7 Lessons From How Borders Group Failed To Unsettle Disruption
Juana Rodriguez
5 April 2022
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“If you allow the fear of failure to become a barrier, you’re already putting roadblocks in your way.” Richard Branson
It was the late’90s. I was working in a company that was the market leader of French fries across all regions, selling our products to big chains like McDonald’s, Burger King, and Wendy’s. We got around 80 percent of supermarket shelf space. Our position was very comfortable, and frozen French fries represented 95 percent of our business. I had recently been named marketing director of the Andean region.
The regional CEO came, very worried, to my office that morning. He’d had a discussion with a sales guy who mentioned a new entrant in the restaurant segment, an emerging brand offering low-cost products, lower quality, and better prices. He asked me what to do.
I told him that I wasn’t worried. We were the market leader, and our quality and brand were well-positioned. He looked at me with no judgment and said, “Maybe we don’t have the right offer for these customers.” Then he said, “Let’s do a quick test, pack some products, and build a new reference with different standards—French fries with various sizes, transparent packaging, deliveries just once a week, and branded differently.”
I was astonished. In only five minutes, he did what was supposed to be my job. Of course, it wasn’t in five minutes. He had fifteen years of experience in the field and a passion for keeping eyes open on customer trends.
Indeed, this offer was a success. It grabbed 20 percent of our sales, as we now answered an unserved market. So one of my first lessons was to keep my eyes open to challenge our own business and watch out for any potential customer job-to-be-done.
Disruptive innovation has been changing business structures for several years now. Its core idea is the emergence of new businesses dedicated to serving a portion of the unanswered market. Thereby, disrupters start by offering new solutions to the segment not extensively attended before. They do not directly challenge the market leaders’ presence, but they gradually redress the industry’s business model.
Remember, all innovators might not be disruptors, but all disruptors certainly are innovators.
For established businesses to compete with the disruptors, it is essential to identify them correctly in the first place. Then, it will help them devise the right policies to beat the emerging powers and mold the current business structure to meet future challenges.
Richard Branson, the founder of Virgin Group [1], explains how taking risks, acting upon your instinct, and shunning the conventional methods form the foundations of disruption. Companies like Netflix, Airbnb, and iTunes show us the disruptor’s path by entering a new market, fulfilling particular demands instead of directly challenging the existing market leaders. But they weren’t an overnight success. Instead, it was their systematic approach that made it happen.
For instance, Airbnb boosted the tourism industry by giving travelers a convenient and cheaper way to stay at a foreign destination. On the other side, Netflix and iTunes solutions changed the entertainment and music industries’ future.
Therefore, if you want to benefit from disruptive innovation rather than being washed out, you need to understand the steps and tools that will help you to get it right. Overlooking disruptive innovation influence has and will only lead to a substantial reduction in market share, thereby affecting profits and the overall business in the mid-and long run.
Nevertheless, some incumbents, entrepreneurs, and even start-ups still do not take this concept seriously. Let’s look at the stories of companies like Toys-R-Us, Kodak, or Blockbuster that overlooked disruptive innovation. With that said, here are five main reasons why leaders need a thorough understanding of disruptive innovation and why they should not overlook it.
Disruptors usually (not always) start as small-scale businesses to experiment with their ideas and develop successful working models. This evolving process enables them to offer better solutions to the existing problems left unanswered by established companies. Moreover, since they may challenge the business structure rather than just the product or particular service, disruptors shake the whole industry with new business models.
Making such a significant impact in a well-established industry cannot be done overnight. It takes several years. Take the example of the first discount department store in the ’70s that opened around fifty years ago, such as Costco or Target. Despite those stores’ establishment, the retailers were still using the conventional department store’s model, born between 1900 and 1940, including Macy’s or Galeries Lafayette [2]. That’s because adopting an entirely new model would require excessive inputs and a substantial cut in profit. Moreover, since the new model already had a leader, competing would not be easy.
In any case, ignoring disruptors is not the best decision. That being so, it won’t be possible if you have the right understanding of disruption.
With unpredictable technological developments, new consumer habits, and the need to survive in today’s rapidly changing world, anticipating disruption can be challenging for some businesses.
Moreover, since disruptors do not focus on serving the incumbents’ customers, they initially do not feel jeopardized. For example, Airbnb [3] started by serving budget travelers with the cheaper lodgings they sought during their trips instead of shelling out their cash on expensive hotels. Such a service would not attract a five-star hotel’s customers because initially, the low-cost Airbnb quarters were nothing compared to the quality of service of big-brand hotels.
It is one of the significant reasons why market leaders do not pay much attention to the new entrant. They are not attracting the incumbent’s customers, and their offers are not seen as very competitive at the beginning of their road. However, things start to get out of hand when disruptors like Airbnb begin attracting the incumbents’ loyal customers with a robust offer.
Hence, every business leader must anticipate the industry’s disruptors to sustain their business and keep an eye on what is happening in the environment. For doing so, there are several tools that we will explore in Unsettled Disruption.
Since Airbnb offers exceptionally affordable lodging charges [4], it has helped control the hotel rates. Although it did not affect hotels’ regular high-paying customers, it substantially cut down on hotels’ seasoned profits. One of the most significant examples, Midtown Manhattan charged exceptionally high prices on New Year’s Eve due to increased demand. Industry dynamics have changed since then.
