Entrepreneurs have a mission to change the world through their products and services. But are they really achieving that mission? Are they really redefining the industries they are operating within? To change the world, it all boils down to whether they are doing the very thing that will redefine the industry. Most entrepreneurs confine themselves to the comfort of doing what is known and tested. The known and tested ways do not bring about change. These forces of wanting to conform to the known conspire to keep us in a comfort zone, penned by fear. The system wants us to be compliant, following the rules of the business and industry, being an accepter rather than a creator. Fear discourages us from trying anything with a risk of rejection or failure. This pressurises us to remain within our comfort zones, cosy and content. Capitalism and consumerism encourages us to build a career by mastering a single money-making skill and devoting our life to it. This is unfortunate because personal discovery and personal development happen only outside the comfort zone. Comfort zones foster an attitude of learned helplessness, making progress harder. Learning, creating and growing happen only when we step outside our fortress and venture into the wilderness. When we step out of the known into the wilderness, disruption occurs. However understanding disruption is hard and disrupting is harder.
“The Big Boys”, the entrepreneurs, love to talk about disruption, though few know what it really means. They mistake better products for disruptive products. It’s said that for a company to disrupt the market, they must introduce a product or service that is better than what is in the market, deliver it in a faster way and deliver it in a cost effective manner. Any of the three can cause disruption but those companies that have the combination of the three will most likely disrupt the market. However, this is not necessarily the case. A disruptive innovation is one that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products and alliances.
The “Big Boy” in the market finds it almost impossible to respond to a disruptive product or service. In a new-market disruption, the ignored customers are ignored precisely because serving them would be unprofitable given the Big Boy’s business model. In a low-end disruption, the customers lost typically are unprofitable for the “Big Boy”, so they are happy to lose them.
- Disruptive products don’t have to be cheaper. Mpesa services have greatly disrupted the traditional transactions but the charges incurred through Mpesa transactions compared to other modes like cash transactions or use of VISA is much higher. A low-end disruption doesn’t have to be lower priced than existing products. A low-end disruption must be simpler, cheaper or more convenient.
- Low-end disruptions are usually inferior. It is also possible to offer a low-end disruption through an inferior product. In fact, almost all disruptions start out with products that are inferior to those of the incumbents. Techno Mobile phone is an inferior phone in comparison to the superior Samsung yet in 2015, Tecno was the fastest selling phone in Kenya. This is possible when current customers are “over served” by existing products.
- A better product isn’t necessarily disruptive. There has been a debate about which network is better or cheaper in Kenya between Airtel and Safaricom. For all purposes, Airtel is cheaper, better, clearer but Safaricom has the biggest market share in client base. Safaricom subscribers go to the extent of defending Safaricom services even when they have a better alternative in Airtel.
EQUITY BANK DISRUPTING ITSELF
Equity Bank, a giant by client base and deposits has managed to disrupt itself by Launching the Eazzy Banking! To many experts, Equity Bank was shooting itself in the foot with Eazzy Banking suite of products because even its own manpower is at stake. The launch of the platform has been done even before the dust settles on interest rate debate and its implementation by the commercial banks, the solutions are meant to make banking services go completely digital. This launch is primed to further deepen the disruption of banks.
Eazzy Banking is a suite of digital products that promise to give an easy, comprehensive and secure experience while supporting a convenient lifestyle for Kenyans transacting both in the country and abroad. Dr. James Mwangi, the CEO and Managing Director Equity Bank acknowledged that customers’ banking trends have declared the death of the bank branch as transaction channel, as they increasingly embrace self-service technology platforms that give them freedom, choice and control. Customers have demonstrated the extinction of cash preferring to transact with digital money which is safer for transactions and more hygienic than bank notes. In response to these trends Equity Bank reinvented itself into a digital bank to respond to their needs at the risk of the bank being a likely casualty.
KODAK MISSED THE DISRUPTION BOAT
A generation ago, a “Kodak moment” meant something that was worth saving and savouring. Today, the term increasingly serves as a corporate monster that warns executives of the need to stand up and respond when disruptive developments encroach on their market. The company filed for bankruptcy protection in 2012, exited legacy businesses and sold off its patents before re-emerging as a sharply smaller company in 2013. Once one of the most powerful companies in the world, today the company has a market capitalization of less than $1 billion. Why did this happen?
Kodak was so blinded by its success that it completely missed the rise of digital technologies. The first prototype of a digital camera was created in 1975 by Steve Sasson, an engineer working for … Kodak. The camera was as big as a toaster, took 20 seconds to take an image, had low quality, and required complicated connections to a television to view, but it clearly had massive disruptive potential. According to Steve Sasson the management’s response to his digital camera was “that’s cute – but don’t tell anyone about it.” A good line, but lethal to the business. Doing something and doing the right thing are also different things. Kodak mismanaged its investment in digital cameras, overshooting the market by trying to match performance of traditional film rather than embrace the simplicity of digital.
Imagine if Kodak had truly embraced its historical tagline of “share memories, share life”, making it the pioneer of a new category called life networking where people could share pictures, personal updates, and links to news and information. There were other ways in which Kodak could have emerged from the digital disruption of its core business. Consider Fuji Photo Film. In the 1980s Fuji was a distant second in the film business to Kodak. While Kodak stagnated and ultimately stumbled, Fuji aggressively explored new opportunities, creating products adjacent to its film business, such as magnetic tape optics and videotape, and branching into copiers and office automation, notably through a joint venture with Xerox. Today the company has annual revenues above $20 billion, competes in healthcare and electronics operations and derives significant revenues from document solutions. Kodak created a digital camera, invested in the technology, and even understood that photos would be shared online. Where they failed was in realizing that online photo sharing was the new business, not just a way to expand the printing business. Kodak remains a sad story of potential lost. The American icon had the talent, the money, and even the foresight to make the transition. Instead it ended up the victim of the aftershocks of a disruptive change. Learn the right lessons, and you can avoid its fate.
Therefore, it is Business models, not products, disrupt. In order for a company to disrupt, the revenue and cost structure of the “Big Boys” that the company faces must keep them from responding. The bigger the organisation, the harder it is for the company to disrupt itself or disrupt the market. Therefore, the business model, usually determines whether it is uneconomic for the “Big Boy” to pursue the disruptor. Companies often see the disruptive forces affecting their industry. They frequently divert sufficient resources to participate in emerging markets. Their failure is usually an inability to truly embrace the new business models the disruptive change opens up. Spotting something and doing something about it are very different things. So, if your company is beginning to talk about transformation, make sure you ask three questions:
- What business are we in today? Don’t answer the question with technologies, offerings, or categories. Instead, define the problem you are solving for customers or the job you are doing for your clients.
- What new opportunities does the disruption open up? Perceived as a threat, disruption is actually a great growth opportunity. Disruption always grows markets, but it also always transforms business models. Research show that executives who perceive threats are rigid in response; those who see opportunities are expansive.
- What capabilities do we need to realize these opportunities? Another great irony is that incumbents are best positioned to seize disruptive opportunities. After all, they have many capabilities that entrants are racing to replicate, such as access to markets, technologies, and healthy balance sheets. Of course, these capabilities impose constraints as well, and are almost always insufficient to compete in new markets in new ways. Approach new growth with appropriate humility.