At times, companies are forced to reinvent themselves, due to the growing availability of lower-priced and higher quality innovations, a change in consumer behaviours or even, a market re-invention – as we can see in the move from the traditional investing firms to the now prevalent online and quick trading platforms.
It is important to note that whilst disruption is key to innovation and competition, disruption can easily spell doom for a startup or a centurial established company – as in the fall of the long-term traditional steel processing plants of the ’50s.
Disruption – and Disrupting Smartly.
Disruption refers to the art of innovative take-over or inclusion, referring to the adequate service of the market using innovative and usually better quality services, products or machines.
Disruption occurs when a company, usually a startup, provides goods or services, normally reserved for an elite few (as in the case of the development of computers and phones), this is known as vertical disruption.
Here, the start-up carves a niche for themselves., thus disrupting the market entirely.
None can be more defined than the progressive disruption encountered in the steel industry.
Steel manufacturing for many years enjoyed exclusivity and specific inclusion by a very few companies (ten companies) that controlled the entire production of steel in America, this was because the steel manufacturing machines were big and cost millions of dollars to fund.
During this period, the ten companies manufacturing steel enjoyed unrivalled profits until the Bessemer steel manufacturing process was invented; this cut the cost of manufacturing in half, reduced the size of the traditionally huge machines, and also gave room for more investors to enter the market.
Although the quality was not as pure as those of the traditional machines, the market was open to low-end production which was highly beneficial.
Prices of these low-end products soon began to fall, and the BIG TEN decided to leave the market for the newcomers (disruptors), and focus on more prestigious and profitable steel categories. They moved higher in the production table.
After a while, the prices of the low-end products fell and profit margins were lost, this forced an invention, that reduced the cost further, the sizes and most of all increased the quality of the steel produced, effectively making the higher category of steel easier to produce. Again the BIG TEN met and decided to leave the market and move to the most exclusive part of steel.
As of today, only one of the BIG TEN is in operation. this begs the question, what should the BIG TEN have done differently.
Disrupting Rightly – A Tale of Guinness
Guinness, known for its low-water content, high alcoholic value and strong bitter taste, ruled the market of alcoholic stout beverages, such that, the category Stout is synonymous with Guinness Foreign Extra Stout. Few years along the ling, a new generation of people began to emerge, with very different taste habits as compared with the previous generation, Guinness was faced with a dilemma; appeal to this new and increasing demography and lose its identity, or disrupt itself.
Learning from history, Guinness knew the only way to retain its identity and the lots of people personally identifying with its stout, was to effectively disrupt itself, Guinness began the process of acquiring, producing and manufacturing new beverages under a different brand name, structure and strategy, targeting the new demographics, whilst retaining its core brand – Guinness Foreign Extra Stout. Such products like; Smirnoff Ice, Baileys, Gordon Spark, Malta Guinness etc. were produced by Guinness.
This strategy of maintaining the core identity and brand, whilst appealing to the new demography through a different branding sustained its brand identity so much so that only a few people are aware that Guinness produces Baileys.
How would you feel if you heard First Bank of Nigeria PLC opened a hospital or began operating a Brewery? Would you Patronize the hospital in full confidence?
Odd right? this is because the core branding of the First Bank of Nigeria PLC is banking, not medicare. this will greatly disrupt its core brand and even lead to a loss of high-value customers who will feel betrayed and believe the company is in for a fall having lost its identity, so will the potential patients of the hospital have serious doubts about being treated in a hospital owned by a bank.
However, if the First Bank of Nigeria PLC decides to purchase a hospital, and disassosciate its core branding with the hospital, the hospital will flourish and the brand identity will be intact.
This is effective Disruption.