Part 2: How Can Incumbents Respond to Disruption?

3 Questions to Ask!

By Dawood Khan

When it comes to disruption and the introduction of disruptive practices in a particular market, we should keep in mind what renowned Canadian communication and media theorist Marshal McLuhan said in 1964 about the heavy reliance of newspapers on classified ads and stock-market quotes. McLuhan said that “should an alternative source of easy access to such diverse daily information be found, the press will fold.” But as we all know, the demise of classifieds in print media did not happen until just a few years ago. And even more than a decade after the advent of the internet, many print publications did not care to invest in digital technology and transition to online publications. As a result, many of them suffered royally at the hands of startups and a few incumbents that had the foresight to make the transition and disrupt themselves.

Netflix’s transition in 2011 from DVDs to streaming is well documented. The company suffered 80% drop in its stock price as it transitioned to online streaming, but it eventually paid off as evidenced by a 134% spike in its stock price over the last 12 months, causing the cable industry to lose more than 6.7 million subscribers over the last five years[1], and driving BlockBuster, its arch-rival at the time, out of business. Another testament to Netflix’s success: the number of hours many of us spend on weekends, binge-watching our favorite shows.

” The challenge for incumbents is the task of preparing for the day when their cost structure won’t be aligned with alternatives in the market. The preparation can entail taking measures against some of their current operations with subsequent hits to their profitability. But those measures may eventually pay off handsomely. The challenge is that it’s difficult to predict accurately what may and may not work.”

The questions then are:

  • What is an incumbent to do as it prepares for emerging disruption – Is there a way to know what will work and what may not?
  • When should it act – while timing is important, is it possible to get the timing mostly right with a high degree of certainty? and
  • How it should bring its new approach to the market?

As no one really knows what approach would work best, or how to predict market reaction, prudent organizations are tackling disruption as a transformative journey rather than a discrete action at a point in time or the proverbial “destination.”

A Digital transformation journey means that these organizations are continuously experimenting with new business models, emerging technologies and ways in which to engage and interact with their customers.

As part of this journey, organizations are increasingly looking at determining how an approach may be desirable (do people want it?), design thinking - ideoviable (is there a business case/model that will work?), and feasible (is there a technical solution?). These three elements form the foundation of design thinking, as illustrated in the image courtesy of IDEO. Which, when used as part of an organization’s digital transformation journey, allows an organization to rapidly identify opportunities, test them through quick and iterative proof-of-concepts, refine the approach or move forward.

For anyone, and especially incumbents, it is important to accept market realities. Disruption is inevitable. In order to survive, organizations have to be prepared, and the way to do this is via a journey towards transformation. While many call this “digital transformation,” people (customers and organizational culture) form the core of any successful transformation. An innovation-focused culture that is open to employing a human-centric approach to solutions, rapid prototyping, and experiencing failure, is the corner-stone of success in addressing the ongoing disruption in the market.

[1] “Can Netflix Survive in the New World It Created?”, New York Times, June 15, 2016

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