The seven principles of self-disruption that any established brand needs
What self-disruption looks like for incumbent businesses – and how to make it happen
March 22, 2019
One of the greatest challenges in business is for established sector leaders to find the ability to disrupt themselves. On Thursday last week, I was thrilled to host an event with Kantar at LinkedIn’s London offices that brought together innovators and business leaders from across different sectors, to debate whether it’s possible.
When the Harvard professor Clayton Christensen coined the term ‘disruption’, and popularised it in his classic book The Innovator’s Dilemma, it seemed almost impossible to imagine an established business mastering the art of self-disruption. Christensen’s great insight was that it’s not a new technology that disrupts – it’s the business models that challengers build around it. Incumbents struggle to innovate those new business models for themselves, because they would distract from what their existing customers expect. It’s only when a challenger business model grows to the point when it hits the mainstream that those existing customers suddenly shift their expectations – and at that point, it’s too late for the one-time established leader to do anything about it.
We opened our discussions with a quote from Christensen (courtesy of a great opening keynote from my LinkedIn colleague Bian Salins) about the inevitability of challengers rising to disrupt market leaders. We then spent most of the rest of our evening finding evidence to try to prove him wrong: to show that established businesses today can self-disrupt.
Self-disruption is still far from easy. However, there is growing evidence that it’s possible – and that it’s essential. Incumbents can’t afford to just wait for the inevitable disruptive challenger to come along.
According to Kantar UK’s Managing Director Jane Bloomfield, only 6% of the world’s most established brands succeeded in growing their financial value significantly over the last three years. However, that same three-year period is all the time that Amazon needed to launch Alexa, buy Whole Foods, launch its first bookstore – and double its brand value. We can already see a major distinction between those few established businesses that have been able to embed self-disruption within their DNA, and the many that are still seeking ways to do so. The question is – how can it be achieved? What are the principles of the art of self-disruption?
Here’s my take:
1. A re-imagining of creativity
Omobono’s global head of strategy, Jonathon Palmer gave an insightful presentation arguing that a new approach to creativity is essential for businesses looking to self-disrupt. Encouraging diversity of both background and thinking is essential for making this possible. However, it also depends on what Jonathon calls, “viral strategy.” This is a strategic vision for the business that can be reduced down to astonishingly simple terms and enables high-velocity decision-making at the edges of an organisation, where disruptive innovation around the needs of niche markets is most likely to happen. Jonathon used the example of Admiral Nelson banning complicated semaphore messages during battles – and instead instructing his ships’ commanders to focus on one thing: getting as close as possible to the enemy. He also highlighted the online retailer AO.com for a customer strategy that simply boils down to, “treat every customer like she’s your gran.”
2. Purposeful challenge that actively seeks out unmet needs
Jessica Kirby of the agency Archetype argued that businesses can be both incumbents and challengers, provided they are focused on identifying weaknesses in their offering and evolving them. I’d add that the type of weaknesses they choose to focus on makes a difference. It’s one thing to refine your offering by finding something about what you do that can be improved. Clayton Christensen described this as “sustaining innovation”. It’s another to identify unmet needs among niche markets that you might not have to meet to make a profit – but which could evolve what you do in a truly disruptive way. Established businesses can almost always drive the most growth by optimising what they already do. But to be disruptive, they need to challenge the scope of what they do as well.
3. Assessing the brand value of innovation
The big challenge with self-disruption is that it seems to make no commercial sense – until it’s too late. Disruptive business models spring up outside of an incumbent’s core market, and their customers show little or no interest in them until their growth rate starts to shoot up exponentially. Then they jump ship quickly. The big challenge for established businesses is finding a way to value innovation on the periphery in a way that justifies investing in it.
RBS Brand Marketing Director, Emma Isaac, spoke about a potential solution – and a critical change that’s taken place since Christensen first published his book. Among today’s consumers, the perception of innovation has a value beyond the innovation itself. Disruption is aspirational – it’s something that people want to be associated with. She pointed out that, according to Kantar’s BrandZ ranking of the Top 100 Most Valuable Global Brands, brands that are perceived to be innovative by consumers grow 9x faster than those seen as less innovative. If businesses can find a way to measure the brand value benefits, and work them into their financial planning, it could help investment in innovation add up.
4. Exploiting the technological horsepower now available
In one important sense, disruptive innovation today has to involve far less risk and investment that it did even a few short years ago. Microsoft Services’ Chief Technology Officer, Richard Potter pointed out that the cloud enables businesses of all sizes to access massive computing power that’s inherently future-proofed, cutting out the risk of investing in technology that will become obsolete. The cloud enables companies to “innovate with guardrails”, without betting the business on the outcome.
On the one hand, this is great news for start-ups – because it removes many of the remaining barriers to developing disruptive business models. Potter argued that it needs to be great news for incumbents too. They have to develop a cadence for innovation that takes advantage of the low costs now involved. They should measure success, he argued, less by the what they actually build but by the amount of ideas that they experiment with and throw away. That’s what keeps them in touch with the potential for disruption on the edges of their business models.
5. Partnership with a growth mindset
Richard Potter and Jane Bloomfield both spoke about the importance of partnership in enabling incumbents to build disruptive offerings outside of their core business. McDonalds partnering with Uber Eats to enable food deliveries is a great example. The challenge for a market leading business often comes down to approaching these partnerships with the right mindset. They have to be ready to ignore the hierarchy of market value and approach those they can potentially learn from with a degree of humility. This applies just as much when the partners are as big or bigger than you are. Potter spoke about Microsoft partnering with Amazon and Adobe on technologies such as virtual assistants. He pointed out that a cultural shift to a growth mindset at big established businesses is often an essential for making collaboration possible.
6. Playing to existing strengths
As many of these points show, the existing strengths of an incumbent’s business model can turn into constraints when it comes to the art of self-disruption. However, it’s important to realise that being an established business brings advantages too – and it’s vital to know how to leverage them effectively. SAP’s Global Head of Innovation Service, Maggie Buggie highlighted two types of previous investments that incumbents should be focusing on: investments in technology that can power new business models, and the long-running investment in culture, values and employer brand that can give them access to the most diverse and creative thinkers. She argued that this gives established businesses an authenticity and sense of genuine purpose that start-ups can’t easily compete with.
7. A humanised brand to provide support
Disruptive innovation involves experimenting with new experiences and business models that won’t necessarily make sense to your existing customers when you first develop them. Jessica Kirby argued that it’s important to develop the kind of brand that can provide coverage and support when these experiments hit the wrong note. A humanised brand that customers trust and identify with is an essential foundation before embarking on a self-disruption strategy. Having business leaders that are happy to stand up, explain the strategy and admit to mistakes helps too. After all, the journey towards disruption is one that, sooner or later, your customers need to take with you.