Strategic Objectives for Success: Driving Market Disruption
No matter your strategic objectives, market disruption is a brutal fact of life for many middle market companies. Everywhere are the corpses of once-triumphant corporate behemoths who have fallen victim to disruptive innovation. Rochester-based Kodak, once the world's largest producers of film, decided not to pursue the market-revolutionizing digital camera while its competitors did. In the end, Kodak's film business would be disrupted and the company would file for Bankruptcy. Having strategic objectives is fine, but be prepared for disruption - and try to lead it.
Middle market companies should be driving disruption. This is not limited to technological innovation, according to the pioneer of disruption theory, Harvard Business School Professor Clay Christensen. Disruption is about serving customer needs that are going unmet. For example, the growth of the Internet created new opportunities for people to use online search capability to collect information about local restaurants, auto repair shops, and an array of local service providers. Users benefited by avoiding the cumbersome, clunky Yellow Pages. But it wasn't until San Francisco-based middle market company Yelp arrived in 2004 that all this information was made accessible on a single, easily searchable website. Yelp has rendered the Yellow Pages almost irrelevant by offering added-value information such as customer ratings to local, online directories.
In another instance of innovative disruption, Salesforce.com, a software company in the customer relationship management space, created a disruptive innovation related to the problem of multiple databases containing an enterprise's customer data. By placing all this customer data on the cloud, Salesforce enabled companies to easily access customer data in one place, thus eliminating traditional data silos. Salesforce, once a middle market company, is now a booming, multibillion dollar entity that continues to drive disruptive innovation.
Serving the unmet needs of your customers is not always about adding more quality or more functionality. It's about giving customers exactly what they need. As innovation and strategy consulting firm Innosight, co-founded by Clay Christensen, explained in its Disruptive Innovation Primer, companies can "creat[e] new markets or reshap[e] existing markets by delivering relatively simple, convenient, low-cost innovations to a set of customers ignored by other industry leaders." As market leaders develop strategy to move up the value chain, they run the risk of overshooting the needs of less-demanding customers, thus creating opportunities for middle market market disruptors like you.
Here are five steps you should be taking right now to disrupt markets:
- Understand what disruption is. It is not about products, but fulfilling customer needs. Innosight's report examined Dow Corning, which had traditionally sold silicone and silicone-based products to large B2B customers while ignoring smaller businesses. Dow Corning changed its strategic objectives when it created an online sales channel called Xiameter that standardized contract conditions and automatized ordering for smaller B2B customers it hadn't previously served. And it worked: "[p]rior to Xiameter, the company had no online sales, but now 30 percent of its sales are online...[and] as these new customers have grown their businesses, they have become eager users of Dow Corning's high-end offerings, creating a new source of high-margin customers." Dow Corning didn't wait for competitors to disrupt its market. It drove disruption.
- Take a long, granular look at the market you serve and try to determine if there's a gap between what customers want and what they need. This gap doesn't necessarily mean customers want more quality or functionality, but could mean companies are offering more quality (and at higher prices) than customers require. This is a gap, too, and may allow you to simplify products, reduce prices, and eventually grow your revenues. Middle market companies are especially good at customizing their offerings. Don't just look at products, either. Widen your focus to examine customers' unmet needs. Your strategic objectives should include constantly developing products that meet these needs.
- Know that disruption can be about simplicity on the low end as well as complexity at the high end, so invest time considering the unmet needs of low-end customers, who your competitors may be ignoring. These customers may not want additional functionality. Companies such as TracFone, which targets its cellphone service to new immigrants and senior citizens at a lower price, have boomed recently by meeting low-end market needs that their bigger rivals have largely ignored or overshot. Remember, innovation means providing something new that customers want. New is not always whizbang technology.
- Develop dynamic, adaptable strategic objectives that take into account changing customer behavior rather than static ones that focus on making continual improvement to existing products. Market disruption is increasingly the new normal, and you need to be agile enough in your strategic objectives to align with fast-changing customer needs. Middle market companies, with their greater agility, have an advantage here over larger rivals. Do not obsess about maintaining your profit margins. Often, increasing your volumes at the low end, even with smaller margins, can be a great business, as companies like TracFone have shown.
- Don't protect your market share; meet your customer's needs. Kodak, for instance, failed to see how digital photography better met the needs of its customers than film cameras. If there is one brutal fact Kodak learned that savvy businesses must never ignore, it's if you don't offer great solutions to your customer's problems and meet their evolving needs, your competitors will. You'll end up the victim of disruptive innovation - not the beneficiary of it. Nobody can defend "against" market disruption. Either you drive it, or it will drive you out of business.
Boston-based Chuck Leddy is an NCMM contributor and freelance reporter who contributes regularly to The Boston Globe and Harvard Gazette. He also trains Fortune 500 executives in business-communication skills as an instructor for EF Education. Circle him on Google+