How can Incumbents (Established Corporates) Respond to Disruptors?

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How can Incumbents (Established Corporates) Respond to Disruptors?

The challenges to incumbent majors across industries have come mainly from low-cost competitors and from dotcoms (e.g. british Airways and KLM versus EasyJet and Ryanair, Merrill Lynch versus Charles Schwab and E*Trade, Barnes&Noble versus Amazon.com etc.).
These low-cost firms changed the paradigm of doing business the "traditional way". According to Charitou and Markides, the response to disruptive strategic innovation depends of the incumbent's motivation and ability: "If motivation is low the response should be to ignore the disruption and focus on the main business; If motivation is high, the appropriate response is dictated by ability and circumstances". The authors single out five possible response strategies:
1. Focus on the Traditional Business. A strategic innovation might capture only a fraction of the market and not overtake the traditional way completely.
2. Ignore the Innovation. The new business model "targets different customers, offers different value propositions and requires different skills and competences".
3. Disrupt the Disruption. Emphasize totally different product attributes and make them more attractive to customers than the attributes stressed by the disruptor.
4. Adopt the Innovation. If a strategic innovation is a real threat to existing business, it might make sense to play both games in which case the greatest challenge is how to manage the conflict between the two models and, if possible, achieve synergy.
5. Embrace the Innovation Completely and Scale it up. The incumbents may have a competitive advantage in the form of resources and competences to adopt a disruptive innovation and bring it to mass market faster and in a more efficient manner.
Source: C. Charitou and C. Markides, "Responses to Disruptive Strategic Innovation", MIT Sloan Management Review, winter 2003

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		1 Jaap de Jonge Editor, Netherlands
	Active Strategic Incumbency Prof. Malnight and Buche of IMD recently published an interesting article based on their research on the strategic advantages that successful incumbents (~established, traditional, reacting companies) have put to work when defending against disruptive companies/innovations. They define Strategic Incumbency as "an established firm's ability to dynamically convert age, size, and tradition into the key advantages of market power, trusted relationships, and deep insights". Following research, they in fact identified 3 capabilities that gave successful incumbents a strategic advantage: 1. The ABILITY TO MANAGE COMPLEXITY well (avoid bureaucracy and use anything that boosts the top or bottom line and creates alignment, energy, and focus). 2. The ABILITY TO MAINTAIN A LONG-TERM FOCUS (properly balance delivering in the present with preparing for the future) 3. The ABILITY TO LEVERAGE TRUSTED CUSTOMER RELATIONSHIPS to expand into adjacent spaces (build strong relationships to have deep conversations with stakeholders about how their needs are evolving, critical issues that should be addressed in the future, and the interests that they and the company have in common). What has turned out to be important is that a merely defensive stance, mindset and set of behaviors towards disruptors didn't work. Successful companies actively questioned whether customer needs are stable, what competitors are doing, and if their strong brand name still offers protection. The role of the leader is critical in moving an organization from passive to active incumbency. Source: Malnight T.W. and Buche I., "The Strategic Advantage of Incumbency", HBR Jan-Feb 2022, pp. 43-48.

		1 Jaap de Jonge Editor, Netherlands
	4 Ways Incumbents can Respond to Disruption According to Prof. Birkinshaw of LBS, incumbents can deploy 4 strategies against disruption: 1. DOUBLE DOWN (Offensive, Emphasis on Existing Markets/Segments) PRO: You leverage your long-time assets. Risk: The market may not value those assets in the future. 2. FIGHT BACK (Offensive, Emphasis on New Markets/Segments) PRO: By moving quickly, you keep new entrants at bay. Risk: It's hard to execute and easy to get the timing wrong. 3. RETRENCH (Defensive, Emphasis on Existing Markets/Segments) PRO: You reduce stress from new entrants through scale and lobbying. Risk: It's a recipe for managed decline and hard to sell to stakeholders. 4. MOVE AWAY (Defensive, Emphasis on New Markets/Segments) PRO: You seize opportunities in new markets. Risk: Diversification is always challenging to pull off. Source: Birkinshaw J., "How Incumbents Survive and Thrive", HBR Jan-Feb 2022, pp. 37-42.

		2 Jaap de Jonge Editor, Netherlands
	Digital Strategy for Large Firms Another important angle to this issue of HOW incumbents should implement their digital strategy development and -execution process is the following. Rather than opting for a "big-bang" or "bet the company" approach, they are generally wiser to adopt an incremental learning approach by conducting multiple strategic digital experiments. Of course the threats from digital startups are often real, truly disruptive and perhaps even urgent. But that doesn't mean large firms should act like internet startups in throwing everything they have at one particular initiative, app, or sexy business model. Rather they should start small with a number of initiatives (portfolio of experiments) and focus on learning their way into a digital strategy and on developing a more and more digital savvy workforce and innovative culture over time. Over time they'll learn what business model might be just right, what assumptions are right and wrong, which performance measurements to focus on, and what technologies work for them and which don't. Also they should leverage their strategic strengths compared to small internet startups. Things like their large, paying customer base, financial power, political lobbying power, operational and logistic capabilities, customer and market know-how, and their large workforce with presumably many talented people. Sources: De Jonge, J.H.M. (2002), "Dealing with Uncertainty in Strategy and Valuation", Financieele Dagblad, November 4th, 2002. McGrath R. and McManus R., "Discovery-Driven Digital Transformation, HBR May-Jun 2020, pp.124-133.

		4 Akshay Nirmal Business Consultant, Australia
	The Resources-Processes-Values (RPV) Framework The resources-processes-values (RPV) framework is a useful tool to understand why big companies fail in responding to disruption: RESOURCES are usually assets like technology, fund and people. ...

		3 Anneke Zwart Student (University), Netherlands
	Why Large Firms are Having Difficulties to Deal with Disruptive Innovations Christensen explains why many firms, especially large firms, have trouble with adapting and thus with surviving when dealing with external disruptive innovations: 1. RESOURCES: Firms are dependent of...