March 5, 2018 | Written by: Carl Nordman
Categorized: Institute for Business Value
Business cycles are a given. They are driven by the gravitational forces of innovative disruption, regulatory changes and competitive dissonance. The speed of technology innovation has accelerated the speed of business cycle changes.
Two years ago, C-suite executives told us they were worried about disruption from digital upstarts. Companies like Uber and Airbnb were shaking up industries, and traditional companies were scrambling to come up with new strategies to compete. In fact, 54 percent of the CxOs the IBM Institute for Business Value surveyed for our 2015 Global C-suite Study said outside competitors were flooding their industries.
Today, CxOs are telling a different story. The new C-suite Study reveals that only 26 percent of surveyed executives say they’re being threatened by outside competitors.
So what happened to disruption?
Disruption hasn’t disappeared. Instead, industry incumbents are embracing it and striking back. The evolution is evident: 72 percent of surveyed CxOs say industry incumbents are leading disruption, beating digital giants and startups at their own game.
How are incumbents flipping the script? Here’s what we discovered:
Incumbents are acquiring the digital upstarts that challenged them
If you can’t beat them, why not acquire them? Many traditional companies have purchased or invested in the upstarts that disrupted them. For example, Unilever, which manufactures razors and shaving accessories, among other things, acquired Dollar Shave Club. Walmart bought platform retailer jet.com, and UPS scooped up Coyote, the trucking equivalent of Uber. The benefit of these acquisitions stretched beyond eliminating competition. Traditional companies also got an inside look at the innovative thinking that fueled the disruptors’ success.
Incumbents are honing their skills to compete in the age of digital disruption
Disruption has forced traditional companies to get smarter about competing in the digital age. Leading organizations are leveraging their relationships and assets to digitally reinvent themselves and orchestrate new advantages in this dynamic business environment. Many are focusing more intently on building and improving digital customer experience. Healthcare provider Kaiser Permanente, for example, reports 52 percent of its annual 110 million patient-physician interactions are now online or mobile. Companies that continue to digitally reinvent themselves likely will grow stronger and be better prepared to handle change in the future.
Incumbents are exploring platform business models
Platform business models enabled digital giants to start a wave of disruption a few years ago. Now, incumbents are exploring such models.
Forty-six percent of surveyed CxOs are investing in or considering a platform business model. Why? Companies that embrace platform business models tend to dominate their market segments and improve their ability to scale in new ones. Platform business models can help companies create new value and revenue streams. And companies farthest along in building or operating platform business models show gains in innovation and collaboration, driven by a richness of data and closer contact with customers and partners.
Platform business models are expected to continue to play a critical role in the future of business innovation. Interestingly, 57 percent of surveyed CxOs with a declared strategy to disrupt say they are building or operating platform business models. If your organization hasn’t started exploring a platform business model, you might be falling behind the innovation curve. Will your organization own or participate in a platform, or do both? It’s a decision you need to make now.
Disruption is not over. Competitive advantage is transitory. Innovation drives business cycles, and companies must learn how to cope. If they rest on their laurels and become complacent because of past success, they’ll get swept away by the next wave of disruption.
To learn how you can thrive in this ever-changing business climate, please read the 19th edition of our Global C-suite Study, “Incumbents Strike Back.” And stay tuned. We’ll release industry- and role-specific findings over the coming weeks.
This blog is part of a monthly series that highlights emerging trends from our 19th Global C-suite Study. The study features interviews with more than 12,800 CxOs.