Due to the proper use of advanced technology accompanied by an innovative business model, Airbnb could excel in its value to millions of travelers worldwide. Their service was mainly spread by word of mouth, which increased its credibility, enabling it to capitalize on its reputation. Our research shows how disruption emerges from a combination of market demand, value chain analysis, business model innovation, and technology. This solid combo does not take long to throw incumbents off their thrones
Sony stands to be one of the victims of disruption. It was the first brand that made listening to music while walking possible through its Walkman [5]. However, it required the users to carry the cassettes along with the device.
That marked the start of music digitalization. After the Walkman, we had CD players that were much easier to carry. Moving on, we got MP3 players that further eased our pain, enabling us to carry our whole music studio in a pocket—what a dream for people born in the ’70s and ’80s.
Then, what disrupted Sony’s Walkman and the music industry as a whole was Apple’s iPod. It was much more portable and user-friendly. Moreover, you could store thousands of songs on one device.
On the other hand, it was not only about technology; the main factor that made Apple a disruptor is how it changed the music industry through this combination of exceptional customer experience and value chain disruption, “1000 songs in your pocket.”
At the same time, Apple launched iTunes, which enabled the users to access any music they wanted. Since having to enjoy any music from around the world with just the click of a finger was something customers could have only dreamed of, it took Apple over the boundaries of the music industry. What added even more value to the iPod was the legality of iTunes.
Because of this, users could peacefully enjoy their music. Apple iPod would go on to hold a 78 percent market share from 2003 to 2011 in global MP3 players, with 300 million iPods sold in 10 years [6]. It was an innovative way to disrupt an industry with a new and proven business model.
Often, companies overlook new customer-driven products or services with the idea of keeping their current cash flow unharmed.
THINX’s CEO, Miki Agarwal [7], founder of several social enterprises, has been working to break the taboo surrounding menstruation in developing countries. According to the UN’s report, girls who do not have access to menstrual products do not leave their houses during menstruation [8], not to mention the health risks.
Her idea of providing absorbent underwear could have helped these women in the developing world, but the $15 billion tampon industry did not plan to change [7]. It feared losing its demand for tampons with the launch of the new product. Today, the market is moving in this direction, so this is a clear sign of another industry that is going to be disrupted by less expensive and more accessible solutions.
Let’s move now to another sector and speak about Microsoft. It introduced the first consumer-operated operating system (OS). Since its OS was the only one in the market, people were forced to pay for it. It didn’t plan on introducing smarter devices and operating systems for the sake of protecting its current financial position. However, it all changed when Apple stepped into the market, bringing innovative OS and user-friendly computing devices. Then, Google was set on the same mission of taking away the throne from Apple. But Microsoft’s story didn’t end here; we will explore later how this incumbent has succeeded by going into self-disruption.
Disruptive innovation has been changing business structures for several years now. Its core idea is the emergence of new businesses dedicated to serving a portion of an unanswered market. Thereby, disrupters start by offering new solutions to this segment not extensively attended before. They do not directly challenge the market leaders’ presence, but they gradually redress the industry’s business model.
For established businesses to compete with the disruptors, they need to identify the disruptors correctly in the first place. This will help them devise the right policies to beat the emerging powers and mold the current business structure to meet future challenges.
Why?
The term “disruptive innovation” might confuse or make companies afraid unless they understand its definition. It is essential to know whether it was a clear-cutting edge innovation or disruption. It is not always necessary for an innovation to be disruptive, but disruption is always about innovation.
Therefore, businesses must learn how to unsettle disruption and identify new opportunities to define their strategy. My book Unsettled Disruption: Step-by-Step Guide for Harnessing the Evolving Path of Purpose-Driven Innovation describes how to analyze the pillars to help you connect the dots and define your disruption strategy.
[1] R. Branson, “Turning challenges into opportunities,” Virgin, 28 February 2020. [Online]. Available: https://virgin.fr/branson-family/richard-branson-blog/turning-challenges-opportunities.
[2] J. Siddiqui, “Understanding the History of Disruptions in Retailing,” 14 February 2017. [Online]. Available: https://jawwad.me/understanding-history-disruptions-retailing/.
[3] D. Bailey, “Why Airbnb Is Disruptive Innovation and Uber Is Not,” INC, 27 April 2017. [Online]. Available: https://www.inc.com/dave-bailey/why-airbnb-is-disruptive-innovation-and-uber-is-not.html
[4] D. Gerdeman, “The Airbnb Effect: Cheaper Rooms For Travelers, Less Revenue For Hotels,” Forbes, 27 February 2018. [Online]. Available: https://www.forbes.com/sites/hbsworkingknowledge/2018/02/27/the-airbnb-effect-cheaper-rooms-for-travelers-less-revenue-for-hotels/
[5] C. R. Melissa Swift, “Long Live the Walkman,” KORN FERRY, n.d. [Online]. Available: https://www.kornferry.com/insights/this-week-in-leadership/walkman-leadership-disruption.
[6] Apple, “Let’s Talk iPhone event ’11,” San Francisco, 2011.
[7] T. Worstall, “The Economic Importance Of Disruptive Innovation,” Forbes, 14 January 2016. [Online]. Available: https://www.forbes.com/sites/timworstall/2016/01/14/the-economic-importance-of-disruptive-innovation/
[8] “1.3 billion learners are still affected by the school or university closures, as educational institutions start reopening around the world, says UNESCO,” UNESCO, 29 April 2020. [Online]. Available: https://en.unesco.org/news/13- billion-learners-are-still-affected-school-university-closures-educational-institutions.
