Instead of giving in to fear and dread, writes Scott Thomson, leading companies embrace and sponsor disruption, whether it comes from above, below… or within.

 

It can be unpleasant, damaging and can come from anywhere – top down, bottom up or even laterally – but the one thing disruption always does is change businesses. And once you understand how it happens, it presents as a major opportunity for those who are ready to embrace it.

 

1. Top-down disruption

When disruption comes from the top down, it’s often sparked by a large player deciding to take on an existing competitor or move into a new space and undercut the market. Often, a company will use the assets of a successful line of business to support the new venture, working to a five- to 15-year plan to claim significant market share or even drive a competitor out of business through cutthroat pricing.

Good examples of this include the introduction of supermarkets offering fuel discount vouchers, the launch of Amazon’s cloud services business or Google offering free email services off the back of search revenue. Top down disruption can also be thought of as adjacent or sponsored disruption.

 

2. Bottom-up disruption

A bottom up approach looks more like the poster for Jaws, the original shark horror movie. It happens when a competitor moves to cannibalise a well-understood cost model by providing a stable, profitable, lower-cost operational model for a similar line of business.

A good example of this occurred in the airline industry, which was shaken by the arrival of Ryan Air, Virgin and the defensive Jetstar play. Other examples are price comparison or search arbitrage businesses such as iSelect, Compare the Market or Rate City entering the market. Bottom up disruption may also be thought of as competitive or commoditisation disruption, and is often described as a race to the bottom environment.

 

3. Lateral disruption

By far the most dangerous form of disruption is a lateral disruption or innovative disruption. This involves the dawn of new technologies, business processes or organisational structures with the power to make certain operational aspects of a business obsolete or no longer competitive.

Consider Walmart’s innovations in supply chain management in the discount super store market, the disruption of Kodak by digital photography and photo sharing, and Google’s global disruption of local directory businesses with investments in search engines. In other examples, we have seen Airbnb’s assault on the hotel industry or Uber’s impact on the taxi market by democratising under-utilised labour in the marketplace.

Start-up businesses tend to fall into the category of lateral or innovative disruptors as they are often formed to experiment on the scalability of theoretical new business processes or new technologies.

 

Disruption unhinges operational models

By far the most interesting type of disruption is lateral or innovative disruption – the kind that typically hinges on the operational models of businesses and, sometimes, entire industries.

While the first two models may be countered by investment, acquisition or efficiency improvements, to successfully counter lateral or innovative disruption, a company may need to completely transform itself.

Disruption brought about by new technologies will require training staff in new skills and approaches. Disruption as a result of new business processes can demand the creation of entirely new competitive business units or other forms of transformation and change management programs.

Either way, successfully navigating such disruption requires new thought leaders. It takes people who

are proficient in technologies and processes and can execute sometimes significant transformational change management programs with existing staff as well as new graduates who are more familiar with the disruption environment, or flexible enough to adopt radical new processes and technologies.

In cases where disruption is being caused by a competitor in start-up mode, it may be necessary to adopt similar practices to keep in step, such as using lean business principles, developing a quick hypothesis, testing it and, based on success or failure, repeating the cycle again. It’s an approach more typically applied by new business units or even incubator environments, as it prevents disruption to more established parts of the business and allows greater freedom and innovation.

 

Disruption in digital marketing

Let’s consider digital marketing, which has undergone a lateral or innovative disruption over the last five to 10 years. Processes and technologies underlying marketing have changed and the leadership, staff skills and technology needed to navigate this shift have altered radically.

Harvard Business Review claims that, with the possible exception of the IT industry, no other industry has faced as much disruption as marketing in the last five years. Furthermore, it is exactly these two disciplines – marketing and technology – that most need to collaborate to meet

this challenge. And it’s a challenge that applies to both new technology and new business processes. And if they cannot collaborate, then new leaders such as chief digital officers and chief experience officers may be brought in to manage the change for them.

The plight of the CMO and CIO in the current environment of disruption in marketing is a great example of how existing leaders, structures and businesses can struggle to adapt and change to meet the challenges of new technologies and new processes.

I have had the misfortune to work in companies that struggled so much with transformation and change management brought on by disruption that they viewed their only viable option as cutting their losses and

bowing out of the race. It is sad to think that one decade of leadership unable to deal with disruption was enough to end industries/companies like Kodak, Yellow Pages directories and postal services that had thrived for more than a century. Perhaps there is an element of inevitability about the demise of these industries, but I personally longed to see a leader step up who might ‘rage against the dying of the light’ and bring good people and good teams through such challenges with hope and vision, to a place of future stability.

Other companies and industries seem to struggle less with disruption. Take my current employer, Adobe, for example. Adobe has managed to constantly reinvent itself since the very beginning. Founded in 1982 on the back of a printer language, Adobe has successfully transformed multiple times. From printer languages to digital fonts licensed to Apple and Microsoft; from digital fonts to consumer creative boxed software; from consumer boxed software to consumer and enterprise digital subscription sales; and from leadership in creative solutions to leadership in creative and marketing solutions.

A culture of innovation and a willingness to embrace new approaches has played a critical role in this successful transformation.

 

A final word

Disruption is difficult. It is the preeminent challenge of business leadership today. But instead of being feared and dreaded, disruption should be embraced and sponsored by leading companies.

In the words of Apple CEO Tim Cook, “Our basic belief is, if we don’t cannibalise, someone else will.” Leading companies take up the challenge. They innovate. They experiment. They fail and they try again. In doing so, leading companies create the leaders of the future and they define to a greater extent what that future will be. Do not go gentle into that good night.

 

Scott Thomson is senior manager, industry strategy APAC, at Adobe

 

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