Editor's note: A version of this summary was provided by getAbstract.
Today’s market disrupters — startup companies that embrace digital technology — offer quality products at lower costs. Digital platforms allow these newcomers to market directly to consumers and to compete with legacy companies quickly. Incumbents can learn from the disrupters, however, by cultivating an organizational culture that encourages creativity and invests in future opportunities.
At the core of the late Clayton Christensen’s theory of disruption was the startup company that entered the market with a lower-quality product that appealed to a niche market segment. Today’s disrupters, however, take advantage of digital technologies and instantly market high-quality products that are comparable to those of legacy companies, targeting the same customers.
The economics and scale of digital technology today continue to change how organizations deliver products and services. YouTube, for example, makes it possible for startups to message millions of potential customers using cellphones, whereas in the past, companies needed to engage major media outlets to advertise. Digital speed, ubiquity, and interconnectivity level the playing field by removing the entry barriers.
The infrastructure built since the beginning of the 21st century enables a startup to enter a market quickly — for example, by procuring external resources, such as developers and servers, that once required considerable investment. Incumbents who cling to old rules and rely on the obsolete doctrine of competitive advantage fail to pivot to this new disruptive economy.
Several astute companies, however, have learned to balance their commitment to their core business with their investments in the future. Nike, McGrath notes, made small investments over the years by adopting disruptive technology and ultimately changed its business model. Where it once sold to about 40,000 retailers, it now primarily sells directly to consumers, retaining just a fraction of its former retail partners. Opportunities continue to present themselves, even in this uncertain economy. One company that normally produces shutters quickly pivoted and is now offering medical shields for ambulances.
Lack of leadership and governance inhibits incumbents’ abilities to segue into the digital business model. Many traditional companies fail to embrace a process or a culture that cultivates innovation. Such a culture needs to originate from senior leadership. When leaders emphasize operations over innovations, employees will optimize the day-to-day business. Where leaders prioritize understanding trends and learning about current challenges, they can foster an environment that encourages growth and creates safe spaces for workers to introduce and test disruptive ideas.
Disrupters and incumbents alike must deal with a state of uncertainty, yet base assumptions about the market remain consistent. Your customers’ “jobs to be done” — their core needs — don’t change. Businesses and individuals still want security and stable environments. Demand for skill development and learning will persist. The current pandemic crisis also presents an opportunity for creativity to rethink skill development, worker protections, and health care.
Takeaways from the session:
- Digital tools and platforms enable disrupters to offer high-quality, cost-effective products, thus challenging incumbent businesses.
- Digital speed, ubiquity, and interconnectivity level the playing field by removing entry barriers.
- Lack of leadership and governance inhibit incumbents’ abilities to segue into the digital business model.
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This content was originally published by MIT Sloan Management Review. Original publishers retain all rights. It appears here for a limited time before automated archiving. By MIT Sloan Management Review