How Incumbent Leaders Can Manage Disruptive Innovation
Global Vice President at Joint Commission Resources, overseeing technology products, digital publishing and education business worldwide.
The Covid-19 pandemic has put the world through a turbulent past 16 months. I would argue the pandemic is unprecedented, as is the scale and speed of coming change.
In the world of business, however, being severely disrupted is not unprecedented. Think about the disruption to businesses when the internet took off in the ‘90s; think about the smartphone industry in the early 2000s; think about the growth of ride-sharing just a few years ago; think about artificial intelligence today. Many businesses have been disrupted because of new innovations like these.
An Example Of Disruptive Innovation
Think about a very traditional industry, such as car rentals and taxi services. You likely wouldn’t imagine that this is an industry that could be disrupted, given that it’s heavily regulated and saturated. However, consider the following:
ZipCar, which first came to the industry in 2000, enables people to rent a car by the hour. The business grew quickly and eventually went through with an initial public offering. Then, another disruption to the transportation space came a few years later with RelayRides (which is now known as Turo). This platform allows car owners to offer their cars to passengers, and passengers return those cars once they’re done. And finally, we know that ride-sharing platforms like Uber have become extremely popular today. Passengers can go from point A to point B without the need to clean and return the vehicles, and the maximum degree of convenience appears to be the priority.
Defensive Strategies For Incumbent Leaders
So, what can you do if you’re the incumbent leader of an established industry, given constantly evolving technology and business model disruptions? This is where we should look at the strengths and weaknesses of an incumbent leader.
In my experience, incumbent leaders often have the following strengths:
• Brand recognition.
• An existing client base.
• Relatively easier access to resources and capital.
• Existing marketing and sales channels.
• Business partnerships and alliances around them.
However, these strengths can also play against industry leaders because:
• They have too much to risk if playing an offensive game.
• Investment in disruptive technologies doesn’t always generate a high return on investment in the beginning, especially compared to simply improving existing business and products.
• Larger organizations tend to act slowly due to internal bureaucracy.
• If incumbent leaders are publicly traded companies, they may care more about the short-term investor return and want to avoid risking short-term gains.
If incumbent leaders want to defend against market threats, there are four strategies to consider:
1. Remember that the urgency of change must be driven from the top. CEOs and top senior leaders must drive urgent changes to a company’s culture, recognize threats and be willing to sacrifice short-term gains to protect the brand’s long-term future. This involves communication with your board, investors, staff, partners and even customers. To mobilize the organization, be transparent and make the threats visible to the organization.
2. Have the courage to decide what not to do, what not to fund and what not to continue. As difficult as it may be, this is a crucial moment for organizations that want to pivot to the future. Any organization, no matter what your balance sheet says, is constrained with resources and limited by time. You can’t fight a dozen battles and win them all. You must decide which battles to give up and which battles you must win. For an organization to reinvent itself, it must have the courage to cannibalize its existing products.
3. Separate your traditional business from the newly emerging business. Running an innovative business requires a very different mindset and skillset than running a traditional cash-cow business. Traditional and emerging businesses can have very different markets and customer profiles. To better protect your innovation business, you should separate the business from your traditional product lines and profit-and-loss responsibilities. This is to protect your research and development, as well as your product development team, from being constantly distracted. Hire the right leaders to run the business. Don’t focus too much on short-term revenue. Focus on the long-term.
4. Leverage partnerships and mergers and acquisitions to hedge your future. There isn’t always enough time to build all solutions organically. Incumbent leaders might not have the right experience to understand the new technology and the new market. This is when business leaders need to think from the outside. Buying new intellectual properties, partnering with emerging market leaders and focusing on business integration might be the less risky approach to protect your business from future threats.
To avoid being marginalized by disruptive innovations and changes, industry leaders must take bold, decisive and preemptive moves. Remember: These moves have to start from the top with your leadership team to create urgency for change. Decide where to focus and where not, take steps to protect your innovation business from being distracted by your normal business and, finally, know that innovations don’t always come from inside. Strategic partnerships and acquisitions are growth alternatives worth considering.
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