Strategic Response to Disruption !

"In this article, I have tried to apply the strategic response as recommended in the article "Surviving Disruption by Maxwell Wessel and Clayton M. Christensen" to the case of Airbnb versus Marriott."

Moving forward from where we left the story of Airbnb versus Marriott. Let’s see what the inventors of theory of disruption proposed so that incumbents like Marriott can devise a more complete strategic response. To determine whether Marriott will be able to manage disruption, it needs to:

• Identify the strengths of Airbnb business model.
• Identify Marriott’s own relative advantages.
• Evaluate the conditions that would help Marriott hinder the disrupter from copying current advantages in the future.

Extendable Core

Prof.Clayton Christensen introduced a concept of the extendable core—the aspect of the business model that allows the disrupter like Airbnb to maintain its performance advantage as it creeps upmarket in search of more and more customers, in this case customers who are Marriott’s core customer base. Its important for incumbents like Marriott to understand what people want from them and what disrupters like Airbnb can offer to customers using its extendable core. If Marriott is able to grasp this knowledge it can give Marriott a clearer picture of its relative advantage. Next, Marriott need to go on to delineate the barriers Airbnb would need to overcome to undermine it in the future. This approach will enable Marriott to see which parts of its current business are most vulnerable to disruption and—just as important—which parts it can defend.

As I have mentioned in the earlier articles that all disruptive innovations stem from technological or business model advantages that can scale as disruptive businesses move upmarket in search of more-demanding customers. These advantages are what enable the extendable core; they differentiate disruption from mere price competition.

Image: https://foreignpolicyi.org/airbnb-vs-marriott-international-hotel-giants-got-an-app-for-home-rentals/

Airbnb provides a home for the night for less (and in less luxury) than does the Marriott down the street. For Airbnb to appeal to Marriott’s customers, it would have to invest in internal improvements, prime real estate, and an expensive service staff. Doing so would force it to adopt the same cost structure as the Marriott’s, so it would have to charge its customers similarly. In case of disruptive innovation, Airbnb can maintain its advantage while it improves its performance. Having said that, not all the advantages of an Airbnb extendable core are so overpowering; often they are offset by disadvantages.

As we are aware Airbnb Business Model enables people to use their extra living space and earn extra money to their pocket through rent. On the other hand, it also helps the travellers to book home stays from the house owners of any location that they are searching for. Airbnb provides on-demand services in the travel industry defeating the ordinary options. Airbnb started small, but—as the theory of disruption predicts—they have been improving the effectiveness of their programs while maintaining their cost and convenience advantages, thus attracting more and more travellers away from traditional alternatives like hotels. But consider two groups of travellers Airbnb have difficulty serving. One group is those who are looking to have luxurious holiday with best in class service and infrastructure. The Airbnb’s extendable core is not much use here because their advantage lies in serving greater numbers of travellers with a home away from home minus the full-service part—hardly a demonstration of exclusivity. The other is the business travellers for whom full-service hotels are key requirement and they cannot be expected to book a home away from home using the Airbnb platform. It’s possible unique partnerships or technological innovations might eventually enable them to address this problem, but their extendable core in its current form falls short of satisfying these customers.

For Marriott, identifying Airbnb’s extendable core will tell them what kinds of customers the disrupter might attract and—just as important—what kinds it won’t. How many customers of each kind do Marriott serve? To answer that question, Marriott will need to consider what people are really doing when they are buying Marriott’s services.

Barriers to disruption

Could something happen to make hotels obsolete or to decrease the value of a Marriott brand? To find out, we need to consider how easily a disrupter could overcome its disadvantages in the future—Marriott need to ask, “What would have to change for my current advantages to evaporate?” To approach this question, the authors of Innovative Disruption proposed a systematic assessment of five kinds of barriers to disruption, arranged here from easiest to overcome to hardest.

1. The momentum barrier (customers are used to the status quo)
2. The tech-implementation barrier (which could be overcome using existing technology)
3. The ecosystem barrier (which would require a change in the business environment to overcome)
4. The new-technologies barrier (the technology needed to change the competitive landscape does not yet exist)
5. The business model barrier (the disrupter would have to adopt your cost structure)

Conclusion

The more difficult the barrier, or the more barriers a disrupter like Airbnb faces, the more likely it is that customers will remain with incumbents, read Marriott. This approach may seem logical, but decades of revenue focused culture have taught managers to focus not on the value they provide for their customers but on —high-level profit and revenue data. If an innovator like Airbnb is causing a company losses, it’s deemed threatening. If not, it’s often dismissed. And overestimating a threat can be as costly as ignoring it: Managers struggle to keep customers who are unlikely to be lost to disruption in the same way they would compete with traditional rivals—by dropping prices or offering comparable product features. This sort of response both fails to identify the intrinsic advantage of the disrupter and ignores advantages that the legacy business could viably defend.

References

1.Surviving Disruption by Maxwell Wessel and Clayton M. Christensen, December 2012 Issue of HBR

2.Surviving Disruption: Four Ways To Avoid Being 'Blockbustered, Gerry Campbell,Forbes April 2018.

3.An incumbent’s guide to digital disruption,May 2016,McKinsey.com

4.How continuing disruption drives sustained success, February 11, 2019 By Eric Clarke,InvestmentNews