How do market leaders succeed when challenged by new disruptors?

James White

VP of Strategy, Duro

March 15, 2023


Leading manufacturers are sometimes surprised by innovative startups and are unable to act fast enough to compete. They end up getting left behind. Many times they fail because rigid processes or old assets hold them back. But a culture of change, empowering employees and embracing flexible software and processes can help them retain market leadership.

This blog explores some of the limitations for market leaders and provides tips on how they can succeed despite the constant evolution of technology and emerging competitors.

New technologies blindside market leaders who are unable to react quickly enough

Iconic brands define entire industries. Their products are familiar to generations of loyal customers. Buyers do not need to ask “why should I buy this product?” because they want the leading brand. But when news reports send signals of distress, the company is upended and poof, they’re gone!

Blackberry, Nokia, Kodak, Sears, and Borders were all market leaders that were not able to survive. These companies are unique and have their own stories, but they have one thing in common: they all fell victim to an emerging technology shift in their industry.

For example, Blackberry and Nokia produced the first multifunction phones for business professionals. They dominated their industries for a number of years, and Nokia even beat Apple to market with a touchscreen smartphone that also had a camera. However, it was Apple that leveraged Haptic technology (variable forces on a user’s finger to interact with a surface such as a touchscreen), and this was the game-changer for the iPhone in 2007.

Apple’s advantage actually started building in the late 1990s, resulting in the iPod in 2001. Years of R&D with Haptic human interfaces for the iPod allowed them to apply those technologies and skills to other products such as the MacBook and iPhone. Blackberry and Nokia couldn’t compete. Their skills, patents, and IP weren’t as advanced as the rapidly developing new touch interface products being released by Apple and also Samsung. This triggered a global paradigm shift that overwhelmed Nokia and Blackberry, among others, and obsoleted the need for buttons on mobile devices.

Similarly, Kodak was caught flat-footed by digital cameras, Sears by online retailers, and Borders by a shift to online retailers compounded by the emergence of e-readers such as Amazon’s Kindle.

The pace of innovation isn't slowing down

Consider ChatGPT (Chat Generative Pre-trained Transformer) which has caused a wave of fear among businesses and employees alike. The AI-fueled chatbot can answer a question or create a document on demand in seconds. Google is worried, as are teachers, book publishers, content creators, educational institutes, and subject matter experts.

Not only is there an opportunity for students to do their homework with AI-generated documents or for marketers to use the technology to create content, but ChatGPT could also revolutionize, even replace, the multi-billion dollar search industry.

When a new technology arises, it’s not always obvious how it could be applied or what it might disrupt. This is especially true in modern hardware product design and manufacturing. Components are sourced from a vast ecosystem and utilized in new ways that weren’t envisioned when the component was first invented.

New products, such as drones, GPS, and satellites have arisen with entirely new value propositions from their original purpose. For example, drones, which were originally designed for military surveillance, have made an impressive impact in climate monitoring and wildlife conservation. And who would have thought that Haptic technology, pioneered in the 1960s, would change the way people interact with their devices and create a “new normal” fifty years later?

Becoming a market leader isn’t easy; remaining one is much harder

Leading brands are built over time by doing many things well.

A balance is needed between updating products in discernable increments and being progressive enough to create barriers to competition.

Brands also need to keep customers engaged and satisfied. If the leap to the new product is too great, loyal customers will be alienated and get frustrated. They will evaluate alternatives as they consider buying the new, upgraded model. But if the new product doesn’t offer any additional value, customers will seek the new shiny thing. The challenge is that loyal customers are both a source of reliable revenue and a trap that restricts change.

Why do industry leaders fail?

When an industry leader fails, people typically assume that “they didn’t listen to their customers.” But oftentimes they did listen to their customers and weren’t able to act quickly enough. Ironically, many of the characteristics of a strong brand leader become impediments to reacting fast when an emerging competitor turns up. For example, a need to maintain existing product lines used by a vast customer base could tie up development resources. Or lengthy engineering processes that are designed to ensure product quality could inhibit innovative designs from coming to the forefront in time.

While many factors affect a market leader’s resilience over time, we’ll focus on what might hinder the engineering and product development of new products.

Reuse of existing tools and content limits innovation

Engineering design teams sometimes attempt new things, focusing on ideation and experimentation. They might form a “Tiger Team” composed of innovative forward-thinking employees who are given the autonomy to develop new ideas into marketable products. However, challenges remain. The content and the tools they use hold them back.

