A disruptor appears

Powerful market leaders are sometimes unseated surprisingly quickly.  A disruptor appears, the market shifts, and before you can acknowledge the reality of what is going on around you, you are attending your own funeral.

It is common for companies and executives to fall into the trap of failing to change quickly, of believing their long-held, carefully crafted value propositions and dismissing new strategic realities. There is no end of examples;

• On-demand video leading to the elimination of over the counter video rental
• The shift toward unmanned aircraft for persistent surveillance and ground attack
• The displacement of the conventional circus by Cirque du Solei
• The rapid drop in laptop computer sales with the advent of smartphones and tablets
• The rise of Apple from almost dead to market leader – watch this space
• The daily obituaries for newspapers and magazines
• The growth in on-line buying and reactions from brick-and-mortar stores
• GPS everywhere
• The cloud

It is hard to break away from your strongly held belief in the strength of your current position and strategy.  Unfortunately, it is also easy to find consultants who will buttress your world view rather than challenge it.

We believe that there is no such thing as a “static” business.  You are growing, changing and adapting, or you are in decline.

If your business seems stagnant, there is a certainty that someone is quietly undoing you right now

In March of 2012, Frances Frei and Anne Morriss wrote an article for the Harvard Business Review, titled “The Five Stages of Strategic Grief”⁽¹⁾.  We loved this playful approach, because it has a serious foundation that really makes you think.

We have paraphrased and expanded their original work and thoughts below;

The Five Stages

Elisabeth Kübler-Ross’ original stages were: Denial, Anger, Depression, Bargaining and Acceptance.  Frei and Morriss⁽¹⁾ proposed a subtle change, with the five corporate strategic stages established as: Denial, Anger, Rationalization, Despair and Acceptance.  Hopefully “depression” never occurs in a corporate setting.

We believe that a useful first step in strategic planning is to walk through a facilitated session that helps you determine if you are trapped at one of these levels.  This can also enable you to define the psychological head space of your key competitors, particularly if you are, or plan to be, the disruptor.

This is usually a liberating exercise.  If you are living at one of these stages, you need to invoke effective change management and executive level paradigm shifts that move you quickly to the stage of Acceptance or beyond.

Only then are you free to innovate, rebuild, compete and expand.

Behaviours that are typically found at each of the five stages are expanded below;

Stage 1: Denial

• A new entrant appears.
• They are similar, but different.  They don’t fit the conventional mould.
• Their product differs along with any or all of pricing, features, sales channels, performance, …
• They are easy to dismiss.
• They are probably small with few employees and no real track record.
• They won’t last.
• In any event, you are leaders in the market.
• You have strong value propositions and differentiators.
• There are real “barriers to entry” – they couldn’t possibly have the capital to compete.
• There are technological barriers as well – their idea won’t work.
• Your clients love you and will not leave for some small entrant or shiny object.
• You either ignore them or dismiss them.

Stage 2: Anger

• You start to lose a small amount of market share and some good customers “take a risk” and abandon you, while others experiment on the side.
• Customers who had been fairly high up the value and brand loyalty pyramids become price sensitive and/or commodity buyers.
• These new competitors have something new and unexpected.
• Often they have brought together multiple technologies to create a new service or product.  Sometimes they have eliminated industry standard features and services with an attendant significant reduction in prices. (see Blue Ocean Strategies)
• Your think, “our strategy is right, these behaviors are unacceptable”
• You believe that it is just a flash in the pan.
• It is frustrating that the “customers seem to be irrational”.
• These guys are messing with our margins and will damage the market for all of us who have invested so much to create viable products and services.
• The customer base will regret this.

Stage 3: Rationalization

• Your natural human biases start to get in the way.
• You rationalize that markets are always in flux, but your business is solid and you will be fine.
• Your business development people diminish the potential threat, finding all manner of reasons to buttress their world view.
• You lose some customers, but you still have a commanding market share.
• They won’t last long. They can’t grow enough to be a real threat.
• Customers will return when they see that it is all smoke and mirrors and snake oil.
• In the back of your head, you wonder if you should buy them.

Stage 4: Despair

• They won’t go away.
• They are redefining the market and your products are looking dated.
• The new guys are doing well – strong growth and lots of buzz.
• Some of your classic competitors have also jumped ship and seem to have embraced some or all of the disruptive products and services.
• Those small disruptive entrants now have cash flow, market and momentum.
• Perhaps a new competitor has won a massive new contract which has diverted revenues away from your established products.
• They may have a completely new technology.
• They may have created a “blue ocean”, a new market that is parallel to yours.
• You are proving unable to influence the market or your customers.
• You have not developed a renewed product or service.
• Your financials are suffering – at least you are not growing or are missing targets.
• You have become more fragile, losing contracts, not winning new jobs, staff departing, revenues flat to declining.
• You do not have a new and competitive product in the pipeline.
• You should have bought them when they were small.

Stage 5: Acceptance

• They are not going to go away and the market has shifted.
• You start to develop strategies for shifting or for operating with a smaller more nice market share.
• You stop believing your own marketing materials and value propositions.
• You find that the working levels of your business saw this all coming. If you are lucky, they had some skunk works activities on the go and you have something to work with.
• You start to listen and strategize.
• You figure out how to leverage your strengths (channels, brands, technology, cash, facilities) and work on a plan to ultimately leapfrog the new guys.
• This has been a painful experience and may have resulted in contraction of the business.
• Some of your staff, including senior executives cannot get to this stage and cannot accommodate or accept the changes – such is life, let them go.

How to use this paradigm

We really like this model.  It is simple and engaging.  Everyone can cite an example of this process at work, and we have seen many recent examples of the rapid rise and decline of whole industries.  It feels real and this model fits nicely with a number of other classic strategic planning techniques.

This is generally used as an early stage exercise, before hard-core strategic planning.  Call us and ask about our complete list of strategic planning, change management and program management tools and techniques.

1)      Elisabeth Kübler-Ross, http://en.wikipedia.org/wiki/K%C3%BCbler-Ross_model and search for “On-Death-Dying” or “Elisabeth Kübler-Ross” on sites such as Amazon.

2)      Frances Frei and Anne Morriss, HBR Blog Network, March 2, 2012, http://blogs.hbr.org/2012/03/the-five-stages-of-strategic-g/

Our profound thanks to Frances Frei and Anne Morriss for their insight and to HBR for so many excellent articles from a diverse group of authors. Frances Frei is UPS Foundation Professor of Service Management at Harvard Business School. Anne Morriss is the managing director of the Concire Leadership Institute. They are coauthors of Uncommon Service: How to Win by Putting Customers at the Core of Your Business (HBR Press 2012).