Causing disorder or creating innovation? Tim O’Connor, Corporate Services Partner at Scrutton Bland looks at the way disruptive behaviour is making waves in the business world.
When I was a lad, if my school report included the word ‘disruptive’ I knew that I would be having a difficult conversation with my parents when I got home. So now when I read about businesses being disruptive I have to do a double take to realise that this is now a positive attribute. Being a disruptor is now an incredibly valuable and sought after title, as can be evidenced by the number of marketing agencies jumping on the bandwagon.
What makes a business a disruptor?
The key to being a disruptor is innovation and that is why it is seen as so positive. Disruptors either enter existing markets or develop something in their own market which changes how things are done, and creates a difference and value in doing so.
The much used examples of business disruptors are Uber and Netflix, who have harnessed simple, existing technologies to create a revolutionary new way of servicing a long established business model.
So innovation in respect of a disruptor can mean finding a new technological answer, or it can mean just thinking differently and using the tools already available and it can also mean going all the way back to basics and rewriting the rules. Often though the disruptors are large corporates, who have the might and wherewithal to push their way into markets driven by price and commoditisation, so where is the innovation?
For a long time legal and financial services firms have looked glumly on the prospect of the packaging of some of their services by the big supermarket chains. They had moved successfully into the credit card and personal loan markets and it seemed only a matter of time before wills, conveyancing and tax returns honed into view.
This movement has been less successful as people still appreciate the value of advice, but it might still develop further. It is interesting to see the big supermarket chains, so good at being disruptors themselves, are now looking very nervously at the plans of online retailers to move into the grocery world.
You could also challenge the big supermarket chains with mostly being innovative in the way that they leverage their suppliers. Passing on the pain of driving down cost to the point that can make it almost unsustainable. However, in a model that says ‘value must mean low cost’, rather than ‘higher something else’, then aggressively managing the direct cost, is an essential way of competing.
Gaps in the market
The other way that disruptors can make waves in a sector is by taking advantage of gaps in highly regulated markets, until the regulation catches up. The financial services sector in particular has seen an influx of disruptors offering crowd funding, peer to peer lending all the way to online bank accounts. The traditional banking sector, in particular, is very highly regulated with stress tests, capitalisation requirements, and high levels of scrutiny both internally and externally.
Many of the disruptor providers currently fall outside these regulations which enables them to be fleeter of foot and also potentially gives them a greater risk appetite. They will tend to use technology to better advantage and do not have the baggage still carried around by the mainstream banks post-2008. These factors enable the disruptors to capture a small share in what is a massive market and to grow that share until the regulatory environment catches up with them and the advantage is lost.
So what of the small and medium sized businesses in the UK? How can we become disruptors? Many of the examples of disruptors are large, international companies, so how is that relevant to businesses in the East of England?
The first point is that a number of these businesses started small, but by being disruptors they managed to get big quickly. However, whilst getting big might not have been be their aim, maintaining and growing market share and profitability almost certainly will have been. So we all need to challenge ourselves to think differently, and not just do what we have always done. We might need to embrace technology, accept that different generations communicate and transact differently.
We must not be afraid of change, we must try to innovate, we cannot be complacent. I’m not sure that this is any different to how businesses have always had to thrive and survive.
I always knew that being disruptive was a good thing.