Incumbent businesses, or those which were established before the digital revolution, have faced a sea of change in recent years. Indeed, many have drowned under the rising tides of digitisation. For those still treading water, finding a way to navigate the ever-increasing tide of digital reformation is the key to reaching safer shores.
All industries have been impacted by digitisation in some way, although it’s fair to say that some sectors have been more affected than others. Whilst hindsight gives us a clear view of turning points within varying industries, deciding when to embrace new strategies is a taxing task for CEOs and directors. With the potential of harming your existing customer base and the very real prospect of new technologies and models failing, when is the right time to take a risk?
With in-depth analysis, it’s possible to identify the common issues incumbents face and determine how they should be dealt with. As a result, companies can learn to navigate the choppy waters of digitisation and decide when it’s time to sink or swim.
Stage One: Recognising the signs
When a company is successfully bringing in profits, satisfying its customer base and attracting a considerable number of new clients and investors, it’s a time for celebration, surely? Perhaps so, but there is more to be done than simply enjoying the ride.
Amidst the current market, trends and technologies, it’s vital that you’re aware of what’s emerging. New market behaviour may not announce itself loudly, but the signs are always there. Music companies which recognised the change in consumer behaviour from buying to downloading audio had an early opportunity to modify their business model to cater to evolving consumer demand, for example.
Of course, every business will claim to have their finger on the pulse when it comes to industry changes, but this isn’t always the case. The first rumblings of MP3s and portable players may have seemed almost laughable to the CEOs of record labels in the eighties and early nineties, but by the late nineties, they were ubiquitous.
Whatever industry you’re operating in, it’s essential that you’re aware of how the market will change in the future. Current success is not enough to guarantee future profits, or even trade. If companies don’t identify how their market and industry is going to evolve, they will miss out on the opportunity to lead the way.
Stage Two: Change begins to occur
At this point, businesses which have ignored the signs are already lagging behind. Unfortunately, this isn’t always enough to motivate them to change. Whilst new technologies emerge, and alternative models become more commonplace, successful incumbents are still successfully hitting their turnover and profit margins.
Although the rise of new systems, strategies and products may be undeniable, they haven’t yet impacted upon the incumbent’s performance. As a result, companies remain reluctant to enact significant change. To do so would require investment, a change in their existing model, products or services and the risk of harming an established line of sales.
While some larger companies may make modest investments into the changing market and may even acquire smaller, newer businesses who are already using emerging technology, their commitment is limited.
With profits still rolling in, incumbents rest on their laurels and wait for the latest trend to burn itself out; safe in the knowledge that their time-old business model and strategies will ensure continued and long-term success.
Stage Three: Inevitable transformation
By stage three, there is no ignoring the impact that new models, technologies, products, services and delivery methods are having. With a large number of consumers and clients having embraced these newer models, incumbents are under pressure to bring their offerings up to scratch.
When it comes to digital disruptions, incumbents will often end up playing catch up. Unfortunately, companies which have led the change are already far ahead of them in terms of research and development, technology and market share. As a result, it becomes an uphill battle for incumbents to get up-to-date. Brand names which were once synonymous with reliability and consistency find themselves outdated, with consumers favouring newer companies who are offering the services and products they really want.
Having chosen to protect their core business at the cost of what was happening on the periphery of the market, incumbents have now lost those core customers to emerging companies and tech entrepreneurs. Only rapid divestment and acceleration can save firms at this stage, but not all companies will have the resources to facilitate the rapid change which is required.
Protecting against digital disruption
Whilst some companies have been able to claw their way back from stage three, it can be difficult and costly to do so. If businesses have the resources to invest in the development of new models or acquire emerging businesses and nurture them appropriately, it is possible for them to overcome digital disruption at this late stage.
However, recognising the signs of digital disruption and responding early are far more effective. Whilst company directors and managers must risk a short-term decline in their profits whilst they switch to newer models, it is this early intervention which will ensure the business succeeds in the long-term.
Today, we know that the digital era is here to stay, and this knowledge gives today’s incumbents an advantage their predecessors didn’t have. Previously, businesses were forced to take a gamble on completely unfamiliar models and technologies, in the hope of retaining a share of the market. In comparison, we are now much more aware of how digitisation has changed the world and safe in the knowledge that it will continue to do so.
While directors and company owners must still be willing to make difficult decisions, recognising digital disruptions is arguably easier now than it was a decade ago. As a result, today’s incumbents have the knowledge and insight needed to determine when and how they respond to an evolving market, and whether they’ll lead the way as pioneers or be scrambling to catch up as others overtake them.