Identifying Industries and Companies Ripe for Disruption

Disruption is a constant force in the business world, with certain companies and industries more susceptible to change than others. In this article, we will explore the identifying factors of which companies and industries are likely to be disrupted, using frameworks by Christensen, Porter, and Doblin. We will also provide real-world examples to illustrate our points.

Secular Identifiers of Likely Disruption

Attractive Operating Margins

Industries that possess strong profits attract more attention. However, when we discuss profit margins, it is crucial to distinguish between gross and operating margins. Attractive operating margins often belong to mature industries due to economies of scale. These companies are content with modest to robust free cash flows and are not investing heavily in growth. This indicates a complacent attitude towards innovation and an unwillingness to disrupt themselves.

Unbalanced Value Chains

Christensen’s software stack analogy helps illustrate how one part of the value chain can be disproportionately powerful. Similarly, Porter’s Five Forces model highlights the imbalance in power distribution. Doblin’s perspective, however, provides a more comprehensive view, emphasizing the importance of disrupting multiple points in the value chain. Generally, it takes at least four and preferably six points of disruption to unsettle an entire ecosystem.

Multiple Substitute Threats

This factor involves the emergence of new offerings that compete for the same resources. Companies that fail to understand and adapt to these substitute threats are prime candidates for disruption. A classic example is the DVR and time-shifting phenomenon, where consumers can now record television programs and skip commercials. Advertisers must continually innovate to maintain their value propositions, facing growing opportunity costs as consumers shift their attention.

Case Studies of Companies to be Disrupted

Content Distribution: Cable Companies, Pay-Per-View, and Broadcasting

Traditional media players such as Comcast, Time Warner, and Dish Network face significant challenges. Content distribution through cable subscriptions, direct broadcasting satellites (DBS), and traditional broadcasting are facing disruption. Streaming and online platforms like Netflix and Amazon Prime are reshaping the entertainment landscape, offering cheaper and more convenient alternatives. These changes are eroding the operating margins and value chains of these incumbent players.

Still Imaging Technology: Nikon and Canon

Still imaging technology manufacturers like Nikon and Canon are under pressure from the rise of mirrorless cameras. These cameras are more versatile and less expensive than traditional DSLRs. Professionals are increasingly adopting mirrorless systems, recognizing their advantages. The integration of mirrorless technology into smartphones further threatens these companies' core business. This shift in technology and consumer preferences is a significant disruption to the established players in this industry.

Content Production: Film and TV Studios

BIG film and TV studios are facing disruptions from lower-cost production models. Amazon, Google, and Netflix are developing production businesses that can compete with traditional studios. These platforms can produce high-quality content at a fraction of the cost, leveraging advanced technology and global talent. This trend is reshaping the content production industry, challenging the market dominance of the traditional players.

Plastics and Polymer Manufacturing: 3D Printing and Local Production

The advent of 3D printing technology is disrupting the plastics and polymer manufacturing industry. Companies like Nucor are facing competition from local 3D printing houses, which offer personalized and on-demand production. Any small consumer good can now be mapped for 3D printing, and the need for quality to improve further cement the disruption. This shift in production methods is altering the business models and supply chains of traditional manufacturing companies.

DISRUPTION is not just about being aware of new technologies and trends. It's about understanding the underlying forces that drive change and adapting to them proactively. Companies that can identify and respond to these disruptions can thrive in a rapidly evolving market. The industries discussed here—content distribution, still imaging technology, content production, and plastics/polymer manufacturing—are at the forefront of current disruptions, and their future success will depend on their ability to innovate and adapt.

Conclusion

Disruption is a central theme in business today. By understanding the factors that make companies and industries vulnerable, businesses can better position themselves to navigate this ever-changing landscape. Whether it's through adjusting operating margins, rebalancing value chains, or addressing multiple substitutes, staying ahead of the curve is crucial.

Key Takeaways

Attractive operating margins indicate complacency and low investment in innovation. Unbalanced value chains highlight the need for multiple points of disruption. Multiple substitute threats require a holistic approach to adapt and innovate.

Further Reading

For a deeper dive into the subject, we recommend exploring the works of Christensen, Porter, and Doblin, as well as recent case studies and industry analyses.