A recent post over on the HBR blogs on the key to spotting disruption before it happens noted that executives have to look beyond revenue or basic market share data to determine whether or not a would be disruption [which would trigger rapid declines in their core business] is a legitimate threat. This is because, in the early days of a transformation — such as mail to e-mail and digital document delivery, or CD to digital (mp3) album downloads, or polaroid to digital cameras and home printers — market leaders tend not to feel deep pain. It’s only after the not-good-enough transformation, which starts away from the mainstream in a seemingly non-connected market, becomes more than a slowly rising-tide and reaches the tipping point where the big switch begins that a market leader starts to see the impact.
According to the article, the key is to spotting potential disruptions is to find the right metric(s) to measure your business against the seemingly disparate competitor. If your measure falls while the measure for the seemingly disparate business rises, then you may have a disruption. For example, the U.S. Postal Service could have foreseen the problems it faces today if it had measured it’s market share by way of “pieces of communication” and not revenue, as mail volume has sagged 17% since 2006; Digital Equipment Corp. could have seen the end of the mini-computer market had it measured units sold against the rising PC market; and Kodak could have seen the “big switch” coming much earlier had it measured number of pictures “developed” on its platform.
The article has a good point as good metrics can tell you when a big switch might be coming. However, I wouldn’t go so far as to say it’s the key to spotting a disruption.
First of all, the method can yield a false positive. Consider the example of the potential big switch in progress given by the author. Yes, television viewership might be declining while YouTube and other online channel viewership is rising, but this doesn’t mean that television viewership will drop significantly. It might, but not everyone has a computer yet. Not everyone has (sufficiently) high speed. And not all the content people want to watch is online. This last point is key. Furthermore, when you think about it, TV networks are in the content development and distribution business … and now that TV is digital, there’s really no difference between a TV and a computer monitor. As long as networks produce content people want to see, learn from their counterparts in the music industry, and adapt to deliver their content through the channels their viewers want to consume it, TV networks will do just fine.
Secondly, by the time the method identifies a disruption, it could be too late. Markets are evolving faster and faster and a new market can often emerge overnight. Take the “tablet PC” and “digital reader” markets. Over a dozen providers, including some big names like Sony and Toshiba, have been producing numerous offerings for these markets for years, but sales remained relatively flat overall until Apple launched the iPad, which broke both markets open by selling over a Million units in a little over a month. If you didn’t have a competitive product in development before its release, it’s too late.
Thirdly, and most importantly, it doesn’t tell you where to look. If you were producing e-Readers, you wouldn’t be watching the tablet PC market. If you were producing tablet PCs, you wouldn’t be watching the e-Reader market. Either way, if you misclassified the iPad, which crosses both markets, you wouldn’t see your market disappear to Apple literally overnight until it happened.
This brings us to the real key for spotting a disruption before it happens … and that is to define it in-house. Use scenario planning to identify what types of future technologies could shift the market out from under you and keep a watchful eye out for them. Then, if you can, partner to develop or take advantage of the new technologies as they emerge, so you can ride the wave upward as the wave you are currently riding crests, or start working on alternative product offerings to start a new wave. Every product has a life-span. The successful companies recognize this and are working on next generation products that will either replace their current products or complement the next generation products of their competition (that they do not have the in-house expertise to develop themselves). They are ready for the next wave and the “disruption” is just a natural transition from one market cycle to the next.