When new tech-driven players start eating away at your business from all sides, the answer is more complicated than “adapt or die.” You need to apply a “disrupt from within” approach to your business before competition forces you to. But it is important to understand or least notice that you are being disrupt and try to act first.
The Wall Street Journal published a report last July on “The Angst of the Endangered CEO: How Much Time Do I Have?” It examined why 20 Fortune 500 CEOs departed from their companies in the first half of 2017. Of the 20 CEOs, 12 left because of “industry upheaval,” including new technologies and rival upstarts. They couldn’t figure out how to transform their business and innovate to overcome upheaval in their industry.
Don’t be one of those CEOs. Here are four models of internal disruption that offer a smarter way forward:
- The redirect
This first model may be the riskiest, and it requires significant capital, something a struggling company might not have. Even with the capital, success depends on effectively redirecting it into the right digital transformation strategy.
A prime example of the redirect in action is Macy’s, a veteran player in one of the most severely disrupted spaces, retail. Few big retailers have weathered the ecommerce storm gracefully, but some have managed to change strategy and move investment aggressively from brick-and-mortar to digital. By the end of 2018, Macy’s will have 25 percent fewer locations than in 2014, a drastic move showing it has what Bloomberg described as “the firmest grasp of just how existential the digital threat is.”
In January 2017, Macy’s announced that its ongoing restructuring plan — involving store closures and the layoff of 10,000 employees — would save it roughly $550 million. Macy’s claimed its devoting $250 million of that to digital strategies, adding it to savings from earlier initiatives.
2. The self-compete
The second model means you launch a wholly owned, separate company that takes an agile startup perspective and recruits fresh talent to tackle the same industry or market in which you’re losing ground to new competitors. New products and technologies can then incubate outside your existing corporate culture and structure.
This model has been adopted successfully by ADP, the industry-leading provider of payroll software. ADP founded Lifion to have the startup mentality crucial to competing with VC-backed entrants such as ZenPayroll (now rebranded as Gusto). Lifion’s separate development environment focuses on faster innovation and delivery to market. Its offices are in New York, India and California, where it’s easier to attract startup talent than near ADP’s headquarters in suburban New Jersey.
With Lifion, ADP became its own competitor, hoping that having two companies with different approaches to the human capital management space will give it broader market penetration.
3. The DNA merger
As John Oliver — yes, the comedian — pointed out in his story on corporate consolidation, mergers and acquisitions have been on the rise for years.
The No. 1 factor in determining the success of a merger or acquisition is effective integration of the acquired company’s products and technology into the parent company. One approach is to embed the new company’s intellectual property and technology into your company’s DNA, as you steer straight into the disruption around you.
The biggest con to this approach is a practical one. Integrating technologies into your existing infrastructure is always complicated, and sometimes it requires abandoning investments in current in-house development projects.
Conversely, the DNA merger can be one of the most effective ways of absorbing competitors before they disrupt your business any further. But, due diligence is critical: Before you merge with or acquire another entity, be sure its “chromosomes” are complementary to yours, shoring up your weaknesses without duplicating your strengths.
Under Armour is a solid example of this approach. Beginning as a manufacturer of innovative fitness apparel, the company introduced a wearable biometric device and associated mobile app for tracking the data in 2013. Realizing that competition in the crowded connected fitness market was based on building communities of users, the company rapidly acquired three fitness app businesses for a total of $710 million, gaining not only technology but millions of registered users. The user community on its Connected Fitness platform has since grown from 120 million to 200 million.
4. The spin out
Let’s say your company has been in a rock-solid industry for more than a century when an entirely new digital revenue stream suggests itself. Do you divert resources from your bread-and-butter business to fund the new enterprise? No. Instead, spin out the new venture and let it blossom independently of the core business.
In 2015, Major League Baseball (MLB) decided to stop paying a third-party digital service to broadcast its games. Instead, MLB created its own service, BAMTech, to stream games directly to consumers.
BAMTech was so successful that MLB spun it off as a separate company, attracting new investors like Disney. BAMTech is now valued at $3.75 billion and Disney owns a 75 percent stake. Forbes referred to it as “the biggest media company you’ve never heard of.” BAMTech technology not only powers MLB’s sites but many unaffiliated sites as well, including HBO Now, the NHL and even the WWE Network.
The examples I’ve discussed show how the four models for self-disruption can succeed. No matter how widespread the digital challenges and market pressure you’re facing, what you need is a smart allocation of resources and the vision to embrace change. After that, it’s all about execution. Let the disruption begin or has it already started for you?
Check out my related post: How will blockchain affect human resources?