Market Disruption and Strategy
The past two decades have seen market disruption spreading in ripples through almost every industry.
In some, market disruption has been the new normal – and in others, a hope that disruption will pass persists. Whatever the past or current state of your industry and markets, anticipating new disruption is now critical to strategy.
Seeing new market disruption coming is a matter of understanding causes.
In my previous article, I discussed four commonly seen types of market disruption: cost, displacement, demand and utility. Changes in the environment drive these types of disruption.
Changes that radically alter the cost of inputs in a market drive cost disruption. In plastics, for example, the use of new technology to extract fossil fuels has decreased the cost of some plastics.
Clearly, anything that causes great shifts in costs upstream in your value chain signal the possibility of a cost disruption.
This is one reason why we want to pay attention to supplier markets – include labor and key services – in strategic planning. Noting where technology, regulatory and other shocks are dramatically shifting costs in your supplier markets is the best way to anticipate this type of disruption.
Displacement disruption occurs when a new approach, product or process displaces previously used approaches. Travel websites displaced travel agents for most travel arrangements over the past 30 years, is an example.
Because displacement is usually driven by technology, it’s vital to watch for technology that may displace your product or service.
It’s absolutely vital to understand the functional or psychological need you serve in your customers. You also want to know how new technologies may meet those needs better than your current product or service.
Demand disruption usually occurs as a by-product of displacement in a related industry.
For example, the travel industry disruption mentioned above gave rise to extreme discount air carriers. These could only exist because people use travel websites to find the cheapest airfares. This radical change in customer selection led to market disruption in the low end of the air travel market.
To anticipate demand disruption, pay close attention to major displacements in related industries. Pay particular attention to both upstream industries (those that provide your inputs or raw materials) and downstream industries (those that would be your customers or drive demand for their products). A major change in either direction may cause changes in the way customers evaluate your product or service in the future.
Utility disruption is also a second-order effect of other disruption, usually displacement. It usually follows a fundamental change in underlying products or services that enable them to meet entirely new needs. Smart phones becoming cameras and computers is an example.
Again, looking both upstream and downstream for market disruption is the best way to anticipate utility disruption.
For example, if I were involved in the car wash industry, I’d want to pay close attention to driverless vehicle technology. While it’s not directly a technology in that industry, it might change the way customers use their vehicles, and in turn, disrupt the car wash industry.
In simplified strategic planning, we closely examine supplier markets and technology in the external situation and assumptions sections.
When considering both opportunities and threats, you may also wish to drive anticipated changes into new ideas about the future of your business. Without question, you will have a much more successful future if you can anticipate any of the disruptions which are coming to your industry.
If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process, so you can focus on the content of your strategies. If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings, and have a great understanding of how to best use your planning time. Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.
Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc. He can be reached at rbradford@cssp.com.
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Author Robert Bradford