive and relevant in the future:
- Infuse disruptive talent into the organization. Hiring the same kind of people with similar backgrounds might be efficient, but it is also counterproductive in the long term. Hire from diverse backgrounds and empower the disruptive talent to question and change the way things are done. While the digital space is the tempting and obvious answer to hunt for disruptive talent, it may not necessarily be the only space. Hiring cross-industry talent is often just as (if not more) effective. Case-in-point are some leaders in the Indian real estate sector who have hired from Hospitality and Service industry backgrounds, recognising that quality of service is an important brand preference driver in what is a high-value, long-term relationship with customers.
- Develop and improve organisation culture. Most large organisations lose their ability to be agile, innovative and customer-centric because they are mired in silos and inter-departmental politics that tend to swell with growing scale. While the ideal scenario is to completely re-engineer the organisation’s culture to foster disruptive thinking, practical constraints often get in the way. One workaround could be to take a leaf out of the army manual and create a leaner, sharper, more agile “commando” force within the larger organization that comes in with a specific purpose – thinking disruptive ideas and turning them into business models. Several large technology companies have done this by incubating smaller start-up like teams within the company to drive future business ventures with great success.
- Finally—perhaps the most demanding one from a leadership standpoint—that of long-term commitment to the disruption agenda. Disruptions often take time to catch on and become mainstream. This is where commitment from leadership plays a significant role. Staying the course on the disruption agenda and justifying its relevance is often difficult, given quarterly performance pressures and fiduciary responsibilities. Yet, time and again, companies like Google, Apple, Unilever, Asian Paints and Marriott prove that innovation and disruption are lucrative agendas worth pursuing over the long term.
No one in your sector enjoys long-term loyalty of customers (or you have loyal, but dissatisfied customers)
If brand tracks show that your customers are rating your brand as average, but they still have high loyalty, then it’s a sign that disruption is around the corner. Customers who are simply content with what a brand has to offer are oftentimes hanging around, waiting to be converted to the next big thing that has a significantly different offering.
A recent example is that of Reliance JIO, the newest cellular company in India. In a market where the top players offered similar value and equally mediocre service, Reliance JIO is changing the paradigm with an unmatched value offering and no compromises on quality of service (claimed). The result is a mass exodus of customers from all established networks, making JIO the first brand in not just India but the world to garner a customer base of 16 million subscribers in just 26 days.
In industries where customers perceive high exit barriers, deficiencies in customer experience can quickly escalate to negative emotional biases towards the incumbent brands. Customers think that they’re being taken for granted because they seemingly have “nowhere to go” and therefore tend to jump ship when there is a promise of significantly better experience (product/service). In some cases, even with brands that get most things right, a certain degree of fatigue sets in and the desire to try something new becomes latent in the customer’s psyche. Customers will move out either if there is something better or if their experience has been less than satisfactory.
In this scenario, the disruption that causes customer shift doesn’t have to be fundamental i.e. such disruption can happen without dramatically changing the business model of the sector. Instead, a focused, sharply defined and well-executed brand experience could dramatically shake things up.
Take the case of Indigo Airlines. While they have a strong backend strategy for cost competitiveness through fleet acquisition strategy, fuel and operational efficiency, plus a buy, lease and sell model, those are only a part of their competitive advantage. A significant contributor to Indigo’s success is their ability to provide a thoroughly engaging and delightful experience to young, emergent Indian fliers who are unhappy with the cookie-cutter service that other low-cost airlines provide. With tongue-in-cheek humour and thoughtful innovations, Indigo managed to add a new dimension to the service experience of low-cost airlines, making them look like a smarter choice (as opposed to a frugal way of flying).
Brands faced with a situation where certain segments of customers are jaded by their current experience would do well to reexamine the entire purchase and consumption process from the customer’s viewpoint and identify ways to significantly ramp up the experience quotient. On occasion, the brand can prove to be a deterrent thanks to specific image associations that are off-putting to some segments. In such situations, brand architecture solutions can be leveraged to create appeal amongst desired target segments.
Your brand narrative is out of sync with the emerging cultural zeitgeist
If you’re sitting in meetings where one of the key issues being discussed is the organisation’s inability to attract younger consumers, or the newly affluent, or the early adopters, or any progressive customer cohorts, then you’re vulnerable to disruption.
The loss of appeal with progressive customer segments is indicative of the brand losing sync with the cultural trends that shaping the future. This gap is often exploited by young, progressive organisations to create niches that grow as the emerging trends become mainstream. While the immediate risks of losing market share are low in this case, the long-term loss of relevance can be quite high.
A classic example of this is the speedy demise of fabric brands after the emergence of ready-made garments. While brands like Raymonds and Arvind were premium household names until the early 1990’s, the emergence of ready-made garments made it possible for customers to not only access large varieties of quality clothing at reasonable prices, but also the ability to access better fashion—something that customers were fast becoming conscious of. On the other hand, brands like Ikea has managed to stay aware of and aligned with shifting customer trends, and therefore remain relevant to customers over the years.
Financial services organisations thought that the trust they enjoyed with customers was exclusively because of scale, size, physical presence and legacy. However, with customers becoming familiar with digital technology, new paradigms of trust began to emerge and suddenly there were smarter, faster and significantly cheaper ways to build a trustworthy financial services company that progressive customers embraced with open arms.
With no industries or organisations safe, it’s time for businesses take a hard look at themselves and determine if the time is right to stray off the beaten path and disrupt business as usual.