Disruption can be a gift or a curse depending on how your own company reacts to it.
Spotting digital disruption is an art by itself (we analyse how to do this in our strategy guide and case study) – but as soon as you’ve identified a disrupter in your industry, the even more imminent question arises: what can I do now?
At a first glance, businesses affected by disruption seem doomed. This fear isn’t unfounded: many examples a la Blockbuster vs. Netflix have shown us how digital disruption has changed whole industries and taken over market shares from previously established businesses. And Airbnb is only one of many disrupters that are shaking up their industries as we speak.
So what are companies to do?
To survive business disruption, you need to analyse your own business processes and external environment to ascertain whether you are equipped to rise to the challenge. Your choices are either to defend your business and combat disruption, instigate disruption yourself or mitigate losses.
Let me talk you through all strategic options in more detail:
The first two strategies are very much about beating the disrupter at their own game. This means, becoming a disrupter yourself.
Buy out the disrupter
What better way to avoid falling prey to disruption than by becoming a disruptor yourself? If your business finds itself beleaguered by a disrupter, your first course of action could be to buy the competitor out. Blockbuster famously decided not to purchase Netflix when they had the chance. Today, only one of these two brands is still an entertainment distribution behemoth.
Become the disrupter
If you can’t buy out the disruptor, you can strike back by disrupting them instead. As an already established brand, you might have the network, the know-how or the financial clout to nip any disruptive newcomer’s idea in the bud and take it as your own. But you need to know that you are strong enough to create this disruption and come out on top. If you lack essential skills or resources to launch your own disruptive competitor, you might also want to consider partnering up with a business (either within your own industry or from a very different background) to split the business between you.
The second approach is somewhat more defensive but no less proactive. Rather than trying to become the disrupter themselves, businesses could simply find ways to mitigate losses caused by disruption.
Re-focus or diversify your business
Instead of tackling the disrupter head on, you could examine your value proposition and shift your focus to areas not covered by the competition to give yourself the tools to survive business disruption. In our case study, we look at the hospitality sector, where drastically changing the value proposition would not work for major hotel chains. But if you’re a service or digital goods provider whose business model is agile and flexible enough, migrating your value proposition is a valid countermeasure. As a bonus, migrating might make you a disrupter to somebody else.
Alternatively, you can re-focus your business on your main customers. To whom does your business still offer more value than the disrupter? Concentrate your strategy on serving this customer section specifically.
Digital transformation is often named in combination with digital disruption, with the boundaries of both terms often quite badly defined. Yet they are two very different phenomena. Digital transformation describes an organisation’s change of strategic assumptions and operational mechanisms from the analogue to the digital age. This is a reaction to changing customer needs and an organisation’s response to new, external opportunities.
An organisation that has transformed digitally will gain competitive advantages in their industry and most likely save costs thanks to new efficiencies. This doesn’t mean they will disrupt their industry though – as mentioned in our opening quote, James McQuivey summarises in his book the difference between both: “When people adopt technology, they do old things in new ways. When people internalize technology, they find new things to do.”
Digital transformation can sometimes happen of its own accord, but it’s also sometimes a reaction to disruption. Through adding better value to their customers thanks to digital transformation (be it through becoming more accessible, fostering innovation to improve products or enabling personalisation), digital transformation can be one specific aspect of improving a company’s value proposition to mitigate the impact of disruption on their business.
Becoming agile is paramount for surviving business disruption. Analyse your market value and identify strengths, weaknesses, opportunities and threats so that you can react to the fluctuations brought about by a disrupter. Digital transformation goes hand in hand with an increase in business agility. The more flexible you become as a business, the easier it is for you to combat a disrupter, migrate your operation or even become a counter-disrupter.
Analyse your external environment
Digital disruption happens because of changing customer needs and new external opportunities that allow asymmetric competitors to arise and offer far better value to customers than their incumbents can. It is, so to say, business darwinism in action. From this perspective, disruption is a great phenomenon, as it forces businesses to evolve with time and follow the needs and expectations from those who they depend on: customers.
In order to predict these movements and act in time, businesses need to analyse both their internal and external opportunities and weaknesses to proactively identify means to disrupt themselves and their industries to make space for something better, both for themselves and their customers.
Download our free strategy guide to learn how to spot and defeat disruption:agile, digital disruption, Digital Transformation