How to Defeat Disruptive Innovators Part ii by Market Strategy Group

Advisors to Management

TAKING THREATS SERIOUSLY 8/19/2013

How to Defeat Disruptive Innovators A SAMPLE THREAT ASSESSMENT PROCESS At Market Strategy Group, we advise executives to follow some customized version of the five step process described below in order to identify and react to disruptive threats. Customizing this to the style and complexity of your business is the art that separates an effective process from a taxing one. Keep your process effective but as simple as possible.

Step A: Scan for Disruptor Threats The identification of a potential disruption is the biggest challenge—and the point at which most companies usually fail. It’s challenging to recognize threats early enough to devise a strategy around them. Not only is it challenging to distinguish between real threats and illusory ones, but innovations can mature quickly. By the time you’re reading about them in the Wall Street Journal, it is probably too late.

TAKING THREATS SERIOUSLY

“By the time you’re reading about them in the Wall Street Journal, it is probably too late.” Tactics: • If you cannot identify 25 potential threats worth at least considering, look harder. • Employ a team to conduct opposition assessments —tasked with the idea of considering how to take you out and who might do it

Your scan should begin with the hypothesis that threats exist and work to prove that is not correct. Otherwise this will be a process that is self-satisfying but ineffective. The best processes have the right scope and scan in the hotspots of innovation that are most impactful on your business. Is important to set the proper scope for your scan as illustrated below. Look beyond today. Consider your core business first and foremost. But your company seeks to grow. Consider the adjacent and even new markets you may seek to pursue over time. Where you search for Disruptive Innovators greatly affects the Scan’s success. Too narrow a field ensures little will turn up. Too broad a scan boils the ocean. One area of investigation is the startup community and the capitalists that back these. Startups vary in maturity and only the most successful are immediately visible. However the most important start-ups are often those that have yet to gain widespread acceptance as the Next Big Thing. Although technological innovation exists everywhere, it is no secret that the best and brightest technologists still reside in Silicon Valley. That’s where the biggest thinkers are. Get inside their heads. However pharmaceutical innovations tend to concentrate in areas on a corridor from Minneapolis to Madison. Israel specializes in technology startups that can affect a number of industries. Don’t stop there. Other regions—including (but not limited to) Israel, the Boston area, and Austin—are also rich with technology startups. Make sure you don’t miss something because it’s not under your nose. Don’t stop at Startups. Consider Innovation and Entrepreneurship Centers at universities. Bump and Groupon both made stops at the University of Chicago’s Polsky Center for Innovation and Entrepreneurship. Cleversafe, mentioned earlier was incubated at the Illinois Institute of Technology. Finally consider moves of established companies. Had Sony seriously and creatively considered Apple as more than a computer company, things might have turned out differently.

TAKING THREATS SERIOUSLY

Step B: Evaluate each Threat –The Preliminaries Many companies go through the motions of this sort of competitive analysis, but still miss disruption because they fall into group think, or repeat their own conventional wisdom amongst themselves. At a minimum your assessment should consider:     

The importance of the threat Where and how the threat will affect your business, and Its immediacy and likely development trajectory. (Category 1, 2, and 3 in the above framework is a useful starting point) How well resourced the threat is. How impactful the threat will be to your business if it fully develops.

Group and prioritize threats as they appear today.

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TAKING THREATS SERIOUSLY

Step C: Shape a Strategic Posture – The Key to Success Assessing threats is only half the job. The important part of this work is to decide what to do about a threat. Once you’ve identified a threat, consider your response. Do you want to crush it? Co-opt it? Buy it? Here’s a hint: don’t be an ostrich, because the threat won’t go away just because you’re ignoring it. This is the Strategic Posture your organization will take for a given Disruptive Innovator.

As illustrated above, the strategic posture for a threat might be: Watch and wait: The threat is emerging but there is time to assess its ultimate importance to our business. Participate: Take an active position in the innovative threat – perhaps by investing in a competitor that poses it. Participation can take a range of forms:

Tactics Use Imagination: you need to envision a future where the disruptive competitor is mature. Assess side-by-side with the disruptive competitor: Examine disruptive competitors that will force you to change, not just those that will destroy you.

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Innovate organically developing an organic response to the threat blunting its impact.

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Invest in startups with emergent threat potential taking a minority position. You can learn and track often via a Board seat and further your investment as the market or solution progresses. Medical Device companies often take minority positions in new technology that if it develops and offers therapeutic value can be a game changer.

Make an outright acquisition to acquire the high threat competitor.

Just this summer: Google may be the unquestioned king of online mapping—but that didn’t keep it from spending $1.1 billion to acquire Waze, an Israeli start-up that combines mapping with social networking. Why? Waze’s crowd-sourcing approach updated users about traffic in real time, threatening Google’s dominant position. Now, not only won’t Waze knock Google from its perch, but potential rivals such as Facebook can’t have it, either.

TAKING THREATS SERIOUSLY

Fight. If the threat is not particularly attractive to your customers, design a counter-offer that emphasizes your strengths be they financial, experiential or otherwise, that negates or at least dilutes the value of the disruptor’s offer.

Apple’s iPhone disrupted the mobile phone market. Some like Motorola and Rim fought back but faltered. Samsung had the competencies and leadership to successfully take on Apple. In 2009 Samsung had only 4% of the Smartphone market. Today Samsung, the world’s most popular phone in units, has 33% to Apple’s 17%

Step D: Act There are far too many situations where a posture is selected but not acted upon. Sometimes this is beyond your control. And of course if your posture involves changes in your business, invention or investment that may take time. This is understandable.

It is advisable though to end the debate and act on your decision – even if that decision is to watch and wait. Know you have acted and monitor this initiative as you would any other.

Step E: Track and Adjust Tracking and creating a Threat Assessment Dashboard is a vital part of this capability. Monitor your assessments and track your posture. Conditions change and both assessments and the correct posture should be revisited and where appropriate readjusted. This is a learning process. Not every step you take when facing disruptive threats will – in hindsight – be what you would do next time. Review the actual results, learn from them and do better. Threats will never go away. But your ability to

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target the most serious threats and create a strategic posture that is sized properly to their potential impact should improve with experience.

CONCLUSION: WHAT TO DO RIGHT NOW Right now the most important step you can take is to make an accurate, honest assessment of your own position. •

Is your company in the habit of routinely assessing disruptive threats?

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How certain are you that your threat assessment work is sufficiently external in focus?

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How many disruptive threats are you seeing? If it’s less than 15 -20 think harder.

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Do you have a workable threat assessment capability that neither overworks nor ignores the topic?

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What does your Threat Assessment Dashboard say about the current status of threat tracking or actions taken?

Tips: • Benchmark other companies • Contact the authors to discuss your unique situation

Answer these questions honestly. Your corporate survival depends on it.

For more information, visit mkt-strat.com or contact Joel Krauss at joel.krauss@mkt-strat.com.