Disruption, sustaining and now dematurity
Whilst the term “disruptive innovation” entered the business lexicon back in the 1980s, it is probably even more relevant than ever now as companies strive to develop disruptive strategies aimed at achieving sustainable competitive advantage.
Having said that, we now have another neologism that has entered the business glossary; “dematurity”. Whereas “disruption” relates to any organisation, “dematurity” relates only to industries and organisations that are “well established” or “mature”.
The cycle for virtually all businesses begins with the “Emerging” Phase where market needs can be ill-defined and costs are usually high and profitability low, as consumer acceptance grows. There follows the “Growth” Phase where there is a greater interaction between consumers and the company, profitability increases substantially and costs decline, often due to economies of scale. At some point in the future, the organisation reaches the “Maturity” Phase where it is either at or just past its peak profitability. Whilst earnings may be stable, growth prospects diminish.
In the UK, the vast majority of companies are operating in what can be classified as mature industries. They are characterised by markets that have become saturated and demand is either static or declining, margins and profits are eroding and there is an emphasis on cost-cutting , rather that top line growth, to stay afloat. However, these traditional industries have great customer loyalty and, given the right leadership, can reinvigorate themselves to take advantage of their heritage.
William Abernathy, a Harvard Business School Professor in the late 1970s, coined the term ‘maturity trap’ relating to companies that reach maturity and risk sliding into oblivion. Whilst it is only natural to consider that all industries will, at some point, reach maturity, it doesn’t necessarily follow that companies then need to develop strategies based simply on financial optimisation, cost reduction and economies of scale. Of course, many will and, according to Professor Abernathy, effectively manage their way to economic decline, bleeding the “cash cow” to death.
Management will often claim that industry maturity is a consequence of technological evolution and there is certainly evidence to suggest that they may be right. However, more recent in-depth analysis suggests that technological evolution is not the only reason companies fall into the maturity trap.
Other factors such as historical legacies, lack of an innovative culture, external (competitor) and internal behaviours, company inertia, industry trends and government and environmental policies all play an important role. In some industries, such as publishing, the complete reengineering of the business is so radical that to undertake the necessary surgery risks destroying the existing business. But not undertaking the surgery risks failing to have a future at all.
So, where does the term ‘dematurity’ come into play? Dematurity of industries occurs when a number of companies begin to make many small innovations over a relatively short period of time. It’s a development not just related to products but also to processes.
In the early 1900s, there were just a handful of motor vehicles registered in the US. Less than 20 years later, more than three million were registered and the industry was set to flourish for the next 50 years. But this mature industry based largely in Detroit was to undergo a major shift as American vehicle manufactures struggled to differentiate themselves other than by price.
Enter the Japanese. In the 1960s Toyota and Datsun arrived on US shores with well-engineered, fuel-saving and affordable vehicles. But the threat to the US automotive industry wasn’t just with the Japanese product but also their lean management approach and superior production methods.
The Japanese didn’t destroy the US motor vehicle industry; they dematured it. The Detroit Three (Ford, Chrysler and GM) responded by not only producing new lines of smaller, more fuel-efficient vehicles but improve the quality of their product and thereby customer satisfaction.
The IT industry has undergone similar dematurity with PCs challenging and quickly making obsolete the well-established mainframe manufacturers. Even though personal computers were initially much cheaper than the bigger mainframe computers, they could not perform such advanced calculations. However, improved dramatically over time and eventually consumed an entire industry. The days when the air conditioning requirements for the “computer room” were a major factor in purchase decisions seems a foreign country now.
John Sviolka in his article “How Old Industries Become Young Again” (strategy-business.com) asserts that nearly all cases of dematurity have one thing in common: the genuine surprise of executives when it happens to their industry. Sviolka claims that it’s all too easy to be caught off guard and to ignore the small changes that appear one by one, failing to believe they will affect you, and ending up at the tail of the wave, outpaced by competitors who were more agile.
Hindsight is a wonderful thing. If it was only that easy to see into the future! Many of these so-called ‘small changes’ are made by startup companies –some of which succeed but many don’t. Executives are often not blind to the changes going on around them but consider that they have other more important issues to address. IBM was aware of the development of the personal computer but its priorities lay with providing a quality product to its existing clients. IBM’s problem wasn’t that it didn’t see the PC coming, it was unable to react quickly enough at the right time to continue as a hardware manufacturer. But it successfully reinvented itself as a service provide, capitalising on its heritage and value of its brand.
There are a few executives who are ‘talented’ enough to be able to forecast the future and can convince colleagues to take the bold decisions necessary to stay ahead of the curve. Many of them have become household names. For companies in mature industries to take advantage of innovation, they must not simply rely on the executives to spot these opportunities well in advance. The entire structure of the organisation needs to be capable of reacting fast to the changing face of the consumer, technology and the small steps taken by competitors. They must be adaptable enough to ensure that throughout the business people are rewarded for challenging the status quo and that siloed functions such as marketing, finance and IT do not obstruct the process of positive change.