Incumbents needn’t be victims of disruption if they recognize the crucial thresholds in their life cycle, and act in time.

A decade ago, Norwegian media group Schibsted made a courageous decision: to offer classifieds—the main revenue source of its newspaper businesses—online for free. The company had already made significant Internet investments but realized that to establish a pan-European digital stronghold it had to raise the stakes. During a presentation to a prospective French partner, Schibsted executives pointed out that existing European classifieds sites had limited traffic. “The market is up for grabs,” they said, “and we intend to get it.” Today, more than 80 percent of their earnings come from online classifieds.

Our framework for understanding the life cycle of industry disruption.

About that same time, the boards of other leading newspapers were also weighing the prospect of a digital future. No doubt, like Schibsted, they even developed and debated hypothetical scenarios in which Internet start-ups siphoned off the lucrative print classified ads the industry called its “rivers of gold.” Maybe these scenarios appeared insufficiently alarming—or maybe they were too dangerous to even entertain.

But very few newspapers followed Schibsted’s path.F

rom the vantage point of 2016, when print media lie shattered by a tsunami of digital disruption, it’s easy to talk about who made the “right” decision and who the “wrong.”

Things are far murkier when one is actually in the midst of disruption’s uncertain, oft-hyped early stages.

In the 1980s, steel giants famously underestimated the potential of mini-mills. In the 1980s and 1990s, the personal computer put a stop to Digital Equipment Corporation, Wang Laboratories, and other minicomputer makers. More recently, web retailers have disrupted physical ones, and Airbnb and Uber Technologies have disrupted lodging and car travel, respectively.

The examples run the gamut from database software to boxed beef.What they have in common is how often incumbents find themselves on the wrong side of a big trend. No matter how strong their ingoing balance sheets and market share—and sometimes because of those very factors—incumbents can’t seem to hold back the tide.

The champions of disruption are far more often the attackers than the established incumbent. The good news for incumbents is that many industries are still in the early days of digital disruption. Print media, travel, and lodging provide valuable illustrations of the path increasingly more will follow.

For most, it’s early enough to respond.

What’s the secret of those incumbents that do survive—and sometimes even thrive?

One aspect surely relates to the ability to recognize and overcome the typical pattern of response (or lack thereof) that characterizes companies in the incumbent’s position. This most often requires acuity of foresight and a willingness to respond boldly before it’s too late, which usually means acting before it is obvious you have to do so.

As Reed Hastings, the CEO of Netflix, pointed out (right as his company was making the leap from DVDs to streaming), most successful organizations fail to look for new things their customers want because they’re afraid to hurt their core businesses. Clayton Christensen called this phenomenon the innovator’s dilemma. Hastings simply said, “Companies rarely die from moving too fast, and they frequently die from moving too slowly.”

We are all great strategists in hindsight.

The question is what to do when you are in the middle of it all, under the real-world constraints and pressures of running a large, modern company.

This article looks at the four stages of disruption from an incumbent’s perspective, the barriers to overcome, and the choices and responses needed at each stage.

Where you are and what you need

It may help to view these stages on an S-curve .

At first, young companies struggle with uncertainty but are agile and willing to experiment. At this time, companies prize learning and optionality and work toward creating value based on the expectation of future earnings. The new model then needs to reach some critical mass to become a going concern. As they mature—that is, become incumbents—mind-sets and realities change. The established companies lock in routines and processes. They iron out and standardize variability amid growing organizational complexity. In the quest for efficiency, they weed out strategic options and reward executives for steady results. The measure of success is now delivery of consistent, growing cash flows in the here and now. The option-rich expectancy of future gain is replaced by the treadmill of continually escalating performance expectations.

Read all Source: An incumbent’s guide to digital disruption | McKinsey & Company

 

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