By James Waite, HGS Head of Marketing, Europe
How many industries can you name that have been completely reshaped by a market entrant tearing up the rules?
There’s, of course, the smartphone industry. Back in the 1990s, the biggest mobile phone company in the world reshaped how mobile phones were used. After leading the market through the close of that decade, the company steadily declined, due to slow-to-change technology and service. Today this market is dominated by those major brands who anticipate—and prepare for—essential shifts in digital transformation.
Another example of the same phenomenon is Instagram. Leading camera companies had been exploring digital cameras; yet, their executive teams never thought that digital would be the primary way that people capture and share photographs. As a small start-up, Instagram rapidly popularised the sharing of photos direct from a smartphone. This successful disruption has paved the way for a whole new landscape of players.
It’s become an increasingly pressing need for today’s companies to look beyond their traditional competition to the disrupters around the corner. The disrupters on the front lines of digital transformation change at lightning speed. And that means that your entire business model may need to change to keep up with the competition — or your entire business model may become rapidly irrelevant. Here are a few examples:
- Unilever’s Dollar Shave Club. Founded in 2011 with a subscription business model claiming $1 a month, this company gives the customer new razors delivered to their door. The business was eventually sold for $1 billion to Unilever, who are exploring the same model with their multiple brands.
- L’Oréal. The Makeup Genius app allows customers to virtually try out new styles and directly order the products they use on the app. Millions of customers have downloaded the app and ordered products that they became aware of in the virtual environment.
- Nabisco’s Oreo Cookies. This famous brand has been in talks with Amazon, exploring how to send cookies directly from the manufacturer to customers when ordered online.
Let’s consider each of these examples in turn. Unilever sells products through retailers all over the world yet they spent a lot of money on a start-up that encouraged people to subscribe and receive a new razor regularly in the post. L’Oréal found that customers were happy to engage with their app and enjoyed experimenting with new products in a safe (and free) environment. The Oreo cookies business model leverages preference for ease of ordering by regular customers, who prefer to simply place a direct order online.
In all these three cases, we are witnessing a complete adjustment of how the retail industry works. The L’Oréal story is a very strong example of a company disrupting retail in a way that customers enjoy and appreciate. The customer experience is improved, and the margin for a directly sold product must surely be better than a product that needs to flow through the normal retail supply chain.
While these examples are generally focused on retail, there are similar digital transformations taking place in many other industries and on a global scale. The major payment companies that support most credit and debit card transactions didn’t predict that Apple would become such a major player in payments. Nobody in the technology infrastructure business predicted that Amazon would become so important in their area. And now Amazon supports more cloud-based online services than every other service-provider combined. None of the phone networks predicted that SMS messaging would become redundant as tools like WhatsApp (owned by Facebook) mean that customers migrate away from texting and just send messages using their data plan.
All this is changing the way businesses survive and thrive. It says it all that the classic "five forces" model of competition analysis, devised by Michael Porter of Harvard University, requires a complete revision, as it is no longer relevant in our modern business environment. In many industries, the cost of market entry is extremely low. Almost zero in some cases. Many services can be launched via the app store and have immediate global scale. In fact, in these cases, the only investment required is letting potential customers know about the new service.
These are uncertain times for many executives. Competition may appear from anywhere, even outside your traditional industry. Competition may appear because your rivals reshape their business model, and their transformation leaves you stranded. Competition may also appear just because the expectations of your customer evolve and what was once an acceptable level of service is now seen as deficient. Change is coming fast. HGS is a partner that helps its clients to transform and win, through intelligent innovation and a customer first approach. Does your business have the right partner for change? Please leave a comment if you’d like to discuss your company’s digital transformation journey.