[November 25, 2021] CEO Roundtable Discussion Summary

Disruptive Strategy

Disruption defined

  1. An entrepreneur friend of mine once told me the best business disruption strategy always “eats someone else’s lunch.”
  2. Disruption establishes a new way of doing business.
  3. Breaks convention. Does not allow the present to continue into the future.

Most disruption is deliberate, not accidental.

  1. Fast Retailing founder Tadashi Yanai deliberately disrupted Japan’s clothing industry with the Uniqlo brand
  2. Prescription eye-ware purveyor JINS deliberately disrupted boutiques with same-day turnaround, attractive styles, and an accessible price.
  3. Starbucks Japan deliberately disrupted Doutor style coffee shops in Japan, just as Doutor disrupted Kissaten some decades before.
  4. Hoshinoya deliberately disrupted hi-end traditional hospitality, and even western style hospitality in Japan.

Disruption is something you create, not something you hide from.

  1. You have to create disruption in the marketplace if you want to dominate the market place, or at least play on your own terms.
  2. Does not make any sense to keep being better and better at the same old thing.
  3. Only those who are afraid, insecure, and not innovative hide from disruption. Hiding never works.
  4. Some disrupted businesses seek regulatory protection. Taxi companies sought protection against disruption from Uber in some locales. Most attempts at seeking protection failed.

Responses to disruption

  1. Out-disrupting the disruptor. Research in Motion’s  Blackberry phone disrupted the mobile phone industry, particularly for business. Smart phones starting with Apple’s iPhone disrupted the Blackberry.
  2. Adaptation. Digital cameras disrupted Fujifilm’s cash cow analog film business. Today, Fujifilm’s business is mostly in medical equipment, pharmaceuticals, and bio-sciences. While Fujifilm is also now one of the dominant players in digital cameras, its instant camera and film Instax business line is bigger than the digital camera one.
  3. WithdrawalSalesforce.com destroyed Siebel Systems. Netflix destroyed Blockbuster video.

Disruptive strategies among my clients

  1. Godiva Japan disrupted chocolate and snack gifts with a member subscription model.
  2. L’Oréal disrupts with cutting edge technical innovation, insight into consumer behavior in multiple markets with unparalleled granularity, flexible rapid production capability for all the nuanced needs of different markets.
  3. Kornit disrupts apparel with rapid, machinery and services for on-demand printing with unmatched quality and speed.
  4. Keuhne+Nagel disrupts marine logistics with immediate delivery of spare parts for ships, even on the water.
  5. NAOS disrupts personal skincare with total commitment to products that are absolutely non-irritating to skin.
  6. Both Danone and Barry Callebaut disrupt with a sustainability imperative as a strategic competitive advantage for their customers, rather than CSR on the side.
  7. Merck Biopharma disrupts pharmaceuticals in Japan with its ability to work with doctors and sell remotely.
  8. AXA disrupts insurance by offering advisory services to SMEs on prevention, not just products for contingent risk.
  9. Delaval is disruptive in automated dairy farms technology, which has traditionally been labor intensive.

Disruption, like any kind of innovation is not always successful. Works, fails, or fades.

  1. Segway did not replace the way people got around in cities. (E-bikes might though.)
  2. Rakuten’s attempt to disrupt OTC drug retail in Japan with online sales failed.

Any industry in which business models have not fundamentally changed over long periods are ripe for disruptions. Industries I think are ripe for disruption below.

  1. Auto-dealership distribution model. Over a century old. Manufacturers will sell direct to customers online, and offer 30 day returns. Dealerships will become service centers.
  2. Insurance industry. Centuries-old business model. Disruption will come from cash-rich businesses with large amounts of personal data on individual customers in massive numbers. Think Google, Facebook, Amazon.
  3. Top brand bicycle manufacturers, like Trek, Specialized, Bianchi. Trend in offering hi-tech, expensive, heavy, hi-end bike will give way to Chinese carbon — simpler bikes that are lighter, faster, use older, more reliable technology, easier to maintain, at a fraction of the price.
  4. Combustion Engine Automotive for consumers. Facing disruption from e-bikes and changes in remote working. Ad council in France actually banned an ad made by Dutch e-bike manufacturer VanMoof for putting the auto industry in a bad light! PR coup for VanMoof. Clearly some in the auto industry are scared.
  5. Pharmaceutical industry. Next wave of disruption will come from regenerative medicine.

