The April 15 issue of The Economist published a simple chart that gave me chills. Look at it for a minute. What looks scary to you?
That’s not what scared me though. I found the years from 2000 to 2006 to be particularly frightening, when nothing much was happening in mail volume.
How could a relatively flat line be scary?
It just looked so eerily familiar. Go back and look at what happened to CD sales from 1996 to 2001. Or check out newspaper company revenues from 1996 to 2005. Or Kodak’s film sales during the 1990s. Or Blockbuster’s revenues in the early part of the 2000s. Or Digital Equipment Corporation’s revenues in the 1980s. And on and on and on.
In the early days of transformation, market leaders tend not to feel deep pain. The transformation takes root away from the mainstream, or in a seemingly non-connected market. It’s not yet good enough for mainstream markets. Or, the overall increase in consumption acts as a “rising tide” that lifts the boats in the mainstream market. This makes it easy for executives to say, “I get what you are talking about. But my business is healthy! It’s all overblown.”
It’s only after the not-good-enough transformation gets better that a “Big Switch” begins. And when that magic tipping point hits, the switch accelerates rapidly.
The lesson for executives is that it’s important to look beyond revenue or basic market share data to determine whether or not a would-be disruption is a legitimate threat. If the U.S. Postal Service had measured its market share of “pieces of communication” (which, it very well might have) it would have noticed sharp share declines even as its revenue was increasing. Similarly, while Digital Equipment Corp. might have felt great that its revenues went up from $3 billion to $11 billion during the 1980s, that growth paled in comparison to the explosive growth in the personal computer market.
Another Big Switch in the offing might be television viewership. I remember an executive from a leading cable broadcaster telling me a couple of years ago, “This YouTube thing is all hype. You add up all the hours ever spent on YouTube, and it’s less aggregate time then one night of primetime.”
That’s correct, and while television ratings have declined over the past few years, they haven’t fallen off a cliff. But I have observed my own family’s habits shifting. We increasingly watch content on portable devices and our computers. For the most part, this viewing is additive, but you can see the Big Switch coming. I hope that cable executive is looking at share the right way, and responding accordingly.
Spotting transformation requires looking beyond the traditional boundaries of your business. Growing revenues can hide a looming threat that demands your immediate attention.
To spot transformational trends early, companies need to experience the peripheries of their industry. True transformation rarely comes from out of the blue. The right questions and the right approach can help companies confidently spot the trends that have the biggest potential to shake up their markets, and respond accordingly.
Start with peripheral customers or “lead users.” These on-the-cutting-edge users can often be powerful sources of innovation insights as their unique needs lead to them kludging together novel solutions. Young customers often are the first to snatch up new technologies because they don’t have to unlearn engrained behaviors. Consider customers facing extreme constraints as well.
Also investigate peripheral companies. Look to interesting startup companies or established companies that could one day edge into your market. Avoid the temptation to limit yourself to traditional industry demarcations. As markets increasingly converge and collide, odds are high that the company that will transform your industry will start in a completely different industry. Investigate companies that are solving similar problems that you solve for your customers. Pay particular attention to those companies that are solving those problems in different ways, or targeting completely different customer groups (A new breed of retail letter bomb | Alan Kohler | Commentary …)
At these peripheries, watch carefully for early signs of transformation. One clear sign is the coupling of a solution that makes it simpler for people to address an identified pain point with a business model that looks unattractive to historical market leaders. Remember that transformation starts innocently, so ask what developments would indicate an accelerating pace of change.
Getting to the periphery not only helps to spot transformation early, it exposes leaders to new mindsets that support the pursuit of innovation and growth. For example, my client visited a range of startup companies as well as more established, but non-competitive industry disruptors (for example, a supplier). Leaders returned from these visits with a number of interesting insights. One observed how the fear of running out of cash motivated incredible creativity in startup enterprises. Another noted how a representative of a mid-sized, young company expressed an interesting tension: he boasted of his firm’s egalitarian culture while admitting, “The boss really should be telling you these things.” Several commented about how deeply committed leaders were to innovation. Almost all had a maniacal customer focus.
You won’t get these kinds of insights hobnobbing with the usual suspects at industry trade events. Find ways to get to the periphery to better prepare yourself for the transformations to come.