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disruptor, disruption, breaking the rules

Rules Don’t Apply: Thinking Like a Disruptor

The fear of headline-grabbing disruptors leave incumbent firms scrambling to prepare themselves. Executives fret over technological innovations, new entrants, and/or competitors’ groundbreaking business models. They wonder which developments will bring fundamental change to the market, and which will have only fleeting success. In evaluating the risk, firms often fail to see the market from the other side—from the perspective of a potential disruptor and risk missing real threats or opportunities.

In our white paper, Stay Ahead of the Game: How to Recognize and Respond to Disruption, we recommend that “firms should constantly monitor for potentially disruptive entrants or developments in their markets, even if they judge their current risk for disruption to be low.”[1] Incumbent firms that fail to do so risk lost margins, decayed customer relationships, and lower market share. While monitoring for potential disruptors, leaders must evaluate their own businesses for vulnerabilities that new entrants could exploit to take customers away.

In a recent project, Blue Canyon worked with a manufacturer of a key component used in environmental control equipment in residential and commercial facilities. The client sells these components to OEMs, who sell them through multiple channels to end users. A new type of equipment technology, offered by a different set of OEMs, threatened our client’s business. According to the OEMs, this new technology, which did not use our client’s components, provided performance benefits to end users. Our client’s engineering team, however, remained unconvinced that the new technology was a threat to replace the existing one. The performance benefits were not viewed as high priority for end users and the new technology was more costly than the existing solution. Furthermore, the initial decision makers on the environmental control equipment, the facility builders, were traditionally very cost sensitive.

In-depth discussions in the market confirmed that, on the surface, current market interest in the new technology was relatively low. Builders cited higher cost for the equipment, lack of experience with the technology, and difficulty in getting end users to pay more for facilities with higher performance environmental control equipment.

However, looking through the narrow lens of how a new technology fits within the rules of how a market works today often blind incumbents to the threat of disruption. In these scenarios, we recommend putting yourself in the shoes of the disruptor and throwing the constraints the incumbents face and the typical rules of the market out the window, as the disruptor is often unconcerned with them or actively trying to break them.

If you were the disruptor, how would you attack this market? To be successful, you would need to create more economic value for customers than the existing technology. Our experience in B2B markets has shown that there are three levers a supplier can pull to create more value:

  1. An offering that enables customers to increase market share;
  2. An offering that helps customers increase revenue by raising price; and
  3. An offering that helps customers realize cost savings.[2]

Blue Canyon developed a set of hypotheses on how a disruptive OEM might successfully penetrate the market through each of these value creation levers, thinking beyond how the market works today. The focus was on reducing cost, a key area of value for builders, but from a direct equipment and installation cost comparison, a weakness for the disruptor’s solution. But this was only a weakness if you stayed within the rules of how facilities are currently designed and built. The new technology used a different approach with smaller, lighter components and a distributed design. Could engineers redesign the entire facility utilizing this new technology, saving space and removing cost from the structure? A redesign with the new technology could provide builders with lower costs and quicker time to build, a huge value for them, far beyond the higher cost of the equipment. In addition, end users would benefit from lower operation, maintenance, and other auxiliary costs than those associated with the larger traditional systems.

By breaking the rules, a disruptor could potentially bring more value to customers and successfully penetrate the market. Our client started to pay close attention to whether this new technology could deliver a strong cost savings value proposition to builders through facilities redesign, even preemptively putting their own design team in place to test the idea. Looking from a broader lens, beyond just the equipment itself into the design of end user facilities, Blue Canyon demonstrated the new technology was a threat even if it was not clear in the market today.

How might a disruptor enter your market? Remember that from the perspective of the disruptor, rules don’t apply. Thinking broadly, firms should examine how a disruptor can take customers away by pulling each of the three value levers. Ask yourself:

  • Could a disruptor’s offering allow customers to enter a new or underserved section of the market, increasing share?
  • Could a disruptor’s offering enable their customer to charge a higher price for their product?
  • Can my customers realize cost savings by adopting a disruptor’s new technology or business model?

Consider assigning someone to “play the role” of a disruptor, either internally or hired externally. Have them think from the perspective of a disruptor, including how a disruptor could act against your firm to disrupt your market. Like a true disruptor, this role should not operate “within the rules” of how business is normally run, but should think about what could happen if marketplace norms were broken. By taking these steps, incumbent firms can begin a proactive defense of their businesses from potential disruptors. In fact, the least obvious disruptions often pose the greatest threat. It pays to know where you’re at risk, and thinking like a disruptor is the best way to find out.

 


[1] 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

[2] Atlee Valentine Pope and George F. Brown, Jr., Five Growth Lessons, Blue Canyon Partners, Inc. © 2014;
Atlee Valentine Pope and George F. Brown, Jr., (2011). CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs. Austin, TX: Greenleaf Book Group Press.
 

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