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As Some Thrive on Disruption, Others Strive to Survive It

John Moore, | Special to CNBC.com
Thursday, 18 Oct 2012 | 5:01 PM ET

In 2002, before merging with Palm the following year, Handspring pioneered the smartphone with the Treo. In 2003, Research in Motion took the concept a step further by seamlessly integrating email and messaging in the BlackBerry, producing products so addictive that they were frequently compared to a variant of cocaine.

Today, Handspring and Palm belong to the dustbin of history, and many believe Research In Motionis headed in that direction, as Apple’s iPhone and smartphones based on Google’s Android operating system have left RIMM's BlackBerry products looking stale.

This is what happens when disruptive companies find themselves disrupted.

(Read More: The Wearable Revolution)

Staving off a disruptive competitor is difficult. Advances in technology, intense competition, and stagnant management are some of the factors that contribute to a once-innovative company’s fall from grace. The biggest lesson for businesses and investors: Just because a company’s disruptive nature gives it an advantage doesn’t mean its reign will last forever.

The Roots of Disruption

The first rule of disruption is that every business is vulnerable to disruption. In fact, the success that comes with being a pioneer often leads to circumstances that leave a company exposed to disruptive competitors. (More: Top Disruptive Products)

“If business is going very well, it’s difficult to want to change that,” said Maribel Lopez, principal and founder of Lopez Research. “Typically, the disruptive things come in at a lower price point or a lower margin. It’s really hard when you’re successful to say, ‘OK, now let’s look for the thing that’s going to disrupt that and drop our business margin by 25 percent.’ ”

Sometimes, like the Handspring Treo, a product is simply ahead of its time.

“At the time, they didn’t have the muscle or the technology to really make it what it is today,” said Tim Bajarin, president of Creative Strategies. “They were early, which meant they were way ahead of the curve both at the technological level, as well as a business.”

Technology, of course, plays a key role. Brian Solis, principal analyst at Altimeter Group, notes that many companies fall victim to what he calls Digital Darwinism. That is, “Technology evolves faster than a company’s ability to adapt," he explained. (More: Kodak's Decline)

Leading server vendors such as Hewlett-Packardand Dell have seen their business models upended as virtualization technology from companies such as VMware reduced the need for large orders of their products.

Often, however, companies aren’t taken unaware of technological advances; it's more a tendency to dismiss their potentially disruptive effects. That’s what’s happening now to PC vendors, who have seen their sales erode as tablets shake up the market.

“In early 2009, I started telling my clients that tablets are going to be the next big wave,” Bajarin said. “All of those vendors sat back because their business models were so tied to the PC, they had a hard time seeing how a tablet could make any inroads. By ignoring that, they gave Apple a free rein for at least a year and a half. And between Google and Amazon, we now have serious competitors."

Perpetual Disruption

Some industries just seem ripe for constant disruption.

In the late 1990s, the Internet shook up the travel industry, as new online travel sites let users search for the best prices and then book airline flights and hotel rooms directly. But intense competition has prevented any company from becoming the single disruptive force.

At some point,Travelocity, Expedia, Priceline , Orbitz and Kayak were all considered disruptors. All of these businesses are thriving, but none has shaken up the industry to the point where all others are digging for crumbs. (More: Video Game Business Under Attack)

Earth Net
Earth Net

Now Google’s ITA Software is getting a lot of attention. ITA, whose technology powers the search engines for several major airlines and travel sites, offers its own mega-search product for consumers called Matrix. Meanwhile,Airbnband Hotel Tonightare currently shaking up the accommodations booking industry.

Solis said true disruption is difficult in such a highly competitive environment.

(Read More: Disruptors Can Delay the Apple Way)

“You’re essentially competing for relevance all the time,” he said. “Before, you could win with search engine optimization. But now you have to be integrated into every new touchpoint that’s emerging, whether it’s the phone or the iPad. Innovation isn’t just about the products you create. It’s also how you recognize preferences in consumer decision making.”

Maintaining an Edge

What happens when a disruptive company falls off its perch? Is a second act possible?

Lopez points to IBM as a company that has rebounded again and again. IBM revolutionized the computer industry twice — first with mainframes, then with PCs — only to jettison those products when it recognized changes in the business environment.

Over the years, the company has evolved from a manufacturer of products to a provider of solutions to far-reaching problems (IBM’s Smarter Planet theme includes using technology to improve everything from traffic congestion to public safety).

Usually, however, companies fall and continue on a downward spiral until they disappear. When was the last time you set foot in aBlockbusteror updated your MySpace page?

And companies currently considered disruptive always need to look over their shoulders. Lopez points to Google as a dominant company that may find itself in trouble unless it changes its culture.

“Google has a tremendous amount of resources, they crank out great ideas all the time, but they can’t seem to productize their great ideas beyond advertising,” she said.

Bajarin notes that having deep pockets and a willingness to reinvent yourself can help fend off disruptors. But no matter how large and successful a company is, the possibility of disruption is always around the corner.

“Make sure that you have strong capital behind you, and that you have a management team that is very forward thinking," Bajarin said. "And understand that if you have successful product, competition can catch up much faster than in the past.”

— John Moore

CNBC Disruptor 50 Innovators