Corporate evolution in the age of Digital Disruption

The prevailing paradigm in business today is one of ever-faster transformation and creative destruction: Big Tech companies’ takeover, the number of unicorns continues to rise, and incumbency has never been less valuable. The message to existing businesses is clear: catch up or die.

There’s no doubting the large tech companies’ exponential growth or the tales of disruption’s renowned victims. However, many large sectors of the economy have not been significantly disrupted over the last three decades, i.e., taken over by tech-enabled competitors that serve people more efficiently and cheaply than incumbents. In truth, most established businesses are thriving in today’s digital age.

Digital disruption is real, but it has been exaggerated by three myths: every industry is threatened, disruption occurs swiftly and accelerates, and established businesses struggle to adapt. When confronted with a disruptor, businesses often respond by creating a competitive digital unit, establishing an incubator or accelerator, or pursuing a transformation.

However, this is only one solution to the problem. If you conduct a simple five-forces study to determine how digital technology influences your sector, you’ll probably discover that it lowers barriers to entry in some areas, stimulates new entrants, and improves client buying power, particularly in B2C marketplaces.

Again, the normal response to disruption is to try to outsmart the insurgent at its own game. By establishing new units, making an acquisition, or forming a joint venture, incumbents can go head-to-head with disruptors. Fighting back is justified if the new technology poses an existential threat to the company, but this isn’t always the case. Furthermore, succeeding is incredibly difficult: while there have been some wins, established companies have a poor track record when it comes to challenging upstarts at their own game.

Retrenching is a tactic for incumbents to strengthen their negotiating power, reduce the industry rivalry, and boost entry barriers when viewed through the perspective of the five forces model. It is a defensive strategy in which existing businesses cede ground to newcomers and employ a variety of strategies to guarantee their own existence. Consolidation through mergers and acquisitions is a common approach used in declining sectors. Another strategy is to enlist the assistance of the government and regulators in imposing additional restrictions on newcomers.

Doubling down on your current plan is likely to work out well if you have good assets that the market still values. If digitization is a threat that you don’t think you can handle, diversifying into more secure fields is generally the best option. Because each of these tactics has upsides and downsides, it’s up to you to decide which is ideal for the company’s goals.