It is 89% sure that you have heard this sentence before: “Disruptions are coming to all industries”. This sentence is overused because it is also true.
While traditional competitors will compete with you based on pretty much the same stocks of know-how and skills, newcomers and tech giants have been leveraging technology and business model into a market changer. These players are converging market segments and blurring the lines that have long been set between industries and sectors.
What kind of company is Amazon? E-commerce (who acts as a massive big-box store and a personalized mom-and-pop store at the same time), B-2-B service provider (with its warehouses, packaging, shipping, advertising and checkout services), data and cloud server provider, book publisher, film producer, virtual assistant provider or device manufacturer?
Is there any way to predict whether your position is being threatened by these types of companies or other new entrants? In this article, we suggest a list of 5 signs to watch and analyse in order to foresee the tides of disruption.
#1 Your customers’ habits and preferences are changing
The emergence of the personal computer and cell phone in the 1990s and the smartphone in the 2000s are some of the drastic changes the business world has seen in recent decades. These major shifts have altered the habits and preferences of customers in all sectors.
In retail, consumers now demand a seamless experience, regardless of whether they’re buying online to pick-up in store or making a purchase in-store that will be delivered to their home.
In response, Walmart acquired delivery company Parcel, in large part so they could offer same-day delivery to customers in New York City, while Target’s acquisition of Shipt will allow the brand to offer same-day delivery and better compete with rivals like Amazon.
These changes will impact the customer journey and get other brands thinking about how to stay competitive and relevant in the transitioning retail space.
Changes like these in B-2-C sphere will, of course, affect the B-2-B one, when businesses now look for service providers and subcontractors who are able to offer new adaptive solutions.
In the publishing industry, the freemium business model – a pricing strategy by which a product or service is provided free of charge but not for additional “premium” features – has worked like a charm in generating revenue for publishers but also changed the habits of readers.
For example, the Economist reached 1.6 million digital subscriptions in 2014, which led way for the development of a daily news mobile application – Espresso and some new cloud-based systems. These cloud systems are centred on Zuora platform and Salesforce sales automation with plug-ins that allow the newspaper to provide new offers accordingly to the reading habitude and interest of each reader.
Your customers are changing, so is your business
If you have no trouble naming at least 3 changes in customers’ habit in your own industry, it’s time to think of a counter-attack strategy.
#2 Declining customer loyalty and declining annual revenue
As a consequence of changing preferences, customer loyalty will see a decline as customers look for alternative solutions in other products or services. This directly affects annual revenue – the one metric that shows you how well you are doing in your business.
In the financial services industry, while the core métier of these institutions remains the same (securing financial assets and facilitating financial transactions), experience is now the driving force of change.
Traditional established banks are feeling the pressure of competition from more agile, digitally-led or digital-only banks, such as Ally Bank, Atom, Monzo, Starling, N26, Resolut (the list goes on here) – which have adopted technologies to make their customer experiences seamless, intuitive, cost-saving and time-saving.
These online or app-only “challenger” banks are now gaining hundreds of millions of users/clients across the world, which pushes high-street banks to create their own mobile banks or seek similar solutions in order to not be left behind by the wave.
Likewise, have you seen this sign in your business in the last two years? Are you having trouble racing up to your targeted annual revenue this year?
#3 More venture investment in your industry
Venture capital is the money provided by investors to newcomers or small businesses who show potential for long-term growth.
More venture capital flowing into an industry means there are more new entrants and investors with the aim to take up shares of the current market or to create new markets.
Uber, Xiaomi, WeWork, Snapchat, Airbnb have been in the list of the most valuable venture-backed private companies, and each one of them has disrupted the industry it is not traditionally categorized in.
Airbnb and Uber are tech companies providing service platforms, but they compete traditional players in the taxi & hospitality industry.
Xiaomi, on the other hand, does not create a new market but take up shares of current markets. It is now the world’s fourth-largest smartphone maker, and India’s No 1 smartphone supplier in just 3 years and a half, through by its radical “tipping” business model strategy.
Within one minute, can you name at least 3 major ventures on new tech solutions in your industry? If yes, your industry is probably ripe for disruption in the mid/long-term.
#4 Pressure on profit margins
This happens when costs are rising somewhere along the supply chain (raw materials, transportation, wages etc.) and the market has been filled with competing firms offering similar products and services.
According to research by EY, the construction industry in the UK has suffered from low margins while trying to recover to the pre-financial crisis levels since 2008 (from 3.8% margin in 2007 to 2% in 2016). With the coming of Brexit’s aftermath, the industry is facing cost inflation (higher costs of key import materials and energy).
In that case, besides strategic partnerships and resource allocation, the exploration and implementation of innovative technologies (such as self-healing concrete, transparent aluminium, aerogel insulation etc.) or core system upgrade are game-changers.
Have you noticed recently the rising pressure on margin in your business? Have the common best practices been unable to solve the most critical bottlenecks? Have you seen newcomers succeeding with completely new practices?
#5 New entrants succeeding with a different business model
Beyond the simple definition that business model is how a firm makes money, the word describes the whole rationale of how an organisation creates, delivers, and captures value (be it economic, social, cultural, or other forms of value).
In the automobile industry, Tesla as a newcomer had to build a new luxury brand from scratch while evangelizing a new type of vehicle (electric all-the-way). Instead of setting up conventional distribution channels, Tesla has sold cars with, including but not limited to:
- no car dealers and commissioned salespeople – all transactions are conducted online where you can customise your car to near-perfection with extra features which adjusts your cost,
- no inventory – all models are built to order,
- no test drive – unless you put down a $5,000 deposit,
- with a network of supercharger station where Tesla owners can charge their car for free.
Tesla’s concept store – you can see, touch and ask questions, but cannot buy one or have a free test drive
This initial (yet not small) success of Tesla, along with hundreds of stories of radical new business model – Airbnb, Starbucks, or Lego proves the importance of radical business model and marketing strategy.
And you, have you seen several newcomers or even traditional competitors successfully implement new ways to deliver and capture values from customers in your industry? To what extent this affects your business? Is your business capable of undertaking the same transformation?
It is not easy to forecast future evolutions and their effects on your business due to biased and insufficient analytics. Signs like these work as alarms – giving you hints on how ripe your industry is to be disrupted. Yet when all of the 5 signs are crystal clear, it would be a little too late for your business to pivot.
To prepare for the future, firms ought to continuously acquire key capabilities to secure sustainable future competitive advantages.
At Stim, we call this process an innovation machine. This machine includes three elements:
- Innovation Strategy & Decision: defining ambition and objectives, building and piloting projects, evaluating innovation performance
- Exploration, Testing & Acceleration: designing and evaluating new solutions & offers, developing & implementing these solutions & offers
- Organisation & Resources: identifying & valorizing acquired know-how & capabilities, providing quick & easy access to necessary resources
These elements of the machine, along with the activities performed in each, need to be tuned efficiently to make sure firms stay innovative and secure its growth.
A precise forecast is almost impossible, unless your firm is prepared to create the future by yourself today.
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