Why are companies being Disrupted

To be Disrupted or Not to be Disrupted…That is the Question

Nothing like a little riff of Shakespeare to start off an article. The topic we are discussing today is one swirling around retail for the past 25 years. But honestly, it has been around business forever. When the horseless carriage came on the scene, buggy whip manufacturers were worried about being put out of business. When electric streetlights came into the marketplace Lamplighters were certain they would be made obsolete. And when air travel started the railroads knew they would soon be out of business.

In this article we are going to discuss what makes a company a target for disruption, how those companies normally act, and finally, what you can do to avoid disruption, or become a disrupter.

Determining the likelihood of a company or an industry being disrupted is not all that easy. When the horseless carriage first burst (not an accidental word) onto the scene it was not a sure bet that these things were going to work. Astonishing from today’s point of view, but, remember the horse and buggy had been around for more than 1,000 years. How could this contraption which sometimes caught fire, constantly needed fuel, and didn’t work well on old country roads, take the place of old reliable horses? 

While there was competition in both the horse and the buggy market, these guys felt their industry was impregnable. So, what did they do when this new contraption hit the market? They build “walls.” They had legislation passed that would not allow the horseless carriage anywhere that would spook the horses. They were not allowed, in some communities, to use any part of the road because of the smoke and dust they produced. The carriage industry highlighted every accident and death from these horseless carriages. And they used PR to emphasize the luxury and closeness of riding to church in a horse drawn carriage instead of a noisy automobile. They talked about the automobile as a novelty (like home computers were thought of in 1976) and how it would never take over from a stately carriage ride.

Well, we know the end of this defensive story. But not for everyone. The Durant-Dort Carriage company morphed into what is today General Motors company. At one time this  company built 100,000 carriages per year, but they were smart. Rather than build a barrier, they started  selling Buick parts for their new automobile. Buick became part of General Motors and the rest is history. So, instead of being disrupted, they became the disrupter. They did not go into a defensive position, but into a transition position. They took their knowledge and propelled their company into the future. How many of us can name even one buggy whip company (Intrepid in case you were wondering)? 

So how do you stop your company from being a buggy whip company? Let’s hold off the answer to that question as we delve into another buggy whip example.

It is 1990 and the internet is just getting organized. There is no commerce on the internet yet and it is not that easy to navigate. There is no Google, no Microsoft Internet Explorer, no Yahoo!, and not even a Mosaic or Netscape.  Nothing. The largest retailer in the US was WalMart, but it had only passed Sears the year before. 

Sears was by far the largest catalog retailer in the world. They had great private label products, incredible distribution, and financial strength and flexibility. They had their own company owned credit card and owned Dean Witter and Coldwell Banker. They were a pioneer in the catalog business. Their catalog was a boon to rural America. They could ship everything including a house to a customer. 

So, why didn’t Sears win the race to own the internet? After WWII they won the race to deliver shopping malls all around the country. They won the catalog race in the early 1920’s and 30’s. What happened? “Wall Building” happened. They were so worried about protecting their catalog business and their finance business that they forgot to listen to their customers. In 1984, 8.2% of US households had a PC. By the year 2000, only 16 years later, that number was more than 50%. 

No one was better positioned to own consumer sales on the internet than Sears, no one. They had merchandise, vendor relationships they could leverage, money for infrastructure investment, and distribution. They had warehouses everywhere. They had stores in every community big and small. So, what got in their way?

The answer is simple and horrifying. Sears had stopped being a retail organization, by one estimation in the late 1990’s, and instead became a credit company. Because of the huge profits derived by the credit card division, merchandise was no longer the leader of the company. What Sears management seemed to forget is that if you did not sell the merchandise you could not make money on credit cards. They were slow to bring Visa and MasterCard to their store system, why, because they thought they could build a fence around the competition and forgot about customer convenience. Sears had the tail wagging the dog. They stopped being the innovation leader because they stopped embracing change. They had management building silos to protect themselves and not taking care of the company and the consumer. They stopped the catalog because it was too costly and dismantled the infrastructure to support catalog sales. What genius made that decision? They simply did not take into consideration the importance of that catalog as a sales tool. 

Sears could have and should have been Amazon. But they were too slow to get out of their own way. (By the way, look how WalMart is embracing e-commerce sales. Do you think it is because of the way the company has also embraced the idea of closing a store too small for a market and replacing it with a larger store? No fancy offices for those guys.) They were too busy in their over-stuffed offices to investigate the change being brought by Amazon. Sears had great infrastructure and solid financial footing. But Sears had no vision of what the new retail customers had the ability to access, because they were surrounded by the “walls” the executives had built. 

And then in 2004 after saving K-Mart, Eddie Lambert began investing in Sears. Mr. Lambert is a brilliant financial businessman. I have heard from others he could see what was going on in the e-commerce world, but, because of his lack of a retail background, he could not leverage the strength of Sears. I don’t know the why of this, perhaps it was the lack of investment in technology. Perhaps it was the “not invented here” mentality. Perhaps it was because Amazon had not proven it could make money with its retail division. Perhaps it was the store team trying to protect their sales by building all their own walls. But Amazon quietly built a better infrastructure, created a tech superstar, and branched into all forms of merchandise customers were looking for. They built incredible customer centric platforms. They introduced an annual subscription for “free” delivery. Created their own media channel (can you say Walt Disney). All because the Sears team was not constantly looking for opportunities for change. There is no reason Sears could not have been Amazon today. None. Except for the internal wall builders that became grave diggers.

So, as an executive of a company how do you make sure you are not a buggy whip company. How do you make sure you are Durant-Dort turning yourself into Buick instead of Sears?

While the answer is simple the execution is the most difficult task you will have in your business life. You must make change part of your culture. Status Quo should be an alert to you and your team. How do you get your team uncomfortable with Status Quo? How do you get yourself to be Jeff Bezos?

1-   If you are currently a market leader, ask yourself how you got there.

2-   Take part of every day and read a newspaper. It can be the WSJ, the New York Times, or even USA Today. But don’t just read about your industry, know what is going on in the world.

3-   Read a daily industry newsletter. Incredible tidbits in these things

4-   Go to a conference on your industry every six months. And, don’t just meet your friends, go to the sessions on innovation.

5-   Challenge your team to show you what is new in your industry and in your vendor’s communities.

6-   Set a once a month meeting to hear about what is new in the industry from all senior staff. (Brian Levy and I introduced Tandy Corporation Executives to the WWW in 1995. What a breakthrough that was.)

7-   Look for threats to your current business. Best place to look is in your highest gross margin endeavors. It is no coincidence that Amazon took on the book and music business first.

Finally, you cannot be disrupted if you are the disruptor. Think about one thing every day. If I was going to disrupt my category or business how would I go about doing that. Then, and this is important, go and do it. Because if you don’t someone else will.

To learn more about disruptors reach out to Rich Hollander at [email protected] . Learn how Axcelora is disrupting the client development business by looking at www.axcelora.com

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