To disrupt or to be disrupted, that is the question!

When thinking of disruption, an old saying comes to mind: You can run but you cannot hide! 

Today, no industry is protected from being disrupted. The transportation industry is disrupted by Uber, the hospitality industry by Airbnb, the retail industry by Amazon, and the education industry by MOOC-suppliers like Courcera.

Uber became a threat to the transportation industry by taking advantage of the advances in smartphones, GPS sensors, and networks. Airbnb did the same to hotels by using these advancing technologies to connect people with lodging. Netflix’s ability to use internet connectivity put Blockbuster out of business. Facebook’s WhatsApp and Microsoft’s Skype helped decimate the costs of texting and roaming, causing an estimated USD386 billion loss to telecommunications companies from 2012 to 2018.

In all cases the combination of creative use of technology and new business models have not only provided lower transaction costs but a better market offering. The problem for incumbents in general and market leaders specifically, is that they are not prepared for disruption and are often in denial. The result is that they are caught off guard and too often respond to little too late.

Today the mantra is not that big firms eat small firms but rather that fast firms eat slower firms. From this we can learn that incumbents must become more agile. But they are struggling for at least three reasons. 

1. Because they have succeeded in the past, business managers believe that they can succeed in the future, that old business models can support new products.
2. Large companies are usually following Alfred D. Chandler’s M-model, i.e. organized into divisions and functional silos, each with its own product development, sales, marketing, customer support and finance functions. Each division acts from self-interest and focuses on its own success; within a fortress that protects its ideas, it has its own leadership and culture.
3. Employees focus on the problems of their own divisions or departments — not on those of the company. Too often, the divisions of a company consider their competitors to be the company’s other divisions; they can’t envisage new industries or see the threat from other industries. 

An excellent case in mind is Amazon taking over the faltering grocery giant Whole Food (USD 13.4 billion) which is stuck in its existing silo-oriented business model with employees and managers who defined other grocery chains as competition. 

To better understand what is going on and how to respond, we are, at Center for Service Innovation, in the process of developing a new research agenda pertaining to disruptive technology-driven down-stream innovations in a service ecosystem. Innovations in a value-network is elegantly described in the best-seller book “Co-opetition” (Brandenburg and Nalebuff 1997). 

Co-opetition is defined as the degree of cooperation between competing companies; businesses that engage in both competition and cooperation. Certain businesses gain an advantage by using a judicious mixture of cooperation with suppliers, customers and firms producing complementary or related products.

Our point of departure is that organizations who create value by working with supplementing companies who provide innovation energy a) to the firm’s suppliers, b) to the focal firm, or c) to the focal firm’s customers, will be more agile and possess a stronger innovation force than firms working alone. In short: we see innovations in a service ecosystem as a way for managers to disrupt rather than being disrupted.