Every company wants to grasp the holy grail of competing: to disrupt so thoroughly you make your competition irrelevant. But a disruptive competitive strategy doesn’t last forever. There is a disruptive attitude, though, that might.
Disruption and the blue ocean are the holy grails of competing. With them, you don’t even have to compete.
Blue ocean is pacific. It’s gentle; it doesn’t bother anyone; it’s just something wonderful and new. Disruption is the bad boy of holy grails. It sees the party going on at your house and lures everyone away to the party at its house.
Disruption is the ultimate buzzword for raising capital. Starting Walmart merely makes you rich. Starting Google makes you rich and cool.
But we are strategists and we demand more than generalities and party metaphors. Is disruption really the holy grail of competing? I’ll conclude that it is, but not of the we-don’t-even-have-to-compete variety. (I’m going to meander a bit on the way.)
In a sense, all extant companies were disruptive at least once because they lured customers to attend the party at their houses. But that’s about as useful as remarking that all extant humans breathe air. “Disruptive” must mean more than breathing. What more it means is a bit unclear.
Walmart is number one on 2014 Fortune 500 list. Its revenues top the combined budgets of California, New York, and Ohio. They top the annual budget of the Netherlands.
Is Walmart disruptive?
They certainly disrupted the previously largest retailers in the USA. They have stuck to a highly focused low-cost business model, perhaps to an unprecedented degree, since opening their first store in 1962. They launched Walmart Neighborhood Markets in 1998 and they plan to add up to 300 more this year, almost doubling the number they operate. They’re so disruptive some people have conducted protests to keep them out of their communities.
Walmart didn’t set out with “Now Disrupting the Retail World.” They set out with “The Lowest Prices Anytime, Anywhere.” They certainly reshuffled retail with their low prices but it’s debatable whether they intended what we’d call “disruption” today. And that’s the point: it’s debatable. Is Walmart disruptive?
Apple is Fortune #5. They’re surely as good an example of disruptiveness as any on the Fortune 500. Just ask BlackBerry, Motorola, and Nokia. Just ask anyone who makes laptops, or used to. Apple disrupted, but is it still disrupting? The first-generation iPhone in 2007: wow! The latest, the iPhone 5s and 5c… well, here’s how Rene Ritchie began his review:
“The iPhone 5s launched roughly 6 months ago. It was greeted with the usual ennui over its unchanged design…”
The latest iPhone is innovative and competitive, but when the second sentence of a review uses the phrase “the usual ennui” you know we’re not in disruption any more.
FedEx (Fortune #64) was definitely disruptive when it took off in 1971 with express mail. They’ve added services, such as FedEx Ground (1985). But what disruption have they delivered lately? By the way, United Parcel Service (#50), which initially seemed to have been threatened by FedEx, is bigger and more profitable than FedEx.
Only three companies in the 2014 Fortune 100 lost money. Together the three lost $3.5 billion, and together the other 97 made $738.8 billion. By contrast, many putatively disruptive companies have little revenue or profits, or none at all.1 That’s somewhat to be expected: startups begin at $0, and some web-based hopefuls pursue business models that they expect to “monetize” in the indeterminate future. WhatsApp, for which Facebook paid up to $19 billion, has $450 million or thereabouts. (See also “We’ll See How Smart Mark Zuckerberg Is.”) That revenue would make WhatsApp about 9% the size of Fortune #500 United Rentals, Inc. Is WhatsApp disruptive or is it merely a button on a Facebook page? Are they going to amount to anything other than $19 billion? (Personally, I might settle for that.) Again, we face the question: beyond the buzz, what, exactly, is disruptive?
Facebook had revenue of $1.5 billion in the first quarter of 2014. If we annualize that to $6 billion, Facebook will enter the 2015 Fortune 500 by displacing the current Fortune #430, Dr Pepper Snapple Group. Shouldn’t a ten-year-old disruption rank more than one click above a soft drink introduced in 1885? (I don’t know the answer to that question.)
By the way, when is Facebook’s disruption officially over? I’m not sure anything should be called disruptive once 1.3 billion people use it. It should be called normal.
Okay, I’ve raised a bunch of judgment-call, shades-of-grey questions about disruption: what qualifies as disruption, how long does it last, does it make money, and so on. No matter what the answers, the usual rules of competitive strategy still apply. Disruptive or not, a company has to satisfy a genuine need, has to generate more revenue than costs (eventually), and so on.
However, I began this essay by saying that disruption is a holy grail, although not of the we-don’t-even-have-to-compete variety. So, of what variety is it?
In 1981 IBM (Fortune #23) introduced the personal computer that changed the world. It was a remarkable event, but not just because of what the PC did.2 It was remarkable because of what IBM did.
IBM introduced a product that would compete with its own products. IBM disrupted itself.
The word people use when they talk about competing with themselves is cannibalization. Why would we want to cannibalize ourselves, they ask. And there’s what separates managing from competing.
Someone skilled in competing recognizes that “why would we want to cannibalize ourselves” is not the right question. The right question is, “are we better off cannibalizing ourselves or letting someone else cannibalize us.”
Any businessperson has the courage to disrupt someone else’s business. It takes clarity of thinking, commitment to vision, and courage in decision-making to disrupt yourself. The willingness to do that, as IBM did (and others have done), is the holy grail of competing.
For more on disruption, see my colleague Ben Gilad’s essay “Disruptive Innovation versus Old-Fashioned Strategy.”
1 The presence of revenue does not mean a company was disruptive. It does not follow, though, that the absence of revenue means a company is disruptive. Instead, the persistent absence of revenue means a company is in trouble.
2 IBM’s PC wasn’t even the first “personal” computer. Altair, Apple, Commodore, and Tandy preceded it. It’s a little blurry, though, because IBM announced its 5100 Portable Computer in 1975, which weighed about 50 pounds. Weight-lifting computer scientists were thrilled.