Disruptive Innovation

Photo by Joel Kramer via Flickr

Photo by Joel Kramer via Flickr

Every Industry Is a Target And No Fish Is Too Big!

When it comes to revolutionary business ideas, we might want to rename them “disruptive” business ideas. Why? Because that is exactly what they do – they disrupt. They change the whole scenery. Suddenly the apple cart is toppled over, and all the apples roll away for free.

A disruptive business model is one that completely changes the business environment making old methods of doing business quickly and completely obsolete. In the process, old businesses die and others rise up to become empires.

According to McKinsey & Co., Disruption is happening everywhere at an alarming rate and no business or financial institution is safe. The McKinsey & Co. website states:

“The relentless parade of new technologies is unfolding on many fronts. Almost every advance is billed as a breakthrough, and the list of “next big things” grows ever longer. Not every emerging technology will alter the business or social landscape—but some truly do have the potential to disrupt the status quo, alter the way people live and work, and rearrange value pools. It is therefore critical that business and policy leaders understand which technologies will matter to them and prepare accordingly.”

When considering this process, the ultimate goals are to be able to:

  • Recognize disruption
  • Anticipate disruption (micro and macro scale)
  • Capitalize upon, or even better, create disruption

In order to understand the concept a bit more, let’s take a look at an example that shows us how disruptive activity can be world changing.

The Demise Of The Brick And Mortar Book Store

In the old days, if you wanted to buy a book you went to a book store. Typically these were located in or near shopping malls. The book stores were attractive places with pleasant music, and the smell of fresh books and coffee floated through the air. As the industry grew you could also purchase music and movies at the book store.

This business model flourished, and it seemed indestructible. Even with the advent of digital media exchange, nobody believed that the book store would die. Now Borders is dead and Barnes & Noble is doing its best to evolve with the times. But either way, book sales are booming. This is disruption. (Read Jeff Jordan’s take on it here.)

So what happened? The Amazon Kindle happened, that’s what. More precisely, it was the digital reader that upset the bookstore apple cart. At first, E-readers were looked at as quirky fads. Nobody thought digital books publishing would cause such a revolution. People will always want paper books they argued. However, with the rise of E-books, not only has the bookstore industry gone sour, but the entire publishing industry is now running scared.

We see here one of the keys to disruption: a new market was not made; an old one was just disrupted. The E-reader didn’t change the fact that people wanted to read, but it changed how they read and how they shop for their reading material.

People still want to read books. However, a rapidly increasing number would rather order them online – or even better, get the book instantly on their E-reader. By definition, the disruption reaches far and wide. Now anyone with a computer can be an author, and some best sellers have cut out the big publishers all together. You can get great books online for $0.99 and some even for free. This is revolutionary; this is disruptive.

If we pay attention we can see the seeds of disruption for other industries in this tale. These industries either have already floundered or about to go belly up all due to similar disruptive force:

  • Music and Movie Industry sales/rentals, that is CDs and DVDs (see Harvard Business School’s post on the death of Blockbuster)
  • Magazine and Newspaper industry.

Mark Birch reads the writing on the wall this way:

“Like newspapers, most magazines will not survive the switch to mobile. It is not simply the conversation of print to digital mobile formats, but the very business model itself which will destroy these magazines.”

Heads In The Sand

Perhaps one of the hallmarks of disruption is the presence of an almost pathologic denial of things-to-come. When we consider the imminent demise of newspapers and magazines, why aren’t these industries reacting? Of course the real answer is, they are, but many are not reacting correctly. Instead of merely offering an online version of their article or newspaper, they have to embrace the digital environment and reinvent themselves. The at-risk industries have to become disruptive themselves in order to survive.

Would it be crazy for the New York Times to shut down their printing presses for good and go all-out digital? Perhaps not, and even the Times itself commented the high cost of running a print periodical. The Times states:

“Making a weekly newsmagazine has always been a tough racket. It takes a big staff working on punishing deadlines to aggregate the flurry of news, put some learned topspin on it and package it for readers. But that job now belongs to the Web and takes place in real time, not a week later.”

Here we find another truth to disruption: there has to be something to disrupt and it has to be big and resistant to change. Often times “big” and “resistant to change” are synonymous.

How High Do You Want To Aim?

Image by Antana via Flickr

Image by Antana via Flickr

We might be tempted to think that some sectors that are impervious to disruption. Well buckle up, because that is all about to change.

Even entities such as national currencies (read: the US dollar) are coming under attack from disruptive forces. In the wake of and during the financial crisis of 2007-2008, gold appeared as somewhat of a disrupter as panic sent people flocking to buy the precious metal. However, there is an even more ominous threat – or golden opportunity – that brings apocalyptic prophesies to life regarding a new world order.

Enter, Bitcoin. This digital currency was developed by a person that remains anonymous. It was initially dismissed as a fad, but as Jordan Cooper points out in his blog the value of Bitcoin just keeps going up and up.

As per the New Yorker, this is a potential disruptive force going up against not only the US currency, but against all currencies, commercial banks and central banks world-wide. Now that’s disruptive.

Conclusion

Disruptive businesses and technologies are not just new competitors. They are game changers. Disruptive forces transform business and even the global economies. They will change how we communicate, learn, store energy, travel, handle money, handle waste and even how we live and die. The next decade promises to see more disruptive developments than the entire past century combined.

In the following sections, we will analyze this phenomenon, sector by sector, and in the process establish common threads that can help us recognize and take advantage of disruption. We will also address specific sectors and businesses that have the greatest potential to produce the greatest disruptive opportunities in the near future. The role of government control is another factor we must consider seriously.

One universal common denominator worth mentioning now is that if a change puts more power and choice in the hands of the people – then it is almost guaranteed to become disruptive.

 

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