“In today’s complex, dynamic world, having a disruptive innovation capability is mandatory, both for growing a business and for protecting existing markets.”
At the height of the Second World War (WWII), Winston Church stated, “Never let a good crisis go to waste”. This was when a seemingly unbelievable alliance was being formed between Churchill, Stalin, and Roosevelt in the mid-1940s, which led to the formation of the United Nations. This is a typical example of harnessing opportunity within a war crisis. As in the war scenario, business crises present a silver lining of disruptive innovation for growth-minded executives. Every innovator sees beyond crises to harness new opportunities that present themselves as solutions to the challenges arising from the uncertainties of the time.
Disruptive innovation, within this context, is the creation of new products, services, or business models, that successfully challenge established incumbent businesses, with fewer resource capacities. Disruptive innovators use limited resources to alter the traditional product offerings and create new ones that align with the changing consumer demand and evolving industry structure amidst industry-wide constraints and market quietness. For instance, the development of the Artificial Intelligence (AI) Chatbot, ChatGPT by OpenAI is a truly disruptive innovation that is challenging educational institutions and the knowledge industry, which had been dominated by human knowledge. As the disruptive battle of AI continues, Google has also announced a new AI model, PaLM 2, which will provide direct answers to queries without the usual lineup of links.
The restrictions that characterized the recent Covid-19 pandemic also altered the operating models of many incumbent businesses and afforded innovative opportunities for some new businesses. Disruptive innovators optimise the health crisis with new products and services that match the changing needs of businesses and households. Today, businesses that were able to innovate and offer new products or services that met the changed micro and macro-economic orders thrive more than those that only managed to adapt. Adaptation may be a necessity of time at some point, but in turbulent times, disruptive innovation is required for leading sustainable growth.
The 20th century had regular periods of major crises, including the two world wars, the great depression, the oil crisis, the Latin American debt crisis, the cold war, and the Asian Financial Crisis. The 21st century appears to be following the same trajectory with crises, including the global financial crisis and the Covid-19 pandemic. Besides the major crises, minor turbulences, including geopolitical tensions, inflationary pressures, and market volatility have also emerged that mirror the market uncertainty of major crises.
Minor or major, the disruptive approach to navigating the terrain of crises for business growth is a process that is difficult, dimensional, and messy. Business leaders have to understand the peculiarity of time, the changing preference, and the processes for aligning long-term objectives with the needs arising from short-term crises. Howbeit, as tough as it is for businesses to grow during business buzzkill, a lot of businesses have thrived in past turbulence.
Cases of Disruptive Innovation in Turbulent Times
Disruptive innovation is a strategic game of the underdog that is difficult to identify because it requires that the industry is shaken up and previously successful incumbents possibly miss out. But since out-of-classroom discussions use the word to capture radical innovations, let me identify a few businesses that were either disruptive innovators or sustaining innovators in past crises. This is particularly handy because incumbent businesses have also somewhat developed models that sometimes displace disruptive innovators in some instances.
- THE GREAT DEPRESSION (1929-1939)
These days, Apple, Google, and Facebook generate more buzz in the technology space than International Business Machines (IBM). But when viewed through the lens of history, IBM outshines these companies, surviving depression, war, and years of intense competition to remain a market leader in the midst of ongoing technological innovation. The company is not particularly a disruptive innovator, but its innovations changed the dynamics of the market during the great depression. Two strategies define the approach:
- Its quick adaptation to change: IBM was a company built for change. It prioritized consumer engagement and satisfaction which enabled it to listen and align with their emerging needs.
- Its development of the then cutting-edge technology, the punch card tabulating machine which helped businesses process and analyze large amounts of data more efficiently. The machine aided IBM’s profitability and reinvestment in R&D as it positioned it to take advantage of the Social Security Act of 1935, which created a massive demand for record-keeping and earned IBM a massive government contract.
Procter and Gamble (P&G)
P&G also adapted its product offerings and strategy to become a sustaining innovator during the Great Depression. Its capacity to develop and manufacture products that at least remained necessary for people helped the company become one of the world’s largest and most successful consumer goods corporations.
- The company had been making household items for many years, but it introduced smaller and less expensive versions of the items during the Depression, which allowed people to maintain their loyalty to the brand but at affordable prices during and after the Depression.
- Also, instead of cutting back on advertising efforts to cut costs, P&G developed new advertising and marketing techniques that focused on maintaining brand loyalty and increasing the sales of its affordable products during the turbulence.
As simple as the strategies were, they kept the business alive and thriving while others fell into the hands of depression.
- WORLD WAR II (1939-1945)
The peculiarity of war, with its devastating disruptions and losses, made only a few companies, including the likes of Boeing and RCA valuable during and immediately after World War II (WWII).
