Here’s how incumbents welcome disruptive innovation to come out stronger

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In 2007, I was in charge of building the three years strategic plan for a double a company that boasted double-digit growth for more than 10 years thanks to its hardware technology. The technology in question was getting commoditized by Chinese manufacturers. Soon, the trends changed and favored an approach dominated by software.

Sounds familiar? Many industries have been affected by digitalization, and this is not going to stop any time soon.

So, the strategic challenge was how to prepare for such disruptive forces while protecting the company position, revenue, and brand. This transformation should be combined with an understanding of customer “jobs to be done”, value chain, and ecosystems. Only then can we follow the path that leverages technology to evolve. Accomplishing this integration of objectives wasn’t easy and took nearly the other ten years of continuous evolution that included mergers, acquisitions, cultural struggles, and strategic partnerships.

It’s believed that small companies are more adept at carrying out disruptive innovation. These start-ups are risk-takers with low overhead costs to fund their innovative styles. Moreover, they can reinvent and re-orient themselves quickly.

CEO’s of incumbents typically fail to innovate when the main challenges are related to adopting change. Despite this norm, some existing giants have welcomed disruptive innovation with open arms and hence succeeded in self-disruption.

Who is an incumbent?

An incumbent is an established entity with a dominant position in its respective industry. Examples include Microsoft and Disney. The initiation phase of disruption may not challenge such incumbents; however, undermining the importance for long may result in catastrophic downfalls. The mindset that adapting to change will affect an entity’s core business is myopic at best. Self-disruption may seem strange, but it is the best way to survive evolving times.

We now look at two examples of how these incumbents embraced and survived the disruptive innovation onslaught.

Microsoft –self-disruption for success

“It’s fine to celebrate success, but it is more important to heed the lessons of failure.”Bill Gates

The creator of MS-DOS, Microsoft, whose software became ubiquitous with daily life faced the market disruption. Despite Microsoft staying head in OS development, competitors turned to cloud-based computing. The era of Windows devices as the sole operating system was overturned as players such as Google, Amazon, and Salesforce entered the fray. The age of multiple environments and multiple devices was upon us.

Through the appointment of a new CEO in 2014, Satya Nadella changed the mindset of Microsoft altogether and its culture for the better, as noted in his book “Hit Refresh” his focus was “Transformation through a sense of empathy to empower others.”.

How Microsoft hit a refresh?

A company like Microsoft, which was in the industry for over two decades sees plenty of resistance to change. Maturity thus becomes a stumbling block for many as deep-rooted traits and habits are set in stone. However, Microsoft transformed itself on a provider of IT solutions instead of focusing on just selling the Windows experience.

In his book, Nadella stressed that defining a clear sense of purpose and identity was the first step to achieve success. A strong understanding of how to express this purpose and implement a business transforming strategy was also needed.

Microsoft adapted to the changing trends by not resting on its laurels and brand power. It paid close attention to the needs of its customers instead of churning out the same recipes for development.

The company made a name for itself selling a package software that became ingrained in their ethos. However, Microsoft realigned by realizing that its traditional linkages could be nurtured to sell IT solutions to corporate clients. Thus, they became the enabler for such organizations to embrace cloud-based computing services.

The change of mindset and culture of the organization was achieved by aligning the available resources to a new model. Microsoft started a subscription-based service by offering paid services to its customers who were updated regularly.

Also, competitors were seen as potential partners and even a way to enhance the company’s offering. Examples of this mindset include partnering with companies such as Amazon, Apple, and Red Hat.

Since the appointment of Satya Nadella as CEO of Microsoft, the company has seen a shift in strategy. A traditional tech giant has been transformed into a leader in cloud services. This embrace of innovation sees a nod of approval from investors whose confidence in the company exemplified by its market value exceeding $1 trillion, one of just a handful in history to hit that mark. When Nadella first took over, its market value was around $300 billion.

DISNEY – impending disruption

“If you can visualize it if you can dream it, there’s some way to do it.”Walt Disney

The coronavirus pandemic crippled Disney’s media empire — except for one, major success: Disney+.

Disney+, which was launched in November for $6.99 a month, couldn’t have come at a better time for Disney. It has seen remarkable growth, with 60 million subscribers by August 2020.

Iger, CEO of Disney, realized straight away when licensing Disney’s library for Netflix that it would soon be its biggest rival. By 2017, Disney stopped its licensing to Netflix to create its streaming platform. Amongst other media channels such as CBS, Apple, and others, Disney was the first to realize the potential of this goldmine.

How did Disney decide to disrupt its own business model? 

Iger’s success can be attributed to the pursuit of two strategies; disrupting their value chain and offering by embracing technology, keeping customer closeness via a direct channel, and beefing up Disney to make it a giant in the field.

Iger’s first masterstroke was to reconcile with Steve Jobs, the owner of Pixar, which subsequently laid the foundation for Pixar’s acquisition later in the year for $7.4 billion. As content is the major value asset for Disney, the studio furthered its agenda by acquiring Lucasfilms for $4 billion (2013) and Marvel Studios for $4.24 billion (2009).

Netflix was growing at a rapid pace by 2015, which led Robert A. Iger to test a streaming app in Great Britain. By 2016, the Disney CEO was hinting on building a similar platform to rival Netflix. The idea seemed like a risky one, especially for a traditional giant such as Disney with its roots deeply entrenched in the television industry. By 2017, the traditional TV numbers were suffering, which led to the increased pace of launching streaming services such as ESPN Plus for sports and Disney Plus for streaming all the blockbuster movies.

Iger’s preference for technology was demonstrated through Pixar’s acquisition as well as the restoration of Disney Imagineers. It was further enhanced by acquiring BAMtech, streaming technology, and finally the launch of Disney+ in November 2019.

Iger’s bet on Disney+ paid dividends as it was a smart strategy of shoring up the company and embracing technology at the same time. That too, well before everyone else did.

Since 2005, Iger has understood the impending disruption of the media industry. The Iger lesson: Disrupt yourself before someone else does.

Key takeaways – what does it take to be a disruptor?

All the examples mentioned above, point to the importance of looking at your company and products with a fresh pair of eyes. So, when you think of disruption, don’t look at your competitors because they’re not going to disrupt you. 

You must be aware of the external sources of disruption, especially now that systems are changing quickly. Then, you frame how to answer your customer needs by scoping the job-to-be-done, looking into the value chain, and leveraging technology as a disruption enabler. Constant awareness of such new paradigms will let you be ahead of such developments. 

Customers are always on the lookout for better services; hence they are not looking for competitors, but an improved user experience. By embracing disruption as a positive force, you can increase utility for customers, and hence be a better organization.

In a nutshell: Use disruption as an opportunity to grow stronger, or watch your business die.

References

Hit Refresh: The Quest to Rediscover Microsoft’s Soul and Imagine a Better Future for Everyone

Satya Nadella employed a ‘growth mindset’ to overhaul Microsoft’s cutthroat culture and turn it into a trillion-dollar company — here’s how he did it

How Satya Nadella tripled Microsoft’s stock price in just over four years

Disney grows to more than 60.5 million subscribers

Netflix Was Only the Start: Disney Streaming Service Shakes an Industry

A Whole New World: Disney streaming debuts with hit brands

Why many digital giants will self-disrupt by 2020

Why Disney+ is now a blessing and a burden for Disney

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