Disruption: are you starting in the right place?

start here written on typewriterEverybody it seems is talking about disruption. And given what companies such as Uber and AirBnb have done to the taxi and hotel industries, or what Netflix did to the home entertainment market, it is not surprising. These industries together with sectors such as media and travel agents have already been disrupted whilst others are just starting to feel the impact of digital. Banks, for example, are nervously watching the growth of alternative payment systems provided by technology companies whilst estate agents are seeing increased competition from online alternatives offering tailored services at a fraction of the cost.

Digital disruption will come to every industry at some stage; it is not a question of if but when. And that disruption could happen at any time. So what should established organisations do to avoid becoming the next victim of disruption? Some have taken the decision to invest heavily in innovation in an attempt to create the next disruptive product or service. Creating dedicated teams or even entire business units, outsourcing to innovation specialists, partnering with start-ups and establishing innovation labs are just some of the ways these companies are striving to be the disruptor of their markets and not the disrupted.

The bad news for any company looking to create a disruptive product or service is they are probably starting in the wrong place. Organisations such as Uber, AirBnb, Netflix or even Apple did not set out with the intention to disrupt. They just spotted a new way of meeting customer needs and created a new business model enabled by technology to satisfy these needs. The fact that these new ways of meeting the customer needs ended up disrupting their respective markets was due to the existing players either refusing to respond to the changes in their markets, or not being able to respond in a way that could stem the flow of customers to the new offering.

Disruption, therefore, can only happen in hindsight; it is a potential outcome of product or service innovation and not the starting point or objective. Instead of trying to design a radically new product or service, organisations should instead focus on identifying the next things their customers need and working how they can meet that need quickly (and by using technology). By continually looking at the adjacent possibilities in this way companies will be creating a pipeline of innovation, which as well as reducing the likelihood of them becoming a victim of disruption may ultimately lead to them disrupting their own markets if their competitors cannot keep up with the pace of change. (See Any business can be a digital business for more information on the adjacent possibilities approach to innovation.)

Unfortunately, however, most established organisations are not capable of creating and implementing a pipeline of innovation at the speed required for digital. Their business model, culture, governance, policies, processes and systems were designed for a different era; they were designed to maintain the status quo, not challenge it. Traditional companies are designed on the assumption that things will not change and, if they do, the organisation will have as much time as it needs to identify and assess potential changes, create business cases for review and approval, and establish large, long and expensive programmes to implement the new ways. And this is exactly why established companies and markets are disrupted when someone – often a start-up that is not weighed down by the old world corporate machinery – creates a new offering that customers prefer. They are simply not designed to work in a way or at the speed that is required to survive in the digital age.

So, instead of trying to disrupt their markets to guard against becoming a victim of disruption, traditional organisations should be seeking to disrupt themselves by reinventing their business model, changing their culture and implementing policies, processes and systems that are fit for the digital age.

But a word of caution for any organisation that decides to disrupt itself: you cannot do this through a traditional, highly structured, multi-year transformation programme. To do so would be a contradiction to the objectives and required outcomes of the disruption; an agile, collaborative, innovative and nimble organisation cannot be designed and built using the same approach used to create the slow, lumbering, corporate monolith that is being replaced. And the chances are that while you in the midst of your old-style transformation someone will be disrupting your industry and it will be too late anyway. Instead, you need an agile approach to transformation.

An organisation that can successfully disrupt itself will be better placed to deal with disruption in its markets. Indeed having created a business that can continually and quickly innovate its products and services to meet customer needs it is likely that you will be creating the disruption instead of responding to one.

If your organisation wants to transform for digital or if it wants to generate a pipeline of ideas for digital innovation within its products and services then please contact me or visit my website, axin.co.uk.

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