What are business disruptions?
Updated: Jan 8, 2020
The term ‘disruption’ has become a bucket word holding many imprecise concepts and definitions. That’s unfortunate because the fate of many established businesses (incumbents) will depend on their ability to identify, cope with, and exploit disruptive changes. Compounding these challenges is the accelerating pace of technological progress, which guarantees increasing disruptions across markets in the years ahead.
Characteristics of disruptions
Incumbents continue to face significant barriers in effectively responding to disruptions. The first is in detecting and distinguishing emerging disruptions from ongoing changes in their competitive environments. The second is organizational resistance to making necessary changes to the business' success formula, i.e. its business model, value propositions, and competitive strategy. Clarity recognizing the characteristics and implications of disruptions is indispensable for overcoming these and other barriers to change.
This post focuses on the characteristics that broadly distinguish disruptions from other changes common to competitive business environments. It’s those characteristics and their implications that make disruptive changes so threatening to incumbents and advantageous to disruptors. They also help explain why incumbents are usually late recognizing emerging disruptions and marshaling their superior resources to cope and exploit them.
Defining disruptions in competitive business environments
DISRUPTIONS are the effects caused by competitors that use innovative business models and technologies to create products, services and solutions that successfully deliver more compelling value propositions. Disruptions often drive leading businesses (incumbents) into competitive environments where they are no longer the dominant and most influential players. Incumbents then have to fundamentally change and replace their business models, value propositions, and competitive strategies to remain competitive. Historically, those that are late and ineffective adapting to disruptions have been diminished, acquired, and gone out of business.
DISRUPTORS are existing and (more commonly) new competitors (entrants) that leverage innovative business models and technologies to successfully offer customers new ways to get jobs done, solve problems, meet needs, and achieve ends. These create more compelling value propositions that attract first time customers and others already being served by incumbents. This process creates competing value networks by attracting supporting businesses, partners, and service providers. Competing value networks are indispensable components of disruptions and can be disruptive in their own right by pulling resources away from incumbents’ value networks.
Disruptive vs. incremental-adaptive change
Businesses operating in competitive environments face constant change and competitive pressures. They adapt over time by updating aspects of their business models, value propositions, and competitive strategies. The same applies when innovative new technologies become available. The common response is to introduce them to improve operations, offer new services, create new products, etc. The objectives are to protect and enhance the business’ competitive position.
By contrast, entrants need to offer alternative compelling value propositions to establish a foothold in their market. Their objectives are to attract first time customers and those that are already being served to varying degrees by incumbent businesses. A proven entrant strategy has been to use innovative business models to transform technologies into more attractive products, services, and solutions. Most entrants will fail in their efforts, but enough will succeed to challenge and in some cases disrupt incumbent market leaders.
Summary and implications
Disruptions are the effects caused by disruptors who leverage innovative business models to deliver products, services, and solutions with more compelling value propositions. What distinguishes disruptions from other competitive changes is how they affect incumbents and markets. Disruptions render existing business models, competitive strategies, and value propositions ineffective and obsolete. They can reshape entire markets and their basis of competition.
Incumbents have historically struggled coping, adapting, and exploiting disruptive changes. The barriers are simple to understand, yet very challenging to overcome. Specifically, identifying emerging disruptions with enough confidence to aggressively change and replace proven business models, value propositions, and competitive strategies is monumentally difficult. This explains in part why incumbents are often late responding to disruptions. Unfortunately, once disruptions take hold, unprepared incumbents often become the business equivalent of dead-man-walking, even when their current performance numbers suggest otherwise. We’ll explore this issue in upcoming posts.
The next post will discuss enablers of disruptions. Specifically, it will focus on how innovative technologies and regulatory policies create and drive disruptive changes across industries, economies and social systems.