Is it possible to survive disruption?
The inspiration for this article comes from "HBR Ideacast" with Julian Birikinshaw who is faculty at London Business School. Full article link here
How many Fortune 500 companies in 2020 also existed 25 years ago? Looking at data, only seventeen new age digital companies made it big after the boom of internet around 1995. 483 of these are long established companies. It doesn't mean that this list is unaltered. There has been re-naming, shuffling of rankings, M&As etc. but the narrative of the disruption is overplayed. These other industries are not just surviving but have been thriving.
The disruption is happening, not at the rate that we assume, but only very few companies will make it big. When we say this, we are only looking at the top where things are stable. The disruption may impact the small to medium sized companies more, and that needs to be validated with data.
What kind of strategies are these companies adopting to combat disruption?
Industry transformation happens very slowly, and incumbents can successfully respond to disruptive challenges in one of four ways: retrench, fight back, double down on existing assets, or diversify into new businesses.
Retrench
This is a defensive strategy for the existing markets. You reduce threats from new entrants through scale and lobbying. The risk is that it's a recipe for managed decline and hard to sell to stakeholders. For example, the way traditional banking companies are pushing back against the rise of Fintech, or Blockchain, is by working with regulators. Another defensive move is merging, such as done by the camera makers Konica and Minolta in 2003 when faced with the rapid growth of digital imaging.
Fight back
This is an offensive strategy for the new markets. By moving quickly, you keep the new entrants at bay. The difficulty is that it's hard to execute and easy to time it wrong.
Double down
This is an offensive strategy for the existing markets. Big existing players can leverage their longtime assets. But even though it is good for survival in the short to mid-term, it is not future proof. Disney is a great example of this. They acquired a lot of high-quality content providers such as Marvel, Pixar etc. They weren't bothered by the rise of Netflix.
Move away
This is a defensive strategy for the existing markets. Use your resources to look for opportunities in new markets, however diversification is the last resort and the most difficult to pull off.
How to choose the right strategy?
There is a huge amount of ambiguity, and there is no right way forward. No one knows the right strategy such as for a Bank against Blockchain, or combustion engine vehicles against EV. What we can learn is the following:
- Don't make generalization based on anecdotal and high-profile examples
- Judgement beats paranoia
- Take the time to make the right choice
Understanding Demand Vs Supply side of disruption can also help in picking the right strategy
When technology enables user experience to change dramatically, that is the demand side of disruption in which the threat is most visible. For example, the way pictures are shared, products are delivered, movies are streamed etc. Here change happens fast, so the incumbents have to be pro-active. An example of disruption on the supply side is the impact of biotechnology on pharmaceuticals. Or the automotive sector deciding how the engine is going to be powered. These are typically much slower moving and typical incumbents have strong brand presence, and hence they have time to respond.