the 4 stages of digital disruption: an incumbents's view
TRANSCRIPT
The four stages ofdigital disruption:an incumbent’s view
Chris Bradley
Stage 1 2 3 4Disruption is... Detectable Clear Inevitable New normal
Incumbents face four stages of disruption
Stage 1 2 3 4Disruption is... Detectable Clear Inevitable New normal
One: Faint signals and much noise
New business model
Time
Incumbent’s business model
Profit
Negligible impact
One: Faint signals and much noise
What’s requiredAcuity- Gather sharp and
privileged insight to work through the noise
- Challenge your own story
- View your business through a potential disrupter’s lens
Common barriersMyopia- Overconfidence- Willful ignorance (i.e.,
not looking for or wanting to see disruptive trends)
- Entrenchment in orthodoxy
One: An exampleFacebook invested heavily in mobile monetization before the mobile trend was clear
Facebook Acquisitions >$10m 2010-2014; US$m
Source:TechCrunch
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120 85 100 100 15 WhatsApp
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Mobile
Other
Stage 1 2 3 4Disruption is... Detectable Clear Inevitable New normal
New business model
Time
Incumbent’s business model
Profit
Negligible impact
Two: Change takes hold
Two: Change takes hold
What’s requiredAction- Develop a pipeline of
new initiatives with stage-gated investment approach
- Expose the core business to competition with the new ventures
- If needed, begin transformation of the core business
Common barriersPain avoidance- Reluctance to endure pain of
upfront cost- Unwillingness to cannibalize
the core business- Putting short-term results
ahead of long-term value
Two: An exampleSchibsted exposed its traditional business to competition from online classifieds
Market Cap Index; 1995 = 100
1 Daily Mail & General Trust, Fairfax Media, McClatchy Company, New York TimesSource: Datastream , Axel Springer, Schibsted, BusinessInsider.com.au
0
100
200
300
400
500
600
700
800
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1,000
Representative index of newspaper publishers1
Stage 1 2 3 4Disruption is... Detectable Clear Inevitable New normal
New business model
Time
Incumbent’s business model
Profit
Negligible impact
Three: The inevitable transformation
Three: The inevitable transformation
What’s requiredAcceleration- Shift resources (including
management focus) from core business to double down on new ventures
- Build a coalition of believers to change mindsets across the organization
Common barriersInertia- Old centers of power lock in
increasingly scarce resources
- Legacy cost base becomes an anchor
- New initiatives get lip service but little actual commitment
Three: An exampleNetflix transformed its business model twice
Evolution of Share Price1; US$ per share
1 Daily Mail & General Trust, Fairfax Media, McClatchy Company, New York TimesSource: Datastream , Axel Springer, Schibsted, BusinessInsider.com.au
Mid-2011:Disrupt offering
Netflix forces subscribers to choose either streaming
or ‘original’ DVD-by-mail
0
100
200
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2012:“Valley of death”
Share price falls by >80% and analysts write off Netflix as a ‘broken’
business model
2013:Produce contentNetflix continues to increase original content production
Disrupted business model
2007:Identify upcoming disruptionNetflix adds streaming, available at no cost
Jan ‘07 Jan ‘08 Jan ‘09 Jan ‘10 Jan ‘11 Jan ‘12 Jan ‘13 Jan ‘14 Jan ‘15 Jan ‘16
Stage 1 2 3 4Disruption is... Detectable Clear Inevitable New normal
New business model
Time
Incumbent’s business model
Profit
Negligible impact
Four: Adapting to the new normal
Four: Adapting to the new normal
What’s requiredAdaptation- Develop talent and
capabilities required to compete in the new model
- Structurally realign the cost base to match the new profit pools
- Evaluate ‘best owner’ scenarios
Common barriersFit- Lack of people or
capabilities to compete in the new world
- Likelihood that you’re too late to the game
- Unwillingness to make tough ownership decisions
- Possibility that the industry is no longer profitable
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