Disruption. Adding value to an overused buzzword
Disruption. A certain challenger to the traditional industry, and a word used with such a frequency that even your digitally slow colleague has heard of it. But what is disruption really? And how can the companies of today deal with the changing market trends that have seen Uber, Netflix, and Airbnb rise to the top of the technological food chain?
So what is disruption really?
Too many see disruption as mere innovation of products and processes in our digital era, but the truth is that this overused, and indeed misunderstood, term holds way more than just new innovation.
To put it simply, innovation makes the value of what you offer (e.g. products and services) better, while disruption creates new demand for products and services by offering something that did not exist beforehand.
The theory of disruption is actually more than 20 years old. Its creators, Joseph Bower and Clayton Christensen questioned larger corporations’ ability to stay on top of their industries through technology and market changes. With the risk of failing, these companies struggled in being at the forefront of new technological solutions - developing a so-called “next-generation-performance” to fit a functional demand of mainstream customers.
Digitalization has allowed a myriad of small, flexible, and innovative businesses to emerge and challenge industry giants. From the words of the creators, disruption:
“describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses… When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.”
Learnings from the main disrupters
To better understand the process of disruption, let's take a look at the small companies that did, in fact, revolutionize their industries.
Video on demand
Throughout the 1980s and 1990s, the market for video services was heavily dominated by Blockbuster. Unfortunately, for Blockbuster, the company had overseen one important trend that rose through this period: Video streaming. Established during the ’90s, a small company called Netflix saw the need for video on demand and was able to offer flexible and low-priced alternatives. By the time Blockbuster realized, it was too late.
Another great example is that of Uber. Although criticized and prosecuted for their take on business competition, Uber let supply meet demand through a digital service: An app. With the press of a button, customers are matched with a private driver, while surge pricing balances the demand for vehicles, so you are able to get a ride on even the busiest of days. This is disruption, as the product creates new demand in the form of a cheap, easy, and modern alternative to fetching a cap on the street.
Renting out homes
With over 90 million users and a presence in 191 countries worldwide, Airbnb is without a doubt the biggest challenger to the hotel industry. An industry that has had to rethink the approach to online presence. Airbnb allows ordinary people to rent out their homes to fairly low prices. The whole process is managed digitally, as people establish contact and can even book online from the mobile. Again, supply meets demand in a new, untraditional way, and Airbnb has created an online marketplace based on the network of people across the world.
Drivers of disruption
So what do these disrupters all have in common?
For one, they are all very demand-driven. Whether or not these companies had specific industries as competitive targets, they all managed to start with a niche segment, which in turn, created an enormous demand in the mainstream consumer market.
Another important point, which has been vital in the success of these companies, is that they where all established in the shared economy. The train of thought in this new economy is that we share, rent, and buy from fellow consumers. Corporations are no longer our main supplier as the B2C market has been replaced by P2P (Peer-to-Peer). This development is a consequence of digitalization, because the Internet, for instance, has made it easier for us to find and buy from various suppliers online.
There has simply been a great shift in the power of the consumer. The consumer journey has developed, as recent years have shifted our trust in institutions to the trust in our peers. Do you want to learn how to approach these “new consumers” of the network society? Read this blog post.
Implications on industries
Disruption is without a doubt challenging traditional industries within the financial sector, for instance, banks and insurance companies, but the truth is that no industry is safe and every industry is an opportunity when it comes to digital disruption.
So how can companies address the challenge that new digital entrants represent?
There is no easy answer. As mentioned before, larger companies usually tend to overlook the small disruptive players, because they target niche segments and therefore does not seem to be a threat initially. When the small companies grow they will, in turn, be suitable for the mainstream customer, and it becomes dangerous for even the largest, well-established companies.
Therefore, it is vital to look for these merging competitors in the market.
It also comes down to embracing new technology and grasping opportunities that lie within digitalization. Corporations need to think differently, be brave, and challenge the “common way of doing things” in their product development.
It seems logical, but disrupters offer a very simple product. This might be forgotten, when large budgets are thrown after R&D to create new product features instead of new market demand.
”Disruption is a critical element of the evolution of technology - from the positive and negative aspects of disruption a typical pattern emerges, as new technologies come to market and subsequently take hold” - Steven Sinofsky