The American aircraft manufacturer, Boeing was not the biggest airplane manufacturer during World War II, but it won the heart of many and several major contracts after the war because it altered its business to develop war-adapted aircraft for the Allied Powers during World War II.
- Boeing originally was manufacturing aircraft to supply their own airline, but the model backfired when Congress banned manufacturers from operating their own airlines in 1934. The company thus prioritized innovations in civil and defense aviation, which subsequently attracted R&D funding to it during WWII. This marked the breakthrough of the company and aided its development of the largest aircraft.
- The company developed the B-17 Flying Fortress, a heavy bomber aircraft, and B-29 Superfortress, a four-engine, long-range bomber aircraft, which played a significant role in the strategic bombing campaigns by the U.S. Army Air Forces and other Allied air forces on Axis targets in Europe and the Pacific.
- The Radio Corporation of America (RCA) also became a sustaining innovator of WWII because it developed radar technology, which revolutionized military communications and increased situational awareness. Specifically, With the war-induced scarcity of raw materials for television communication, the company switched its communication production to military electronic equipment such as tubes for radio, radar, and microwave communications.
RCA leveraged the war to innovate as it continued the production of radios and microwave transmission and expanded its television research after the war.
- OIL CRISIS (1973-1974)
The oil crisis of the 1970s where Arab members of OPEC and others, including Egypt, Syria, and Tunisia, agreed to raise crude oil prices by 70%; cut production; and placed an embargo on oil exports to Western Countries met with the collapse of the post-WWII Bretton Woods system of currency alignments and led to widespread inflationary pressure, rising unemployment, industrial failures, and the beginning of an economic recession. ExxonMobil, an oil company, and Honda, a car manufacturer, developed a few innovations that disrupted businesses in the 70s.
Unlike other multinationals then, Exxon used a business model that allowed it to balance between risk and uncertainty in the oil market:
- It invested substantially in the Middle Eastern countries, which gave it the advantages of OPEC members, and also invested in other non-OPEC countries, which reduced its reliance on OPEC and allowed it to retain a relatively consistent supply during the oil crisis cut.
- It also had long-term contracts with clients that included escalation clauses which allowed it to increase the price of its oil in response to market price increases.
The low oil output of the crisis spurred the development and marketing of fuel-efficient and environmentally friendly vehicles by Honda during the period.
- Honda introduced the Compound Vortex Controlled Combustion (CVCC) engine, an innovative engine design that allowed for more efficient combustion of fuel and lower emissions during the oil crisis.
- This disrupted the extant focus on fossil fuel engines of the 1970s.
- THE ASIAN FINANCIAL CRISIS (1997-1998)
During the Asian Financial crisis of 1997, Samsung, a South Korean multinational conglomerate, introduced a few strategies that helped it emerge as one of the most successful companies in the world.
- Samsung restructured its operations by selling off non-core businesses and focusing on its core businesses, including electronics, semiconductors, and telecommunications, which helped it become more efficient and streamlined to compete more effectively.
- It also launched a diversification strategy with a focus on vertical integration in value chain activities. This led to more investment in R&D which led to the development of new products like liquid crystal displays, digital cameras, and mobile phones.
- Samsung also expanded its operation into new markets, like China, India, and Russia, which helped the company diversify its revenue and reduce its dependence on the Asian market.
Toyota is not particularly a disruptor, but a dynamic innovator in its favoured strategy. Toyota had a business model that predate the Asian Financial Crisis and constantly update the model with every shift in global market structure, including the economic downturn of the Asian Financial Crisis. Toyota in Thailand for instance, cut all costs during the Asian Financial Crisis but retained all employees while pushing for upskilling.
- Toyota operated and is probably still operating the Toyota Production System (TPS), an integrated socio-technical manufacturing system that emphasized achieving the best possible by eliminating wastes of all sorts and increasing efficiency.
- The company introduced a soft innovation culture that requires employees to constantly grapple with challenges and problems and must come up with fresh ideas to solve them. It invests heavily in employees and organizational capacities and garners ideas from everyone and everywhere.
- THE GLOBAL FINANCIAL CRISIS (2008-2009)
The unfolding of the GFC gave birth to Airbedandbreakfast.com in 2008 by Brian Chesky and Joe Gebbia as a new business that disrupt the hotel industry and allowed people to rent out their homes to travelers during the global financial crisis.
- The founders realized that there was a market for affordable and unique travel experiences and immediately harnessed it. The business focused on short-term rentals of spare rooms and apartments but rebranded after the crisis to match the current demand as Airbnb.
- The company also developed a platform that allowed hosts to manage their listings and guests to book accommodations online. Its innovative model aided its growth and attracted venture capital funding to it.
Uber is another company founded during the Global Financial Crisis of 2008 when the co-founders, Travis Kalanick and Garrett Camp, had trouble getting a taxi and thus came up with the idea of creating a ride-hailing app that would connect passengers with drivers using smartphones.
