By John Wysseier, CEO and President, The CEI Group, Inc.
If you operate in a mature industry like ours and you’re not feeling threatened by disruption, chances are high that your company could be left behind. It may take years, but with more than 70 percent of all businesses worldwide facing a serious threat of disruption, your company’s viability, as it exists today, is in question.
If you think I’m telling you that the sky is falling, consider this: the average tenure on the S&P 500 stock index of the most successful U.S. companies shrank from 33 years in 1964 to 24 by 2016 and is forecast by Innosight, a global consulting firm, to shrink further to just 12 years by 2027. The company also says that at the index’s current churn rate, about half of all current S&P 500 companies will be replaced over the next ten years, largely due to disruption.
But the destructive power of disruption is nothing new; as long ago as the 19th century, economists called capitalism “creative destruction”. What is new is the accelerating pace at which it’s happening. You only have look at the history of U.S. business over the last few decades and you’ll find it littered with examples of giants of industry that no longer exist or have long lost their leading position.
Mature industries are the most vulnerable. So, what is a mature industry? Investopedia.com defines it this way:
“A mature industry is [one] that has passed both the emerging and growth phases of industry growth… Earnings and sales grow slower in mature industries than during the growth and emerging industries phases.
“A mature industry may be at its peak or just past it but not yet in the decline phase. While earnings may be stable, growth prospects are few and far between as the remaining companies consolidate market share and create barriers for new competitors to enter the sphere.”
Implicit in this definition is the fact that mature companies were once small startups that brought innovation to the market and underwent rapid growth. Then, after years of success, their innovations turn stale as customer attitudes change and new ways of meeting their needs arise. The companies that suffer at doing that fail to recognize these changes before they’re overwhelmed by them.
So, what can a company in a mature industry do to face the threat of disruption? Here are some ideas:
Avoid overconfidence: expect to be disrupted. No product or service is perfect, or, at least, not forever. Complacency is one of the hazards of long-term business success. As a result, companies discount small competitors and overlook the innovations that cause customers to turn away from them.
The antidote? Be humble, and expect to be disrupted. This will instill a mindset that is open to innovation and change, which is, in the end, the key to surviving a disruptive threat. Accept the possibility that your customer base may not be staying with you because they’re as happy as they can be, but that, at the moment, there isn’t a better alternative.
Take the hint as soon as possible from slower growth and shrinking margins. It may take a while for a trend to be recognized, but persistent stagnation of your company’s growth in revenue and profitability is a sign that you may have tapped out demand in your line of business and that you may need to reinvent yourself. The sooner you do that, the sooner you can take measures to wring out costs, speed up delivery, create new products or service and address emerging customer needs and demands.
Achieve a deeper understanding of your customers. The title of a recent article in the Harvard Business Review reveals what I’ve come to believe: “Disruption Starts with Unhappy Customers, Not Technology”. Just like you and your company, customers are always looking to reduce their costs or find more convenient ways of meeting their needs. New technology and applications aren’t ends in themselves – they’re just the among the ways in which nimble companies offer those benefits.
What this comes down to is a focus on the customer experience. Reach out to your customers (and your suppliers, while you’re at it) and those in your company who interact with them to discover their pain points, complaints or unmet needs, and then work on how to address them before somebody else does.
Be well-informed about emerging technologies. New technology isn’t the only way to address unmet customer needs, but in the digital era it’s become increasingly important. And staying on top of advanced technology doesn’t only mean hiring tech specialists, though; senior management needs to be aware of it, its potential and how it’s being used by competitors and even those outside their industry. The reason? It’s senior management that’s responsible for fostering a culture of innovation, setting the strategic and tactical direction of the enterprise and for approving budgets for creating new ways of doing business.
Acquire the disruptor. For large companies flush with cash or credit, this has been a tried and true method. For just one example, faced with competition from high-tech bio-pharma firms, a number of big pharmaceutical firms have neutralized the threat by buying those emerging competitors. The approach, however, doesn’t always work well: mergers always present cultural and technological challenges that can create their own problems. Yahoo found that out when it purchased 33 different, small search engine companies. Only two of them remain.
Reinvent your company using its existing expertise and processes. Reinventing yourself doesn’t have to mean abandoning your core line of business, but finding new applications of your core expertise and processes. Four examples illustrate this point:
- At one time, the railroad industry dominated freight shipment, but it was severely challenged by the trucking industry after the creation of the U.S. interstate highway system. Railroads responded by redefining themselves a more broadly as freight transporters and resorted to multimodal contracts with customers that covered shipments by any combination of rail, ship and truck.
- IBM has at least twice faced disruption, first by personal computers that offered an alternative to its mainframe business, and then by cloud computing. It responded first by launching its own line of desktop and laptop computers, and has since made a strategic decision to offer cloud services of its own.
- Fujifilm, the Japanese analog camera company, like Kodak and Polaroid, found its core business in serious decline with the emergence of digital photography. Its response was to find new applications for the chemicals it used for developing photographs to create new drugs, and launched a new specialty chemicals subsidiary.
- My own company, CEI, was originally focused exclusively on fleet collision repairs, saving costs through a nationwide repair shop network, call center, in-house appraisals and loss recovery services. While we’ve remained in that business, we expanded our mission to preventing collisions through an online fleet safety management system that further leverages our collision data and digital technology. While threatening to reduce our collision management revenue, it added a new path to growth that has proven to be a winning approach for our clients, their drivers, and CEI.
Driven by customers’ constant search for lower prices and greater convenience, the history of business is one of constant evolution. The pace of change has now accelerated at an unprecedented rate, enabled by rapid changes in technology.
Mature businesses – those whose growth has plateaued or started to decline – are most vulnerable to disruption. As the examples prove, however, they’re not doomed. Get ahead of the disruptive forces that are changing and will change the landscape for fleet and every industry in the coming weeks, months and years.