Strategy&’s Matt Egol and Chris Vollmer discuss what steps successful and innovative companies must take to drive change more rapidly and realize the digital potential of their business.
Are you ready for disruption?
This video was originally published by Booz & Company
Leading companies implement a strategy shaped by innovation and disruptive thinking.
Organizations can learn from disruptors
Now is the age of market disruptors: of Uber, Deezer, Alipay, Rakuten and many others.
First, though, what is it about these disruptors that makes them so effective?
1] They collect and execute faster on meaningful and local insights
2] Disruptors focus on customer “headaches” rather than their classic ‘needs and wants’
Ask customers what they want or need from your existing products, and the usual response will be ‘lower your prices’.
By focusing first on people’s “pain points”, however, disruptors find new solutions to make the life of consumers better, easier, faster.
To take Uniqlo as an example: the company has developed light, high-tech clothes that solve the headache of needing to wear layers to stay warm in cold weather – and at an affordable price.
3] They target high margins and bypass intermediaries
The optical industry is one of the most profitable in retail, operating with big margins. A normal pair of glasses can easily cost €300. But “Lunettes pour Tous” in France, founded by 24-year-old Paul Morlet, offers prescription glasses for “€10 within 10 minutes”. And the company still makes a profit.
“The margins of the traditional players are simply outrageous,” Morlet once said. Once he had recognized this, the door was open for him to jump into that gap in the market and shake up the industry.
4] Disruptors think broadly about innovation
When managers hear the word ‘innovation’, they generally think about product innovation. But the best disruptors, whether it’s Uber or Airbnb or Quala, innovate in product, packaging, communication, process: in fact, the whole business model.
Nestle’s ice cream business is a good example of a multinational being agile in this way, as it has created joint ventures and works with private equity firms to bring products to local markets.
5] They take advantage of their agility and benefit from the rigidity of the big players
Disruptors make decisions quickly.
Disruptors have few processes and fewer constraints both strategically and in terms of execution, allowing them to be more nimble, responsive and innovative.
It’s the same mindset that led Amazon boss Jeff Bezos to come up with the ‘two-pizza rule’ for productive meetings: if you have more people in a meeting than could be fed by two pizzas, the meeting becomes time-consuming and inefficient.
So how can traditional companies and market leaders respond to the challenge of disruptors?
First of all, they need to create their own pioneers.
Many firms are tempted to acquire challenger brands. However, by imposing their processes on the small players, large corporations most often kill or destabilize their start-up culture and often inherit an empty “shell”.
The recent announcement by L’Oréal that it was putting the “Body Shop” up for sale exemplifies the challenge for a large corporation to integrate the culture of a challenger. In contrast, companies like Nestlé were successful at creating their own pioneers by letting internal entrepreneurs (“intrapreneurs”) create Nespresso. Despite this huge success, the challenge is now for Nestlé to smartly replicate this model in other business categories.
Secondly, corporations need to rethink how to move away from a centralized business model and give more decision-making power to their local or regional businesses.
By doing this, innovations developed locally can then be harnessed by the bigger business, which can use its size to scale up and launch them on the global markets.
For example, P&G and Unilever have had good results at spreading innovations launched by Asian competitors who had no global scale. More autonomy for the locals and less intervention from headquarters is a simple formula (easier said than done) to ensure success.
Thirdly, large companies need to manage a portfolio of complementary brands.With few exceptions (e.g. Mercedes), a single brand rarely covers every market segment: a portfolio enables them to cover all the price segments, from high end to low end. Michelin has been particularly successful at managing brands such as Kleber, Uniroyal, BF Goodrich, Tigar, Riken and Kormoran covering every price segment of the tire market so that it leaves no space for competitors to move in.
To stand up to them, perhaps it’s time for big businesses to take a leaf out of their book.
Dr. Dominique Turpin is the Dentsu Professor at IMD.