Disruption is a significant displacement of an incumbent by another firm. When you think of disruption you imagine companies like Kodak and Polaroid going bankrupt. However, when Android took over the leadership position from iOS, it was not a disruption. As a result, it is natural for you to think of disruption as a binary event. Either a firm gets disrupted or not.
This is a dangerous thinking which will cost you a lot in your career and business. It will make you take bigger risks than you realize.
Massive pain without disruption
Businesses sometimes face a disruptive force but still survive. Index fund innovation is a great example. This invention helped Vanguard rise from a peripheral position to leadership of the industry. Nevertheless, as it displaced Fidelity and State Street as leaders, it did not disrupt them.
Although Fidelity did not get disrupted, Vanguard forced it to cut asset management fees. If you have been in a situation where you had to keep cutting prices, you know it is quite painful.
Dollar Shave Club is another example of a disruptive force in the shave care market. It has only taken 8% of the market share, and it is unlikely that it would come even close to disrupting Gillette. But losing even four share points is a significant pain.
Take the case of two new businesses based on sharing excess capacity. Uber and AirBNB allow owners of assets to monetize excess capacity. Uber is unlikely to disrupt the taxi industry anytime soon. AirBNB is unlikely to disrupt the hotel industry. Nevertheless, they have caused massive pain to millions of hotels and taxi companies.
These examples show that even when a disruptive force does not disrupt, it can cause huge pain
These examples show that even when a disruptive force does not disrupt, it can cause huge pain. This pain ensues because disruptive forces create excess capacity and force structural adjustments. Such adjustments include a permanent loss of some profit and layoffs. Moreover, the force you to change how you do business.
What are disruptive forces
A force that pushes a firm towards disruption is a disruptive force. These include many competitive, environmental, socio-economic and behavioral changes.
For example, cutting the cord has been a trend in the US economy for many years. People are just getting rid of their cable connection and getting TV in other ways. It is a disruptive force because when taken to its limit, it can kill the cable business. It has made it harder for cable companies to keep raising prices.
GoogelDocs is another such example where users can get free office productivity suite online. Users have been adopting Google Docs in place of the traditional standard Microsoft Office. It has made it harder for Microsoft to continue its lucrative upgrade cycle.
I devote an entire chapter on disruptive forces in my book the dark side of innovation. I also share a framework for identifying such forces in your industry. Those interested can read chapter 2 of my book.
Disruption is the end of the road that most never get to
Disruption as the displacement of an incumbent is the end of a painful road that most firms never reach. Most large and powerful incumbents survive in the face of disruptive forces. But, they go through massive pain.
Disruption as the displacement of an incumbent is the end of a painful road that most firms never reach.
I have met with leaders of businesses facing disruptive forces. They go through massive pain on a daily basis. They miss a quarter here, a quarter there. They are unable to provide opportunities to employees. Sometimes they have no option but to lay off people.
Mistakes incumbent managers make
Most businesses will experience disruptive forces, but few will get disrupted. That is a reality. That means you should worry more about disruptive forces than disruption. There is another reason why you should do so.
In my research, I found managers often underestimate the probability of disruption. There are deep rooted psychological biases at play which makes managers overconfident. As a result, they often take the threats less seriously, believing their business is safe.
The bottom line is that if you think of disruption as a binary event, you are likely to underestimate the probability of disruption. It may make you overlook the power of a disruptive force and the pain it would cause you.
But if instead, you think of a disruptive force as a non-binary force, you are less likely to underestimate its power. Although something may not disrupt your business, it can still cause you significant pain. In that scenario, you are less likely to ignore that force.
How should you conceptualize disruption
My prescription is to move away from thinking about disruption as a binary event. Think of it as a force rather than an end. Think of it as a journey. Think of it as shades of gray rather than black and white.
My prescription is to move away from thinking about disruption as a binary event
My prescription is to move away from thinking about disruption as a binary event
When you do that, you will respond the way you should. You will take each of these disruptive forces for what they are. You will see them as forces that can cause you a range of painful experiences. Then you are less likely to ignore or overreact. Then you will be ready to deal with disruptive forces.
How many disruptive forces have you identified in your industry?
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