How can businesses deal with disruption?

In the last years, 'disruption' has been a popular term to describe sudden changes whether through innovation, global events, or changing user behaviors. But what makes something truly disruptive and is it a good or a bad thing?

Content:

1. Definition: A term of many meanings
2. Is disruption good or bad?
3. Overreaction to disruptions can harm your business
4. How should you react?

Definition: A term of many meanings

There are different ways to use the word, some of which have very specific definition.

Most of us define "disruption" as an event that breaks routines, changes the status quo or otherwise throws a wrench into our plans. In short: disruptions are usually unexpected and therefore have so much power to change markets, behaviors and societies.

However, there's also some pretty clear-cut definitions associated to disruptions which tend to get lost in the buzz.

For example, "disruptive innovation" (coined by the late Clayton M. Christensen) describes product innovations that initially don't even aim to threaten bigger markets but instead want to address customer targets who have previously been left out. As such, these companies either address "low-end" customers or create new markets for customers whose specific needs were not relevant for the existing market.

Read more about this in the excellent article "What Is Disruptive Innovation", written by Michael E. Raynor, Rory McDonald and Clayton M. Christensen.

As such, disruptive innovation often opens new markets instead of disrupting existing ones. However, if these new products go beyond the customers who were previously not attractive enough for existing markets, for example by offering new functionalities, features, or optimization, they can very well turn from outliers into market disruptors.

"Disruptive innovations, on the other hand, are initially considered inferior by most of an incumbent’s customers. Typically, customers are not willing to switch to the new offering merely because it is less expensive. Instead, they wait until its quality rises enough to satisfy them." (Raynor, McDonald, Christensen)

This theory is especially interesting because it shakes up the myth of the always successful disruptors and even strips some of supposedly disruptive innovators of their titles.

For example, Tesla is not an innovative disruptor according to Christensen because it didn't aim its products at low-end customers who could not afford expensive cars - after all, Tesla is a luxury brand. It also did not create a new market. Instead, Christensen would identify Tesla as a "sustaining innovation", meaning that it aims to optimize the product within an already existing market (e.g., via sustainable technology).

Is disruption good or bad?

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If you'd ask people, most would agree that especially in a business environment, change is a good thing and often is needed. However, simply from a psychological point of view, change can be hard because it forces people out of their comfort zones, it usually brings risks with it and especially unexpected change feels like the universe is playing pranks.

Whether disruption is a good or bad thing, depends heavily on whether you ask the companies who were disruptors (or managed to adapt quickly to the disruption) or the ones whose entire business models were shook up due to these sudden changes.

Not every disruptor is a success

Especially start-ups are often framed as big disruptors that threaten legacy companies. However, even Raynor, McDonald and Christensen write that it's hard to discern whether an innovative disruptor actually poses any danger to an existing market. In fact, the authors write that quite often, these disruptors have enough trouble dealing with competition in their own new market and first have to emerge victorious to even tackle the existing markets and - often financially much more stable - "big players".

"Success is not built into the definition of disruption: Not every disruptive path leads to a triumph, and not every triumphant newcomer follows a disruptive path." (Raynor, McDonald, Christensen)

Instead of seeing disruption as an inherent threat instead of an opportunity, it's better to see it on a spectrum as to avoid reactions that are either too tame (ignoring the disruption) or too aggressive (heavily investing in the disruption before knowing how the market will react to it).

Clark Gilbert and Joseph L. Bower make an excellent point in their article "Disruptive Change: When Trying Harder Is Part of the Problem":

"It's possible to arrive at an organizational framing that makes good use of the adrenaline that a threat creates as well as the creativity that an opportunity affords." (Gilbert, Bower)

As with all change, nearly every situation can be just as much a threat as it can be an opportunity. And here's the hard truth: it's not easy to balance the decision making in a way that it is bullet-proof.

Some disruptors never enter existing markets. Some do and fizzle out. Some thrive or even enter unexpected markets (e.g., video meetings are suspected to have heavily decreased the need for air travel for business meetings and conferences). Some pose a threat to a company but not to others because of different customer expectations, brand awareness, and loyalty. Sometimes, a disruption takes time and can initially be underestimated (e.g., Netflix was such a successful disruptive innovator because the existing video markets did not expect it to turn into such a strong competitor over such a long time).

Overreaction to disruptions can harm your business

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Raynor, McDonald and Christensen write that an overreaction can harm any business just as much as no reaction at all.

According to Gilbert and Bower, reacting to a potential threat is not the issue but rather how companies react to it. This starts by seeing something as a threat. However, reacting to a threat usually is less oriented towards innovation and growth and more towards protecting the status quo.

Gilbert and Bower emphasize this in their article. They say that an intense reaction to a threat often does not leave enough room to be creative and adaptive. In fact, it can lead to some mistakes that might put the company in jeopardy:

• Reacting early on with high investments and resources
• Spending most energy to enforce and protect the existing business model from the threat
• Acting fast and without enough data (and patience) to watch the market, the technological development and customer behavior to identify opportunities
• To confuse innovative disruptors with sustaining innovations and therefore confuse how these different players act and affect markets
• To miss the opportunity to adapt existing business models which sometimes might include a restructuring of the company and change in company culture (if the threat actually does necessitate a pivot)

How should you react?

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Analyze

Getting a proper overview on the existing market, the new market as well as your own customer base and ecosystem can help you to discern how much of a threat (or opportunity) a disruption can pose. This includes a hard look on the technological developments outside of the hype. Often enough, limitations (technical, legal, functional) can stop a disruptor before they can even turn into a competitor.

Don't overreact

All authors seem to agree that it is not necessary and can even harm a business if you feel the need to react immediately. Since disruption - despite its name - can take years to evolve, it's worth it to take some time to watch and learn and make decisions which are not based on fear but rather on potential.

This also means not to go in full force regarding financing and staffing. A more measured, step-by-step approach that enables the company to be agile and sustainable also helps to identify value before investing money.

Separate core business & innovation

Gilbert and Bower found out that successful companies manage to separate ressources and investments between core business and innovation which helped the teams to both work on strengthening the core business and developing new business models without working against each other.

The important thing is the separation of budgets, resources, responsibilities and goals in particular not only on paper but also in practice. Gilbert and Bower even suggest to separate the different teams physically in order to avoid conflicts.

"Released from obligations to the parent organizations, freestanding ventures were more likely to view the new business as an independent opportunity and frame their plans accordingly."

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