Stephen H Baum Leadership

THE ACADEMIC’S VIEW

Clayton Christensen of Harvard Business School was early in teaching about disruptive technology using cases such as the demise of the steel industry who could not envision any way to make steel except the capital intensive and large scale facilities in which they had invested. His thesis is that few establishment companies (IBM is one) are able to survive sudden and high value disruption which usually starts at the fringes of the customer base but moves pretty quickly to the core.

THE REAL WORLD

Venture capital firms are investing in literally hundreds of companies they believe have the chance to disrupt a market segment, create value that was not there before and “own” the first position. There is an ocean of money chasing a limited number of good deals and potential disrupters top the list. 

Think Uber in personal transportation, Air BnB in short stay accommodations, Amazon in all sorts of products and a host of others who are disrupting car services and taxis, small hotels, grocery stores, drugstores, department stores and more. It is not just being able to order on-line. Even in professional services segments of work and clients are being hived away from traditional firms.

Why the success? It is not just having reviews by other consumers or comparison shopping sites. It is not just ubiquitous sources of product information and competitive pricing. It is not just about sites that let people with common interests share experiences and appetites. It is not just a better understanding of unmet needs and ways to make the purchase match what consumers want. It is the emergence of a global army of people eager and able to dis-intermediate you from your customers and prospects. 

 Many businesses will be blind-sided by disruption if they have not brainstormed how they would do it to themselves if they started with a clean sheet, if they have nobody working on it under, say, 25 years old, if they do not have a real differentiation from competitive offerings, if they have not noticed the emergence of two sets among their customers (traditional high touch slow to switch vs. savvy, informed hunters who know what they want and at what price). And that is only the beginning.

There are still exceptions, of course, though no one can know even their futures. Retailers with regional franchises who are truly omnichannel (integrating strategies across ecommerce and stores and appealing to different segments differently and adopting locally effective tactics), staffing firms who can successfully tap into and oversee the sources of labor as communities, truly understand changing (large) client needs in real time and have the software to do what is required by both business and regulation in a fraction of what it takes their competitors. These translate into high switching costs for the clients.  

A STORY OF SELF-DISRUPTION

In an era in which pre-employment screening was expensive, took a long time and often had errors, one business owner had a ream: automate much of the manual processes, introduce process engineering to cut errors and cycle time, spend capital on advanced computers, and software, hire the best people. He wrote a lot of big checks without a guarantee of success but a fear of being disrupted if he did not. 

Over time, he outgrew many of his small competitors and was able to acquire a number of them, capturing their business and over time, achieving the savings of near national scale and integration He became the low cost producer serving major corporations. He made win/win deals with municipal sources of data, knowing that if anyone else got their first they would have a sustainable advantage. His new product group was prolific, identifying some that provided unique services to the majority of clients and other products that served entirely new customer bases. 

As the business matured, as the internet came of age, he took it further: establishing capability in India and the Philippines, integrating the platforms in the U.S. and off-shore, using the web for all services and most customer interactions. Recently, he has been working on client self-service opportunities. It is much more difficult for a new entrant or competitor to disrupt his business. He has made sure of that. 

Banks and investors, whom he had been courting along the way lined up to court him and enable him to take considerable money off the table. 

TAKE-HOME

The message is clear: incremental thinking may take the business to a highly vulnerable place — disruption by new kinds of competitors. 

What are you doing to be the disrupter rather than the disrupted?

This article is the basis for a conversation this morning with Jim Blasingame, leading expert in small business, master of the brain trust for small business and the host of:

Small Business Advocate

That’s just my view. What’s yours?