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Another factor attuning companies to the power of disruption is the search for profits in developing economies. Winning in emerging markets often requires lower prices and different business models—two hallmarks of disruption.

In the General Electric example, the medical-equipment division charged local teams with developing ultrasound devices to sell in rural India and China. GE followed a classically disruptive approach. It developed a stripped-down, low-cost version of its established technology, created a new distribution channel, and arranged for local financing to help get the devices into the hands of rural practitioners. These breakthrough strategies have helped GE boost growth in emerging markets.

Among incumbent companies that have benefited from disruption, we see three patterns repeat. Generally speaking, they maximize their chances of success by:

1.      Pushing beyond core competencies. Over the past decade has created new businesses in retailing, e-readers, and cloud computing. When we asked CEO Jeff Bezos how he did it, he said, “If you want to really continually revitalize the service you provide the customer, you can’t stop at ‘What are we good at?’ You have to ask, ‘What do our customers need and want?’ And no matter how hard it is, you better get good at those things.” Pushing boundaries helps companies spot disruptive signals early—especially if they pay attention to new competitors who serve customers that were previously ignored.

2.      Embracing business-model innovation. Driving disruption requires moving beyond purely technological innovation to consider new ways of creating, capturing, and delivering value. The clearest example of this is Apple, whose market capitalization has soared from $3 billion a decade ago to around $340 billion today. Sure, it has introduced new computing devices, but central to its success have been iTunes, the App Store, new pricing models, and innovative retail stores.

3.      Managing the old and the new differently. Over the last decade IBM’s Emerging Business Opportunities (EBO) program has helped the company succeed in new markets like blade servers and networked data storage. One key is not judging new technology solely on its potential financial return. Instead, IBM evaluates the success of its EBO teams primarily according to whether managers learn from early failure and make adjustments in response.

The surge in incumbent-led disruption means different things to different people. If you’re an entrepreneur and your strategy assumes that the market-leading incumbent will ignore you, you ought to rethink your business plan. The evidence suggests that incumbents are waking up and recognizing that they can’t cede markets to new entrants. Perhaps a generation ago General Motors or Nissan would have ignored upstart electric-vehicle makers like Tesla. Today’s titans are responding aggressively. Tesla has smartly sought to license key parts of its technology to market leaders like Toyota. Entrepreneurs who are dead set on defeating market leaders should consider novel ways to work with them instead.

If you are a senior executive inside a large company, make sure you are thinking about ways to drive new disruptive growth. The next time you and your colleagues talk about strategy, ask yourself how many projects you are working on that have the power to create new markets or disrupt and reframe existing ones. If your coworkers all look at each other blankly, your growth strategy is insufficient. Over time, there’s no escaping it: if you don’t disrupt others, you can be sure that either new or old competitors will destroy you.

Scott D. Anthony is managing director of Innosight Asia-Pacific and the author of The Little Black Book of Innovation (Harvard Business Press, 2012). Clayton M. Christensen is cofounder of Innosight and a professor at Harvard Business School.

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Credit: Innosight

Tagged: Business, Business Impact, Xerox

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