Disruption” describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses, Says Hirav Shah Corporate Strategist, Adviser and Business Astrologer.
Hirav Shah Adds
Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.
When Does Disruption Take Place
In Hirav Shah’s Words- Disruption takes place in the business environment when creative entrepreneurs recognize current trends, and provide the market with a service or product that goes far above and beyond in meeting needs that consumers did not even recognize they needed, all sprouting from a unique and innovative idea.
When the value proposition of the new product is far superior to any existing solution available on the market, it creates a shift in what consumers demand. When a business is the first mover to revolutionize an entire market segment, it gives a very unique competitive advantage in that all competitors must scramble to keep up, usually being left in the dust. By the time the competition is able to develop their own competing product or technology, the first mover has the advantage of already having banked massive amounts of sales and satisfied many new customers. Once the customers grow to enjoy the new disruptive product, the chances of them going back to an inferior product are very unlikely. The brand loyalty that results from this is what creates massively successful and sustainable businesses. It really only takes a single revolutionary product.
Hirav Shah Cites Examples Of Disruption
1.An often cited prime example of this being blackberry getting overtaken by the release of the iPhone. Immediately once the iPhone was released in 2007, the entire game changed. With the capability to download 3rd party applications through an ever-growing and improving ecosystem where software developers could build new applications for consumers, there was no chance of anything stopping the success that the iPhone was destined to experience. No competing technology could hold a candle to all of the functions that the new iPhone was capable of, some may claim that Android was a viable competitor, but IMO if this were truly so then why would Apple have been able to enjoy so much commercial success at such a premium if the functionality of an Android smartphone were just as good? Android may have captured a much greater market share, but the iPhone captured much of the profitability of the smartphone market overall. They were competing for much different segments of the market as a whole.
2.The same trends have taken place among SaaS businesses where cloud computing is simply a superior service to any legacy provider, helping companies to operate in a much more lean manner while streamlining their operations. This allows businesses to scale indefinitely at a fraction of the cost of what they previously could by saving expenses on developing infrastructure, data storage, necessary software, and the platforms that make it possible for the company to operate their business effectively.
3.Netflix is a textbook example of successful disruptive innovation strategy. Starting out as a company supplying DVD mailouts, Netflix offered a cost-effective and convenient product to an area of the market that was previously overlooked. Targeting people who were movie buffs but not necessarily interested in new releases, Netflix was providing a tailored product to a specific group of people.
Netflix did not originally pose a threat to the likes of Blockbuster, operating in a distinctly different segment of the market. Netflix only began to make a profit in 2003, six years after its initial founding. However, once it began to see success, Netflix made the bold move to disrupt its own business model, moving away from a safe space and breaking into streaming media.
Disruptive innovation usually involves a startup disrupting an established player and this is exactly what happened with Netflix. The new move nudged them into the same competitive space as Blockbuster, eventually pushing them out of the market.
Their latest disruptive endeavour was in 2013 when Netflix entered the production business. A roaring success so far, Netflix have proved that they know how to disrupt, innovate and succeed.
Strategies for Creating New Disruptive Growth Businesses
All ideas for new products and businesses emerge from innovators’ minds only partially formed. Middle managers then oversee the shaping of these ideas into full-fledged business plans in an effort to obtain funding from senior management. They typically hesitate to throw their weight behind new product concepts whose market is not assured, fearing that their reputation for good judgment may be compromised. As a consequence, the normal corporate process for shaping and funding ideas turns them into sustaining innovations that target large, obvious markets.
Many of the ideas that end up as sustaining innovations could just as readily have been shaped into disruptive business plans, given a distinctly different process and managers who understood how to use it.
To that end, Hirav Shah suggests two Mantras for turning ideas into plans for disruptive growth businesses.
1.By Creating a New Market as a Base for Disruption
2.By Disrupting the Business Model From the Low End
We’re currently living in a world of endless choices and opportunities where new products and services are launched at an ever-increasing pace. In the age of innovation, new solutions can be built on top of existing technologies faster than ever before.
This means that there’s a new, even bigger wave of innovation ahead of us and virtually every industry will be affected by this change – one way or another.
Approximately half of the S&P Fortune 500 companies are said to be replaced in the next decade because of disruption.
“Thus, it’s important for companies not to miss opportunities to adapt”- Concludes Hirav Shah, Corporate Adviser, Astro Strategist, Business Guide and of course Business Astrologer.