Many news stories these days are talking about the possibility of a looming recession wreaking havoc across the global economy, and it’s understandable for business leaders to be nervous about investing in infrastructure and services to grow their business. The tendency to restrict expenses to tried-and-true methods of generating revenue is perfectly understandable as a means of self-preservation, but it is also deeply misguided.
A company’s survival depends on its ability to maintain its current operations and expand into new markets. Stagnation is often the first sign that an organization is on track to decline in market share as customers become bored by its brand and move to competitors who are able to provide more value with their products or services than their predecessor. Typically, this is referred to as “disruption” in the business world, because incumbent organizations that dominate a market shrink or disappear entirely from the scene.
“Disruption” is hard to understand because of the multitude of ways it gets used in business circles. It’s often used as a bit of a buzzword, because it gives a vague impression of being innovative and no one knows how best to define it. To complicate things further, the term is used to describe problems in the economy that can lead to a recession (like supply chain disruptions), which provides a counterpoint to the positive connotation and creates a more ambivalent feeling for the term at best. On occasion, you might even find an eye roll when someone says it.
So, if disruption is often misused, what does it actually mean? And, perhaps more importantly, should it be something your business seeks out, even as fears of a looming recession pervade the economy?
First Things First: There are Many Kinds of Disruption
An article from the Harvard Business School Online defines disruption in terms of innovative strategies organizations can use to get ahead of the competition within a particular industry. Specifically, the article defines three kinds of innovation that can aid in disruption:
- Sustaining Innovation, where a company continues growing its product line to stay relevant.
- Low-end disruption, where a company enters a market and competes on the basis of price to establish itself before expanding.
- New market disruption, where a company looks for an underserved customer base within an existing market and caters to them to push established businesses into obsolescence.
Realistically, this is what successful companies are focused on when they think about disruption. Specifically, they talk about using the low-end and new market disruption strategies together as a means of first establishing a profitable business and then growing into a dominant player. An example of this strategy that’s often cited is how Netflix employed it to first challenge leaders in the movie rental industry like Blockbuster and then dominate it as a market leader.
One of the reasons this combination is so effective is that it enables a company to fly under the radar of major business leaders within a market segment. Blockbuster didn’t believe that there was a realistic threat to its position, because it adhered to the belief that people preferred copies of DVDs and video tapes to streaming the show or movie directly from the comfort of their own home, and it paid the price for its oversight. If Blockbuster had planned more for sustaining innovation and evaluated Netflix correctly, then it’s possible we’d still be able to find the blue membership cards outside of an antique shop.
However, this risk isn’t just for market leaders; any business within a market can lose its client base to a cheaper alternative, especially during a downturn. So, the question becomes: how can you predict who will be disruptive?
Answer: You Can’t, Because It’s Often a Surprise
If you had a chance to look in every pocket across the country, you’d be hard pressed to find a single one without a smartphone with an internet connection. The benefit of that is that everyone can access an immense amount of information within a handful of keystrokes; the downside is that it’s incredibly easy to share an opinion as fact.
Companies that are seen as “disruptive” can easily be found using a quick Google search, and maybe a handful of these are truly a threat to a given industry. However, what occurs more often is organizations labeled “disruptive” are doing something flashy that isn’t really innovative, and therefore doesn’t threaten the positions of incumbent business leaders.
An easy example of this was the idea of rideshare companies, which are often seen as a disruptor to the taxi industry. While they did steal some market share away from the incumbent taxi leaders, companies like Uber and Lyft didn’t replace taxi drivers on city streets, and no one currently projects that to change.
If you can’t accurately predict when a competitor is going to disrupt your market, the best thing to do is prepare yourself to be the disruptor. You can do this by outfitting your organization with the tools it needs to deliver products and services that can make a meaningful impact in the lives of your clients. The best part is that now may be the ideal time for you to make that investment.
Economic Downturns are a Good Time to Start Disrupting
Investing during an economic downturn to help you disrupt your industry sounds like a risky proposition, and it certainly can be if you don’t plan your investments carefully. One of the best ways to do this is to identify resources you already have at your disposal and aren’t fully utilizing, then ensuring you fully implement it as a resource. In many cases, you’ll be able to trim expenses from your organization’s bottom line by cancelling services that overlap with existing investments. You can also make investments in key infrastructure like wireless networks and cybersecurity infrastructure to ensure your organization can operate effectively and efficiently within your space.
Making these mundane investments can free up your employees to come up with novel ways of solving your clients’ problems, leading to sustaining innovation that can keep your business ahead of its competitors. Plus, as McKinsey points out, making these structural changes can lead to a more resilient business over time, which puts you in a more secure position in the long term.
Disruption is understandably something that many business leaders aren’t thinking about with the possibility of a recession so close on the horizon. However, failure to innovate and create opportunities to disrupt your industry leaves you vulnerable to attack by others who are looking to grow their market share and become the behemoth within your vertical.
You may not want to be the industry leader with the largest market share, but that doesn’t mean you shouldn’t look for opportunities to disrupt the competition by freeing up your team so they can focus on growing your business. The easiest way to free up your team is by investing in optimizing your organization. If your team is performing tasks that are critical to your business’s survival but doesn’t fall cleanly within the purview of your team’s skillset, then it’s worth considering automating or streamlining those services.
Even if your team can handle the tasks, it’s still worth taking a look at what services you’re using to ensure they’re being fully implemented. Realistically, many organizations make investments into new software and products that can be met by previous licensing agreements, leading to a bloated expense report and inefficiencies within your company, two things that no one can afford in a downturn.
If you take action now to set yourself up to be disruptive, then your business will see dividends in the long run. Even if the expected recession never materializes, then you’ll still have an organization that’s more agile, resilient, and innovative than those who decided to slash their expenses indiscriminately in the name of survival.