Survival of the fittestIn Part 2, we illustrated characteristics of companies prone to disruption and the consequences. In this third, and final installment, we will investigate how companies in the crosshairs can build a plan to become bigger (smarter) and stronger (quicker).
What is the difference between incumbents like Amazon, Apple, Google, and Facebook that makes them better equipped to battle digital threats in their industry? Two traits:
- Agility and analysis capabilities to detect and solve customer challenges
- Commitment to empowering (and funding) the workforce to implement new ideas and innovations
The featured matrix is a representation of how funding and agility are key building blocks as previously discussed. Resource rich firms are able to pursue multiple opportunities while agile firms can afford to fail repeatedly and move onto new opportunities in constant pursuit of a customer centric model.
For example, at the onset of digital photography, Kodak was unwilling to adopt the technology at the expense of destroying its portfolio of film based cameras. Enter Fuji who established five times the amount of digital photography development centers within the United States.
Successful firms are data driven and able to pivot quickly to funnel their resources intelligently into offerings that have the greatest yield.
So far we have been focusing on business models, strategic planning, and capital structure to build a strong foundation for innovation. However, there are more tactical considerations that will make operations run smoothly. There is a culture component as well as organization design considerations that will affect how supportive operations are of innovation.
How to be culturally ready to defend and innovateThere are four core steps a mature firm can take to change and adapt its culture in order to defend against disruption:
1. Establish a common set of valuesIf the value of the firm is clearly defined, the strategic vision of the firm is free to pivot and morph over time. Employees feel less hesitant and resistant to change if they buy into such an ecosystem. Create platforms and forums for which employees can communicate and share ideas so that when change does occur, the right avenues exist for change to gain traction.
For example, Jet.com, a fast growing ecommerce site, supports transparency, fairness, and trust as its core values. However, it isn’t enough to simply post these concepts on a website mission statement page; it has to be lived and breathed. That is why Jet uses a dashboard application that publishes in real time all metrics to employees, bad or good.
Mature firms can’t offer the same equity upside as a startup, so it is even more imperative that employees feel bought in to the mission.
2. Give more autonomy to employeesIt is important to have governance of internal innovation for a mature firm. However, large organizations are plagued by bureaucracy that slows down the ability to respond to disruptors. Increasingly, companies rely on legal action to defend against disruptors (i.e. taxi companies defending against Uber) rather than to redefine their own business model.
Legal action can be effective in slowing down disruptors in order to bide time, but it rarely stops them. A steering committee should be used to give direction and authorize the highest net present value initiatives.
There are infinite solutions, instead choose the few most valuable and push to market a minimum viable product instead of perfect products.
Jet does have a formal product management process, but it also looks to leverage the creativity of its whole workforce for creating product enhancements. Putting a ping pong table in the break room may increase morale – but it isn’t going to get creative juices flowing. Implementing an enterprise communication solutions like Slack are great for scaling idea generation.
3. Develop the ability to reorganize rapidlyCreate a workforce that is dynamic and up to date on new technologies and use analytics to detect trends before they become mainstream. It is important to reflect both the business and financial models of industries a mature firm may pivot into.
Google is a great example; no longer an innovator but a new age blue chip, Google has reorganized itself under the Alphabet holding company. This provides flexibility to innovate and disrupt their own offerings without being held back by their capital structure.
Jet’s original pitch was “The Costco of the internet”. They quickly learned that users on a free trial were not going to adjust to $50 annual memberships, so they adjusted their pricing model and margins to accommodate a free membership model; a change they were able to communicate with tact and control a positive market reaction.
4. Look for opportunities outside your industryThis poses both an opportunity and a threat for mature companies. Record labels were not able to foresee the adoption of freeware Napster in the larger market. Further, they were unable to capitalize on selling digital music which allowed the onset of iTunes; Indie labels have found success by focusing on live music and accepting freeware.
Stay hungryIt is our hope that you are thoroughly convinced that now, more than ever, firms are being disrupted at an alarming rate that is supported by fluid capital markets and the ever increasing availability of information and technology. Even after adopting the guiding principles outlined previously, it is key to remain introspective and look for indicators of when disruption is on the horizon.
Just like your New Year’s resolution to hit the gym, a few quarters of irresponsible behavior can destroy the benefits of years of healthy innovation. Remain diligent in ways to look to keep your people invested in your business goals and ensure that their ideas can be heard, explored, and developed.