Staying nimble: How businesses can prepare for future disruptions
Change is inevitable. Trends come and go. Technological advances impact how employees work and businesses operate. Customer needs, wants and expectations shift. A business’s ability to keep pace with or stay ahead of change hinges on strategic planning, understanding its core competitive advantages and adjusting to industry disruptions.
Yet, planning for change and disruption can be difficult. As Peter Grimm, managing director with Fahrenheit Advisors shared at a recent Risk Series event, “We will never have 100% of the data we need to be 100% certain we’re making the right decision.”
To avoid decision paralysis and enable a business to be nimble in its response to change, Grimm recommends using a strategic approach like the differential diagnosis process used by physicians:
- Form a problem statement (i.e., describe the “symptoms”)
- Leverage your understanding of disruption’s “pathologies” to develop a set of options
- Conducted targeted data collection to evaluate the options
- Revise or eliminate options based on your analysis
This decision-making process can also help leaders pivot when encountering an industry disruption that could displace their business or help identify areas where the business can be the industry disruptors.
During his presentation, Grimm shared two approaches to explaining why industry disruption happens: Christensen’s disruptive innovation theory and Deloitte’s nine patterns of disruption. A common thread between these models is that disruption occurs when complicated processes or products are simplified, or when overlooked or previously impossible connections are made. For example, Dollar Shave Club was able to disrupt the razor industry by selling quality razors that met a segment of customers’ basic shaving needs for less than their competitors. Similarly, Cost Plus Drugs is disrupting the pharmaceutical industry, offering medication with transparent low prices by removing some steps that the industry has historically followed.
Accessible description: “=The Disruptive Innovation Model. This diagram contrasts how products or services improve over time with customers’ willingness to pay for performance. As incumbent companies introduce higher-quality products or services to satisfy the high end of the market, they overshoot the needs of low-end and mainstream customers. This leaves an opening for entering companies to find footholds segments being neglected by the incumbents. Entering companies on a disruptive trajectory improve the performance of their offerings and move upmarket, challenging the dominance of the incumbents. Source: Clayton M. Christensen, Michael E. Raynor, and Rory McDonald.
Deloitte's Nine Patterns of Disruption*
Harness network effects:
- Expand marketplace reach
- Connecting fragmented buyers and sellers whenever, wherever
- Unlock adjacent assets
- Cultivating opportunities at the edge
- Turn products into platforms
- Providing a foundation for others to build upon
- Connect peers
- Fostering direct, peer-to-peer connections
- Distribute product development
- Mobilizing many to create one
Transform value/price equation:
- Unbundle products and services
- Giving you just what you want, nothing more
- Shorten the value chain
- Transforming fewer inputs into greater value outputs
- Align price to use
- Reducing upfront barriers to use
- Converge products
- Making 1+1>2
*Information from Peter Grimm's presentation, adapted from a Deloitte University Press graphic
In addition to recognizing where a business is vulnerable to disruption, identifying a business’s core competitive advantages is advantageous to protecting against disruptions. Grimm said this process can be more difficult than many think and must go beyond the common response of, “Our people are our competitive advantage.” Instead, business leaders need to explore product lines, customer experiences and processes unique to their brand. Additionally, they should understand the factors that drive customer buying decisions and how their business performs on those factors compared to their competition.
Knowing a business’s core competitive advantages helps illuminate the areas that need to be protected and prioritized when dealing with and anticipating disruptions. By leveraging strategic planning and a structured decision-making process that allows for flexibility and adaption and understanding the potential for industry disruption, businesses will be empowered to not only survive but thrive in an ever-evolving marketplace.
