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Can we innovate faster than they can scale?
This is the key question facing incumbent firms playing defense against disruption by more nimble, digital challengers. It’s a question that generates countless hours of analysis and debate for one very good reason.
Drucker Forum 2019
By the time challengers become large enough to pose a threat, it is generally too late for incumbents to innovate.
Yet there’s a hidden cost to companies focusing on the incumbent’s dilemma—a narrow market vision that prevents leaders from identifying and taking advantage of broader ecosystem opportunities.
“Innovate before they scale” is rooted in a binary view of customers, profit, and marketplace competition. Incumbents have much to lose; naturally, they try to build walls, protecting and preserving what they’ve built. Meanwhile, challengers have everything to gain; their efforts revolve around storming the gates.
Within established companies, managers who recognize the threats posed by smaller, rising upstarts create new metrics, strategic frameworks, and investment cases to help their firms respond. Because those efforts usually involve transformation, they demand attention and diligence—the better to build new and necessary corporate muscles.
However, that same attention and diligence can leave incumbents inadequately equipped to do the kind of thinking and working that ecosystem success requires.
Disruption asks managers of established firms to consider the potential impact of small and growing competitors on their existing business. By contrast, ecosystems ask those same managers to imagine new business being created in concert with other firms of all sizes.
Disruption threatens existing profits and eats away at existing customer relationships. Ecosystems introduce new business models and provide access to new customer relationships. Disruption prompts long-term efforts to improve and upgrade existing tech stacks and infrastructure. Ecosystems embrace open APIs and partner integrations that can allow new ventures, including ones from established companies, to deliver best-in-class experiences from day one.
In short, expanding to ecosystems turns much of the work of defending against disruption on its head.
Incumbents can’t ignore disruption and expect to survive. Nor can they disregard ecosystems and expect to thrive. Firms need to upgrade their core businesses and take advantage of new spaces. Yet management attention and company resources are finite. Splitting focus across two divergent strategies easily can produce diluted efforts and eventual failure.
But what if those strategies aren’t actually divergent?
Defending against disruption usually means upgrading the old to keep up with the new. Today, that’s no longer the only option. Incumbents may be better off seeking out the new—that is, the new customers, partners, experiences, and business models found within new ecosystems.
Pursuing the new can be risky and expensive: traditionally, the rocky and uncertain road to new customers involves major infrastructure investments and long feedback cycles. Ecosystems present a different path – experimental, iterative, populated with new addressable customers. Beginning that journey requires a different way of sensing and responding to disruption, moving beyond the binary and inward-looking nature of the innovation-versus-scale race and its supporting management practices to a model that is open-ended and outward-focused.
About the Author:
As Head of Studio at Citi Ventures, Valla Vakili engages with external ecosystems and Citi colleagues to develop solutions that meet the evolving expectations that people, businesses and cities have for the banking industry.
This article is one in the Drucker Forum “shape the debate” series relating to the 11th Global Peter Drucker Forum, under the theme “The Power of Ecosystems”, taking place on November 21-22, 2019 in Vienna, Austria #GPDF19 #ecosystems