Disruption fundamentally changes markets. Incumbent firms faced with this substantial change must respond decisively in order to remain competitive. Yet, while an incumbents’ decision on how to respond is important and can save their business, knowing whether disruption is potentially underway in the first place takes priority. Firms should develop a clearly defined process that enables executive teams to recognize disruptive characteristics in their markets. By employing this structure—one that highlights risk for disruption and then indicates the best way to respond—firms can be best prepared for disruption when it comes to their market.

In our previous white paper, What’s Your Play? A B2B Executive’s Guide to Identifying and Creating Disruption, we defined disruption in the B2B world as a new or existing player exploiting an inefficiency in a market through a new business model to fundamentally change how a customer’s problem is solved or need is met.[1] The first step in determining whether disruption is actually taking root in a market, then, is to identify whether a player in the market has developed an innovative path to market or method of value creation. Without a new business model, the market can expect only incremental—not disruptive—change. Firms should pay constant attention to their existing competitors, as well as low-adoption niche players or large technology companies, for innovative business models they bring to the table. Customers may prefer these alternative models and begin to move away from incumbent businesses if their needs are better met. Know what your customers want, and align your business model to match.[2]

While monitoring for the emergence of new business models in your market, firms should evaluate the landscape for key characteristics that put your market—and by extension, your firm­—at risk for disruption.[3] These characteristics show a market’s attractiveness to disruptive players or the vulnerabilities of its incumbent firms to disruption. Think about which of the following characteristics exist in your market.

• High margins attracting new entrants. Markets with large profit margins draw the most interest from potential disruptors and signal inefficiencies to be addressed.
• High fixed costs creating opportunities for new entrants or processes to streamline operations, and also making it more challenging for incumbents to effectively respond to market changes.
• High regulation limiting innovation, increasing costs, and restricting the number of players—often a source of inefficiency in the market that a disruptive player can take advantage of.
• Cost-focused customers with low switching costs have little incentive to remain with an incumbent firm and will quickly switch to a better fit or more efficient offering.
• Long service or product cycle limiting incumbent suppliers’ ability to adapt their products to emerging customer needs. Suppliers with little flexibility in adjusting their offerings find it more difficult to adapt to disruption in their market.
• Inside focus—in which company orthodoxies, decision-making processes, and politics restrict the potential for innovation to meet customer needs. Companies that fail to “think outside the box” and adjust their business models risk inviting more adaptable disruptors.

Some of these characteristics—such as high fixed costs and high regulation—are traditionally associated with strong barriers to entry that limit new competition. However, the development of innovative technologies and business models that reshape the way firms create value and reach customers help overcome these barriers. They often make a market more attractive for a disruptive player to target.

By knowing the market characteristics that point to disruption, firms can devise processes to address any vulnerabilities they may cause. The best processes allow firms to implement practices that monitor the market for disruptive characteristics. Based on those observations, firms should then consider instituting internal structures that devise and execute on strategies for combating disruption.

Know your risk: what characteristics of disruption risk can you identify in your market? Consider them carefully and plan strategies to mitigate each, and your firm will be best prepared for disruption.

[1] Axel J. Leichum, Joseph R. Root, and Erik J.P. Laitos, What’s Your Play? A B2B Executive’s Guide to Identifying and Creating Disruption, Blue Canyon Partners, Inc. © 2016.
[2] Laura J. Putnam and Isaac E. Green, Does Customer Centricity Pay Off? An Assessment of the Benefits of Customer Centricity in B2B Organizations, Blue Canyon Partners, Inc., © 2016
[3] Axel J. Leichum, Joseph R. Root, and Erik J.P. Laitos, Stay Ahead of the Game: How to Recognize and Respond to Disruption, Blue Canyon Partners, Inc. © 2016.