- It introduced an extensive network strategy that led to a liquidity network effect.
- The ride-hailing innovation of Uber disrupted conventional transport systems in some advanced economies and has been challenging the transportation system in other countries.
- THE GLOBAL COVID-19 CRISIS (2020-2021)
Amazon grew significantly during the pandemic with profits surging as more people turned to online shopping due to lockdown measures. The company’s innovation is rooted in the model it used to help people address the challenges presented by the pandemic.
- With the increase in demand for online shopping due to lockdowns and social distancing measures, Amazon increased its delivery and logistics operations to meet up with the demand and ensure timely delivery of the items.
- Its cloud computing division (AWS) also provided critical support to businesses and governments in managing the huge demand for digital services and applications during the pandemic.
Harvard’s Digital Innovation and Transformation Course Described Zoom as an unambiguous winner in the Covid-19 crisis era. While digital teleconferencing is undeniably a great productivity tool during a lockdown, how Zoom managed to displace existing market leaders underscores disruptive innovation in the model of the company.
- Zoom introduced new features and improved its video conferencing platform to better accommodate the increased demand for remote work and online communication.
- Unlike Skype, the erstwhile market leader, which focused on adding befitting features of social media platforms to its teleconferencing tool, developers of Zoom prioritized creating the best possible video conferencing tool, which resulted in its ease of use and higher quality.
How Business Leaders Can Respond in the Current Turbulence
The current economic landscape seems more like a period of economic crisis with largely unfavourable macroeconomic indicators: looming recession fears, runaway inflation, elevated unemployment, massive layoffs, industrial failures, banking crises, and geopolitical tensions in some regions. To thrive in the current turbulence is to not be subject to prescribed rules but to explore the seemingly impossible and to anticipate what the market will look like tomorrow. This can be achieved by reimagining one’s industry, reinventing the business model, and reigniting the operating models and product offerings.
1. Reimagining the Industry
- Refreshing the business landscape: For businesses to grow amidst the current downturn, business executives must continuously take a fresh look at the business landscape and identify new opportunities for growth and expansion. This can be revealed by emerging trends, technologies, and changing consumer behaviours. By staying ahead or at least updated on these trends, business leaders can realign the organization for success across different time horizons.
- Collaborate with other industry players: Collaborating with other operators in the industry provides a great understanding of the potential supply chain disruptions that a particular business leader may not be aware of. It allows for sharing of knowledge and resources to aid the reimagination of the industry.
- Explore new markets: The crisis that disrupts existing industry structure also presents opportunities for exploring new markets within or outside the industry. A fruitful reimagination of the industry will identify new markets that would help businesses to expand their customer base and reduce dependence on a single market or supplier.
2. Reinventing the Business Model
- Agile practices: The business cases above revealed instances where companies had to alter their business model to suit the changing times. Turbulent times require that business leaders recreate the core business functions and determine what changes are needed to adapt the company to the prevailing conditions for growth.
- Embrace digital transformation: Digital transformation is a continuous phenomenon that constantly alters business operating models. Business leaders would have to embrace digital transformation to increase operational efficiency and reduce costs regardless of the industry. This can include automation of certain tasks and investment in business/data analytics.
- Customer-centric approach: A complementary way to reinvent the business model is to prioritize customer needs and expectations to develop products and services that are more valuable to them.
3. Reigniting the Team and Product Offerings
- Upskill the team: One aspect of the last leg to thriving in turbulent times is to upskill and motivate the team to keep up with the latest trends and technologies in the industry, possibly through training programs, mentorship opportunities, and professional development courses.
- Diversify product offerings: Another aspect is to consider diversifying product offerings to reduce the impact of supply chain disruptions like ExxonMobil during the oil crisis. This can include offering new products or services that are complementary or substitute to the existing ones.
- Sustainability: Lastly, business leaders should internalize sustainability in team building and product offerings to appeal to different consumer segments and changing preferences.
The common theme of businesses that thrived during crises was their ability to manage the balance between risk and uncertainty. While some analysts have argued for the premiumization of product offerings, recent experiences of First Republic Bank in the US and others have shown that the model might not be totally dependable.
Businesses that have survived crises leveraged the peculiarity of the time and used innovations, either disruptive or sustaining, as an engine of sustainable business growth. The models were not the same nor were they a one-way narrative. Different innovations require different strategic approaches. Lessons from the successes of one innovator may not apply to another in a changing market.
However, the first point of the call for any innovator is a deep understanding of the industry, graced by integrated insights from past experience and industry outlook. Then, there is a need for an alignment of the business models and product offerings to the evolving industry trends. No business survives more than two decades without reinventing the business model and products or services offered along prevailing market trends.
This is easier said than done and only entrepreneurs that understand that rewards only come to those who recognize that they are in the business of discovering the future.