Cass Professor Elena Novelli offers five strategies for survival in the face of disruptive technology business models
Incumbents tend to have the stronger position – but in today’s business world as contexts and technologies evolve at a frantic pace, the strength of incumbency is far from sufficient to ensure survival. Plenty of research indicates that the life of S&P 500 companies is getting shorter all the time. From around a 33-year average on the S&P index in the mid-1960s to 24-years now, and a forecast of just 12-years by 20271 before they disappear through bankruptcy, merger or being bumped out through no longer being large enough.
The new boys on the block, the original GAFA (Google, Apple, Facebook, Amazon) now FAANG (with the addition of Netflix) could soon be joined by Uber, AirBnB or some other unicorn, further threatening current industry incumbents with new platform-based business models.
Research by Cass Business School professor, Elena Novelli, has focused on what strategies incumbents can and should adopt when faced with disruptive technology business models2. In an environment that is always changing there can be no silver bullet solution, the appropriate response will depend on the customers, both existing and potential, and how much cost is required to change models to meet any new demand.
………………………………………………………………………………………………………………………..
Join Professors Elena Novelli and Gianovo Lanzola on Cass Business Schools’ Leading Digital Transformation program to increase your strategic impact
Dates: 29-30 January or 11-12 June 2019 │ Format: In-class study │ Location: London
……………………………………………………………………………………………………………………
Firstly, the incumbent needs to monitor potential threats, particularly how consumer trends are changing and assess how certain they can be that any new business models appearing will actually be successful. This is a matter of judgement, but a large mistake companies often make is an over-focus on their existing core customers. These people by definition will have a degree of loyalty and may well be the last to move away to a new model – but by focusing on them the incumbent may miss that the rest of the market is going in a different direction.
When a potential threat has been identified we see there are five alternatives that the incumbent might adopt:
© Ahuja, G. and Novelli, E., 2016.
Evaluating which alternative to go with is not simple – radical change is always high risk, but peripheral or non-committal change can also lead organizations to believe they are managing the problem when they are in fact just postponing a decision.
1. https://www.innosight.com/insight/creative-destruction/
2. Ahuja, G. and Novelli, E., 2016. Incumbent responses to an entrant with a new business model: resource co-deployment and resource re-deployment strategies. In Resource redeployment and corporate strategy (pp. 125-153). Emerald Group Publishing Limited.
Together we extend business knowledge, we share experience, we extend connections. Together, we create personal advantage and business impact.
Oxford SSEE publishes a net-zero emissions pandemic recovery plan