Principles for those who want to disrupt

  1. Disruption starts with disrupting yourself. Disruption requires the ability to let go—whether business model, customers, distributors, profitable products, and sometime even brand.
  2. Start-ups have an inherent advantage over companies with legacy business who are concerned about protecting what they have. If you lead a legacy business of some type, your first challenge might be overcoming reactivity among your staff.
  3. Rapid growth strategies are inherently disruptive. If you deliberately seek rapid growth, you will disrupt.
  4. Disruptors thrive on volatility whereas others seek merely to survive. All of my clients have thrived during the COVID crisis.
  5. Disruption is an appeal to the emotional, not the rational. A passion and determination about changing something in the world that isn’t good enough. Apple’s Steve Jobs and his top executives realized everybody hated their mobile phone. Jobs knew Apple could make one that people love, and how to do it right.
  6. Disruptors have disdain for convention. Rebellion against status quo. Enjoy breaking rules. Standing out. Not caring what others think.
  7. You must have audacity to disrupt, or whatever you might call it. My grandmother called it chutzpah (look it up if you happen not to know the word—from Hebrew and used in English.) In French, Il faut du culot. In Japanese, 図太さ、厚かましさ.
  8. If you disrupt, you will piss people off and you have to feel comfortable with that. Honda ignored the Japanese government’s directive to stick to motorcycles and not manufacture cars. Rakuten’s Hiroshi Mikitani was ridiculed and viewed with contempt when he made English the working language of business in the global company’s Tokyo Headquarters. Fast Retailing’s Tadashi Yanai incurred the wrath of those in what had been the collusive Japanese apparel industry.
  9. If you are not routinely disrupting, you will find yourself disrupted by someone else.
  10. What was once disruption becomes convention if the value of the change is compelling enough, and then becomes the next target for disruption. Smartphones will be disrupted at some point. Apple might in fact be the instigator.
  11. The enemy of disruptive strategy is bureaucracy. I define bureaucracy as the triumph of means over ends. If you want your business to be disruptive, eliminate bureaucracy.
  12. Disruption requires an unshakable belief in possibility. There are very few things in this universe that are impossible. It is just a matter of time, resources, and doing things right. Some people tell me that faster-than-light travel is impossible, but I am not convinced even that is true given recent research in quantum technology.
  13. Disruption requires discipline, one CEO pointed out. Discipline is the ability to do something routinely despite a penalty for an uncertain payoff in the future. Training for Olympics requires discipline. Innovation, requires discipline.
  14. Like a muscle, the ability to innovate disruptive business models requires frequent exercise, or it will atrophy.

Provocative questions—How do get your staff thinking in terms of disruption.

  1. What would it take to double our business results in one year?
  2. If you were leading a different company, what would you do to destroy our company’s business?
  3. Why do you think our business is successful? Now what is it that could possibly happen or is happening that would make that assumption invalid? What should we do about it?
  4. If you were starting a business in our industry today, what would that be and how would you do it? How close is that to what you are doing today? Why are we not doing that now?
  5. If your cash cow product suddenly became unviable, what would you do? This is not so farfetched. Look at Fujifilm.

Creating disruptive value

  1. Better, Cheaper, Faster.
  2. Buyer enablement—making it easy for the customer to buy. Think Apple, Amazon.
  3. Options, personal configuration. Think of configuring your own insurance product, your job with your employer, your car.
  4. Values as competitive advantage. Think Danone, Barry Callebaut.