Know What is Going to Kill or Transform Your Industry – Part I
As a rule, people don’t like to change. People do change, however, and this happens for three basic reasons:
Changing behavior can eliminate a major source of pain
An example of this is the mass migration of airline ticket purchases to the internet in the 1980s and 1990s. Two sources of pain were eliminated through this – the inconvenience of working through an intermediary (the travel agent), and the higher cost of maintaining the agent-based distribution system.
Changing behavior can create opportunities
As eBay became a deep and viable market for all kinds of goods, many people in specialty retail businesses, such as collectibles, changed their business model to include a substantial amount of online auction sales to take advantage of the more robust market opportunities.
Changing behavior may be required by changes in the environment
Physician practices, historically dominated by the small, one or two doctor practice, have begun consolidating into larger and more sophisticated practices as a result of increased regulation and payment practices in the industry.
In each of these types of change, there is potential for destruction or major reconfiguration of the industries involved. The travel agent business has become oriented toward very specific types of travel – and the mainstay of air travel is almost completely gone. The collectibles markets affected by eBay have largely transformed into a hybrid of online/offline dealers. Suppliers to the health care industry have changed their selling practices to target larger and more savvy buyers. These changes are not something we can fight – they are inevitable consequences of changes in laws, technology and business practices.
For strategic thinkers, the foresight that would enable us to adapt to disruptive changes before they occur is incredibly useful. Without question, the players in an industry who anticipate and adapt to such changes are most likely to improve their competitive position.
What are the best ways to spot disruptive changes in your industry? It helps to understand the most likely drivers – technology, law and business practices. Using each of these as a lens, you can look at your industry and ask whether any of these factors have changed to a point where they present an opportunity for major change. One very effective way to do this is to put yourself in the customers’ shoes. I like to ask for the three or four most important behavior drivers for customers – such as price, convenience, product features, etc. With this list, you can ask “How will technology change our ability to drive customer behavior in the future?” (and, of course, “How will legal changes…” and “How will changed business practices…”). You can rest assured that someone in your industry WILL use the changing situation to drive customer behavior – generally by attempting to draw more customers by meeting their changing needs and preferences better than other competitors.
If technology, for example, is dramatically reducing certain costs in your industry, you can very effectively plan for an improved cost structure and, unfortunately, price competition. The company who best anticipates future changes and positions itself to succeed is the one most likely to generate windfall profits – higher sales at a price that is not yet commoditized. What you do with this windfall is strategically critical. Smart strategists will invest much of the improved profit in building market share and reputation. This is important – you CAN just let the increased margin flow to your bottom line, but it will make for a fairly weak longer term competitive position.
The best strategic choice is to look at how you can apply your strategic competency to the future disrupted market. For example, if you are good at being a travel agent, and your business is about to decline because of the internet, you want to ask “What strategic competency makes me a successful travel agent?” The answer to this question will lead you to ways you might catch the wave of change, instead of being wiped out by that wave.
© Copyright 2011 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.