I have long been a fan of Clay Christensen who wrote Innovator’s Dilemma and advanced the concept of disruption. He identified situations where new entrants to a market start with a basic product that only appeals to the lower end of the market. The upstart then continuously improves the product, through interaction with customers, until it has knocked off the incumbent. We can look back now and see many examples where this has happened and I expect we will see an increasing number in the future. Incumbents don’t have to stand by helplessly while this happens. The key to avoiding disruption is to transform your business model.
There are two ways to do this. One way is to incubate new business models that have the intention of disrupting your existing business. We have often heard the expression “Disrupt your own product before someone else does.” This is a proactive approach to avoiding disruption. To do this requires a completely independent venture that can operate outside of the existing business. This venture has the freedom to explore new business models without interference from the vested interests that exist in any organization. Every company should be doing this on an ongoing basis since virtually everyone will face a disruptive innovation at some time.
The other way to avoid being disrupted is to react quickly when signs of disruption start to emerge. A recent Harvard Business Review article pointed out that few disruptive innovations are a direct hit on the incumbent business. There are still many things that the incumbent does better at the time of the initial attack. The existing market leader has to create a new business model that incorporates the strengths of the current business model. This approach also requires an independent venture that will incubate the new model. The company has to manage the process of pulling the existing strengths from the old business model into the new one.
I have mentioned in prior posts that business model innovation is critical at a time when technologies can be copied or leapfrogged. Business model innovation can be used to create a brand new market, make a move to disrupt an existing market, prevent disruption by innovating your own business model or reacting to the early stages of disruption.