A) Observation

It became modern to define the targets of an organisation not product but purpose related. So a car manufacturer defines itself no longer as a company to develop the best car but as a company to best fulfill the transportation needs of a potential customer.
This also means a shift of perspective from a company centric to a more customer focused view.

Almost certainly companies like Palm, Blackberry, Nokia and the like all had and still have defined one of those need driven visions.
So why did they fail and are still failing to continue their past successes?

B) Interpretation

The cause: No active disruption

The predominant reason for failing is that those companies either could not or even did not want to actively disrupt their current business.

So what do I mean by actively disrupting businesses?
The way needs are fulfilled constantly changes over time - and so do
your competitors and their offerings. They are constantly trying to cut out some of your business / profits and take it as theirs. So you have the choice to either let them take it away - together with your customers and your future business - or to be the one to cut out your business yourself. So active disruption means to be your first competitor yourself. Be the first to offer a new solution to your customers’ altering needs - no matter if it is cutting revenue or profits of your existing business.

Because in the end the cuts will be made - either by you (active disruption) or by your competitor. So it is your choice which one you like to suffer.

In addition your comany will benefit in many ways from being early to a new market.
* You will get to know your customer and how their behavior is changing
* You will get to know your new competitors and how they adress customer needs
* You will develop your brand in the new market
* You get the possibility to test solutions in a small market
* You will establish your processes as basis for your future operations

Having this in mind the question is, why companies are failing to disrupt their business to secure their future.

The origins:

1) Lack of agnoscence

The first failure is not to recognize shifts in your industry. Especially this holds true for successful companies holding a big share of its market. Because even if they screen the market consistently they are not recognizing initial shifts as they are “flying under their radar”. One might also call it success arrogance.
The second failure is a market definition which is closely related to a current product. In this case the new customer need as well as the first competitor offerings are not identified to belong to your kind of business.

2) Lack of commitment

The next level of failure belongs to failures a company makes even if it has initially recognized a shift in the market / by competitors.

In this stage the failures are mostly driven by fear and envy which then lead to a lack of commitment to act on the potential at hand.
The fear is predominant primarily at senior management level and driven by losing turnover or profits when building a product which cannibalizes the existing business.
The envy can be seen more on operational level where other products / department are afraid to lose their attention or funding in face of the new offering. In addition the new offering might even put in question existing structures and endangers the existence of the current organisation.

Lacking management support leads to a short-sighted prioritization of projects. This means that the costs and profits of extensions to existing business are better to predict and mostly easier to realize than those of new business via active disruption.
In the long run this means that management tends to optimize and exhaust its current business and lacks to expand to new markets. In the end the company ends up with an overly optimized product which no one is buying anymore (e.g. Blackberry).

Lacking support on operational level is more subtle and not as easy to detect. This is primarily found less during prioritization but during conception and planning. It is expressed in different kinds of resistance - for example as problem thinking ("In which way this is NOT going to work?"). Operational resistance can have a strong influence on management and might lead to a reevaluation of priorities. This might become a problem as operational stakeholders mostly are focused on negative short time effects on their own operations and do not take into consideration the company-wide strategic potential.

3) Lack of execution & endurance

The final stage then covers failures which appear even if a company is committed to realize the potential of a new solution.

The first failure companies make during execution is the failure of rigidity. Companies are used set up projects covering all kinds of different dimensions like countries, markets, channels, devices etc. If applied to a new businesses, complexity is created which distracts from the primary goal of testing a new product in an unknown market.
Some companies are setting up a pilot project to introduce a solution. Although this focuses on a set of the possible dimensions and reduces complexity again is not a sufficient approach. Because a pilot only tests a single aspect of a market with a specific offering. And if a pilot fails it is considered proof that the market is not worth to pursue.
However this is a one shot approach to a multidimensional problem.
Instead, conquering a new market is about testing as much options as possible. So learning, adjusting and pivoting is key during realization.

The second failure is the failure of integration. This means that the new offering is forced to fit into the current structure - with the good intention to leverage the current organisation. But the existing organisation almost never fits the needs of the new offering. So the business can not develop as it might be possible.

The third and last failure is the failure of outmoded measurement and controlling.
When a new business is created it is measured by the same figures and logic as the existing business. And furthermore they are compared to current results.
This does not reflect the purpose of the business. It is not the primary focus to generate profits now - it is to prevent loss of profits in the future.
The margins might be smaller in the new market - but there are competitors which go along with those margins and take your revenue and future business. A company may say that it can pass on those profits. But in this case the company will continue to possess a certain share of a (decreasing) market. And at some time in the future its market will be gone to zero - as all business has been captured by the competitors once small. And by this time the company will not have the financial abilities to run through the learning cycle about its customers, its market and its competitors.

C) Conclusion:

Active disruption is not costing your current revenues but the revenues of future competitors. If you are a leader, you have to be first to this game - being second is either very costly (facebook buying whatsapp) or just too late (Nokia, Blackberry).

Action

If you are wondering which are the strategic challenges in your business or if you are looking for advice on how to realize active disruption for your company feel free to get in touch with me.
businessasusual@georg-ley.de

You are also welcome to share your opinion and insights on this topic. Just hit the bubble below and leave a comment.