At a pivotal moment in Margin Call, a film about a fictional investment bank during the very real financial crisis of 2008, CEO John Tuld is accused by a subordinate of panicking as Tuld prepares to unwind a perilously risky position that could sink his firm. Tuld coolly responds, “If you’re first out the door, that’s not called panicking.”
These days, we can imagine business leaders taking one of two positions as they face seismic shifts brought on by technology and economic change. On the one hand, they can get to the door first, innovating their way to survival, even at the risk of damaging entrenched business models and relationships. On the other hand, they can rail against the changes and hope that public opinion, legislation, or both forestall the threats at their door.
The music industry was among the first to face the threat of digital disintermediation, and for the most part, its leaders chose the path of maximum resistance to change. With the benefit of hindsight, it’s easy now to say they should have reacted differently, investing in digital platforms, channels and devices instead of public relations and lawyers. Still, I give the business a pass because it was first. There was no playbook to guide them.
Today, though, companies have had about a decade to prepare for their moment of turbulence. Some are reacting better than others.
Take Amazon, which recently announced plans to open a brick-and-mortar store in New York City. Though we associate Amazon with disrupting traditional retail through online sales, e-commerce only amounts to between six and seven percent of total retail sales. It therefore makes a lot of sense for Amazon to make the plunge. Why pass up a shot at over 90 percent of the market, especially as new technology enables traditional brick and mortar to know more about customers than ever before, just as Amazon does?
Still, not everyone sees it that way One anonymous publishing executive said, “I think it’s pretty insane because they’re — seemingly haphazardly — trying to get involved in literally every corner of the market… I’m not a legal person, but it seems like they’re trying to have a monopoly on the marketplace.” Sounds a lot like the music industry circa 2003.
Anyone following Uber, a mobile app that enables users to request a ride in cities all over the world, has seen how many in the traditional livery business have responded: with strikes and protests.
Just last week, CBS and HBO announced plans to offer their content direct to consumers without requiring a cable subscription. With billions of smartphones and tablets in distribution, and with Netflix proving the model works, why should HBO be content with only 30.4 million cable subscribers? On the other hand, as The Wall Street Journal notes, smaller broadcasters may lose distribution if customers start buying their content direct from the channel. In that scenario, cord cutters would force operators to charge more just to maintain their revenues, which in turn would encourage more subscribers to cut the cord and move to a la carte. The result is a potential death spiral for smaller channels that rely upon bundling today.
Retail, taxi service and TV aren’t the only industries facing revolutionary change. So, too, is advertising, hotels, razor blades, and many more. All these changes have one thing in common: the combination of affordable bandwidth and high-powered portable computing devices. With so much processing power in the market, the groundwork has been laid for companies in any industry to disrupt or be disrupted.
Incumbents should respond by relentlessly hunting down pain points and inefficiencies in their business before someone else does. Deploy research to isolate vulnerabilities, based on customer complaints, and propose solutions that will have the greatest overall impact on erasing those weaknesses. Hire resources who know emerging technologies and channels. Shine a PR spotlight on your company’s efforts to innovate, not stave off change.
The result may be new products and services that cannibalize existing alternatives, but in today’s mobile-empowered world, the alternative is that your competition, some of which may not even exist today, will do it for you.