Using Digital for Disruptive Innovation.
by Anton Moulder, Urbian / March 8, 2016
Note: This blog entry is available in English only.
Up until now it has been a daunting task to constantly be ahead of the game. For the last few years, staying ahead of the pack and retaining market share has meant keeping a close eye on your competitors. How many times have we received that email from the brand manager saying:
“Oh no, have you seen the new campaign XYZ Brand just put out, it’s just like ours. I swear they’ve been spying in on our strategy meetings!”
You are either developing new product lines or services, keeping a beady eye on ensuring a competitive price point or making sure your agency creates better advertising campaigns than your competitors.
If this is ringing true to you and you have this sense that you are trying the same thing over and over again expecting the results to improve and they don’t, I would like to humbly advise a change in strategy. It’s called a disruptive innovation strategy. I’m not going to lie, it’s not easy gearing your business for disruption, but neither is developing a new product line or developing another ‘award winning’ advertising campaign.
Since the birth of the Apple’s iPhone back in the day and more recently the Nike+ platform, it has become fashionable to talk about industry disruption. Disruptive innovation, a term of art coined by Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.
This article is not about inventing a new product, that topic is too large and deserves an article all of it’s own, what we are talking to here is specifically digital disruption. This simply means, within your companies existing product offering, what digital innovations can be used to achieve business growth that far exceed the growth currently being achieved through advertising spend.
Digital is one of the most common ways for a company to disrupt its industry to create both competitive advantage that leaves the competition scrambling as well as secure it’s future in the market place for years to come. Think FNB in past years and how it’s adoption of technology caused every bank in South Africa to frantically brief in a suite of banking apps to get developed in record time just to stay in the game.
Disruption can affect one segment of your business or many. I’m going to cover a few of the most common ways companies of the 21st century are using digital to disrupt the industry they’re in and reaping the rewards for it.
Vertical and Horizontal Digital Disruption.
Similar to the historical terms of ‘vertical integration’ which companies have been doing for the past millennia which involves the process of owning more of the production supply chain whether forward or backward (read more on the subject here) and ‘horizontal integration’ which involves the acquisition of additional businesses/activities at the same level of the value chain (and again more on the subject here).
Vertical or horizontal digital disruption looks at how technology can be leveraged to either own more of the existing value chain (vertical) or expand to take advantage of an additional market or new revenue stream (horizontal).
Currently there is a lot of this happening in the finance sector, where we are seeing everything from investment groups acquiring start-ups to banks offering mobile payment solutions, to allowing banking in Facebook and offering reduced prices on smartphones and tablets.
For those of us slightly older would remember when all your bank could offer you was, well, banking. Open an account, switch an account, get credit and take out a loan pretty much summed it up. Now I can’t begin to list the vast and varied services available to you. Banks have caught on, they are constantly looking at ways of owning more of the value chain. FNB has even begun to take it further by opening it up to the public by starting a forum which simply asks “What is the most radical thing you would like your bank to offer you”
Now before you say:
“Well I’m not a bank, I sell washing powder for crying out loud!”
Just take a moment to apply a ’21st-century-banking’ approach not just to your brand but to your industry and the industries that you come into contact with. Now begin to think of the various ways you can own more of the value chain of your customer vertically and horizontally.
For example, if you currently rely heavily on retail chains for sales both offline and online you may want to look at an innovative content centred e-commerce solution geared at attracting more customers to you so you can increase sales as well as cross-sell other products(we’re actually doing this for a client right now as we speak). Alternatively, you may want to deal with your customers more directly in order to provide them with a better service and price to increase your brand affinity.
Disrupt by Technological Innovation.
This is less scary and complicated than it sounds. What this really means is, if you can use technology to add value to any of your existing products on offer that your competitors currently do not, then you have competitive advantage. For example, if you sell shampoo and you develop something that helps people check the chemical balance of their hair and provide the appropriate shampoo product for their hair type, Hey presto! you just innovated in your category. Now any brand that is not doing the same is offering an ‘inferior’ service because now customers are used to being able to check their hair chemical balance.
Below is an example of how Nike looked to technology to create an unprecedented competitive advantage that has since become the stuff of legends and now is an ever present example in many an agency’s strategy deck when talking about ‘Branded Platforms’ or ‘Brand Utility’.
Technological integration works best where customers are under-served by the functionality or performance available from products in the market. Technological integration tends to be more difficult when customer service levels are high from products in the market. For example entering the fitness market with an app right now will be challenging(not impossible) when going up against Nike+. However, if you are in a category that has not innovated in the last decade or so you could be on the brink of a significant opportunity if done right.
Disrupt by Putting Data to Work.
Speaking to all your customers the same way makes them feel like a number and not a person. There are a few ways to tackle this, but in a nutshell it all starts by looking at your company’s ‘software layer’. Making sure all your analytical data, CRM (any information you know about your customer), digital initiatives and internal departments are talking to each other. We generally encourage our clients to start by doing a big data extraction from all parties and departments and manually layer all this information over each other. The point of this is really looking at key points at which each data segment can have an influence on the other. You will be surprised at the results.
Big data may be a relatively new, even experimental, but the potential upside more than justiﬁes further investigation and investment.
Analysis of the retail industry as described in the book by Lattice Engines “SALES GROWTH: Five Proven Strategies From the World’s Sales Leaders” suggests that many of the concepts described in the below diagram could each increase sales volumes by up to 2 percent for individual retailers. Taken together, they could boost operating margins by 8 to 25 percent for those pioneers that fully embrace big data. That is hard to ignore.
In closing, with regard to any of the 3 approaches to Digital Disruption as mentioned above the trick is to start. Even if it’s a small r&d project or a ‘minimum viable product’ to test the market, the longer you wait, the more likely you’ll be playing catch up later. Remember FNB.