We live in an age of disruption — when new technology and behavioral shifts that would have seemed unimaginable even a few years ago are transforming the way we live.
Artificial intelligence and robotics are fundamentally reinventing the workforce. Drones and driverless cars are transforming supply chains and logistics, even as they challenge policymakers to rethink existing approaches to infrastructure and regulation. Millennials are changing consumption patterns and demand for everything from cars to real estate.
Responding to disruption has become one of the biggest strategic imperatives facing today’s business leaders and policymakers.
But in a world where everything from business models and value networks to political systems and social contracts are being disrupted, how do we seize the upside?
Some of the most disruptive technologies on the horizon (think artificial intelligence and robots) will disrupt not just corporate business models, but also society as a whole. But while these challenges are certainly palpable, how a company responds to disruption will ultimately determine its success. In short, companies need to disrupt themselves before they’re disrupted from the outside.
Understanding the full impact of disruptive trends begins with analyzing disruption through its root causes — technology, globalization and demographics — and asking the right questions.
So how do you disrupt yourself? Companies looking to disrupt their own business models could start by asking five questions:
1. What business are you in?
Disruption has a way of changing the very business that companies are in. You may have thought you were in the business of assembling steel and glass into motor vehicles — but disruption clarifies that the business you are really in is mobility. Customers don’t necessarily want to own a car. Their real need is to get from point A to point B, which can just as easily be accomplished with a ride-sharing service.
Are you in the business of manufacturing compact discs — or the business of streaming music? Are you in the business of licensing human drivers — or the business of regulating algorithms in driverless cars? Understanding how your core activity has changed is the first step in re-inventing your business model.
2. Who are your customers?
Disruption does more than empower customers. It creates entirely new customer segments, with different needs and expectations. Are your customers corporations buying mainframe computers — or individuals buying PCs? Are you selling to doctors buying medical devices — or patients managing their health on smartphone apps? Understanding how your customer base has changed, and what the needs of the new customers are, are critical inputs for self-disruption.
3. What’s your value proposition?
To respond to the expectations of the new customer base, you need a different value proposition. The value proposition that customers traditionally appreciated may be entirely different from what new customers demand. The traditional value proposition of newspapers was authoritativeness and reputation. In a world of social media and blogs, they have had to create business models built on new value propositions — convenience, 24/7 access, customizability — to remain relevant.
4. Who are your competitors?
Responding to disruption requires making the right comparisons, including comparing yourself with the appropriate competitors. Since disruption attracts nontraditional entrants from other sectors, the peer group you used historically may no longer be relevant. Today, is it more important for auto manufacturers to compete with each other — or to understand how they are competing with sharing-economy start-ups that are disrupting their business?
5. What’s the risk of standing still?
Lastly, time is not on your side. We tend to underestimate the speed of revolutions. In assessing the cost-benefit and risk of investments, we often make comparisons in the context of a world similar to today’s. The more meaningful comparison, however, is against the environment that will exist in the near future, which could be radically different. The market potential of a disruptive opportunity may seem insignificant relative to the size of your business today — but that calculus could be very different in a disrupted environment, where the market share of the traditional offering has shrunk dramatically.
In a world where everything is changing, the biggest risk is standing still.