The threat of disruption

sign-1749093_640Dealing with disruption

Technology is the great disrupter of existing business models. Uber broke into the taxi monopoly by a combination of cheap assets – the self-employed drivers – and software that connects customer and driver. Reviews give added consumer confidence. Many of today’s disruptive businesses have had the same characteristics:

  1. They give more power or information to the customer, or put the customer in control.
  2. They involve the use of the customer’s mobile phone, a tool that is always with them.
  3. They simplify previously complicated processes.
  4. They save time.
  5. They let the consumer buy directly from the provider rather than an intermediary.
  6. They provide a feedback loop
  7. They provide convenience.
  8. They transfer costs to a contractor, usually a self employed individual.
  9. They replace human-based systems with technology.

Corporations need to assess how difficult transactions are for customers. Dawson, Hirt and Scanlan of Mckinsey say companies are vulnerable if their product has:

  • High information asymmetries between customers and suppliers
  • High search costs
  • Fees and layers from intermediaries. Well-entrenched physical distribution or retail networks
  • Long lead times to complete transactions

They say organisations are also at risk if:

  • Information or social media could greatly enrich your product or service.
  • The physical product is not connected to the internet but could be.
  • There is a significant lag time between customers purchasing your product or service and receiving it.
  • The customer has to go and get the product, for instance rental cars and groceries.
  • Too long a chain of activities, such as a high number of handovers or repetitive manual work.
  • The existing business model charges customers for information.

Businesses must ask themselves: ‘How do I know what disruption I might face?’ One answer comes from forecaster, which says its insights are simply based on innovations that businesses have already created. These innovations change consumers’ expectations. “That’s why any customer today riding in a car expects the entertainment system to be as intuitive as an iPhone,” they say. “It’s why customers, primed by streaming content (Napster became iTunes became Spotify), now expect instant access to a whole range of physical goods, from cars to clothes.”

They imply there’s little point in looking at consumer trends, or even doing market research, because consumers will only want a faster horse, not a Model T Ford. So a tiny business innovation in, say, Puerto Rico, could lead to a major change in global customer behaviour in ten years’ time.

And disruption need not be complex. Uber is really nothing more than a piece of straightforward software that drivers and customers can sign up to.