Heavily customized, large-scale technology deployments are carefully set up to facilitate repeatable and standardized processes. For example, PLM for the product departments might enforce strict guardrails to streamline product development.

Teams have permission but aren’t empowered to think outside the box.

They need to reuse existing BOM structures and processes for development. If a new design doesn’t fit into the corporate BOM structure, it can’t be represented in PLM.

A risk averse culture prevents agility​

Typically, large established organizations have a risk-averse, conservative culture with lengthy and stringent approval processes. Everything gets measured using Key Performance Indicators (KPIs) and people are incentivized for fractional improvements.

The stable and predictable work environment and, pressure to meet standard KPIs can stifle agility. The “tiger team” needs to work within the guardrails of the corporation. Rarely are they free to act like the innovators and risk-takers working at startups driven by fanatical-seeming visions.

Existing assets aren’t relevant to emerging market demands

Leaders have a valuable body of corporate Intellectual Property (IP), inventions, best practices, and patents. However, that IP may have nothing to do with the rising new technologies. For example, consider film cameras vs digital, paper v eBooks, brick-and-mortar department stores vs online, and button keypads vs touchscreens. Having those assets and human experience with the related products may not give manufacturers what it takes to make a competitive new product. The new technology trends might also be incompatible or irrelevant to the current business model.

The following assets could in fact be liabilities when competing against a new entrant:

  • Corporate IP, patents, and trademarks aren’t relevant
  • Worker skills and experience with legacy products
  • Compensation based on performance doesn’t encourage a shift in focus
  • Capital assets in the factory like injection molding machines, spot welders, and CNC machining centers are no longer needed for the latest product lines
  • Logistics and distribution processes are rigid
  • Long-standing relationships with suppliers can’t be broken to bring in new suppliers
  • IT tools, systems and databases are highly customized to existing structure and data sets
  • Corporate governance standards and KPIs aren’t adaptable

New competitors bring a whole new value proposition to have an unfair advantage. They’re adaptable to use new technology, have more of a risk-taking culture, and are backed by Venture Capitalists (VCs) who see the vision. They do not get measured on reliable revenue streams (for now) and KPIs are not about showing incremental improvements. Instead, it’s about grabbing market share from early adopters as fast as possible. It’s about being agile, nimble, failing fast, learning how to make it better, fixing things, and moving forward. And that’s why market incumbents struggle to compete.

How can leaders succeed in the face of disruption?

Some very large corporations are able to continually innovate despite their constraints.  Established athletic apparel manufacturers like Nike, Under Armor, and Adidas are ever-evolving. Automotive manufacturers such as Mercedes, Toyota, BMW, and Ferrari, plus motorcycle manufacturer Ducati, continue successful growth through product development rather than acquisition alone, despite rocky patches.

Technology companies such as Microsoft, IBM, and Intel, continuously reinvent themselves to stay ahead. The semiconductor industry, which is characterized by long lead time R&D investments, is capital equipment intensive, demands extremely high-quality standards and is volatile with regular peaks and troughs. It’s a difficult environment to remain innovative and agile. It’s also an industry that undergoes continuous consolidation because of the demands of the microchip scale which continually drops. Microchips have dropped from 100 nm in 2000 to 3nm in 2022 and are forecasted to reach 2 nm by 2024. (1 mm = 1,000,000 nm). Yet Intel and other large established companies continue to successfully reinvent themselves. How?

Intel’s third CEO, Andy Grove, famously wrote a book, “Only the Paranoid Survive,” which lays out strategies, business models, and insights for companies (like Intel) to see dangers that may come from every corner.

Characteristics of companies that stay ahead include:

Evolves constantly

Management pushes constant change and no one feels comfortable. Managers are often heard saying things like ….“The way we do things today may not be the best way. Find a better one.” or “You are trusted to do the right thing.”

Rewards creative thinking

The organization rewards creative thinking, encourages people to speak up with new ideas. People feel empowered to take action and try new things rather than waiting for permission first.

Measures innovation

KPIs are set up to measure new ideas and innovation. People are encouraged to challenge their own thinking.

Embraces modern software and processes

Modern software tools and processes based on best practices help individuals become more productive without constraining them from trying new things.

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