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Disruption Eruption—ASAP Toronto Chapter President Examines History, Current Landscape of Market-Disturbing Innovations

Posted By Administration, Friday, June 20, 2014
Originally posted on 3/6/2013

Getting back to some of the insights from the first day of the 2013 ASAP Global Alliance Summit, ASAP Toronto chapter president Phil Hogg, CA-AM, vice president of strategic alliances for Moneris Solutions, closed out the day with his presentation “Next-Wave Challenges, Next-Wave Opportunities: The Impact of Disruptive Technologies on Strategic and Operational Fit,” which traced the history of disruptive innovation, described the main characteristics of such advances, and revealed how this applies to today’s business landscape, particularly in relation to mobile technologies.

Although people associate disruptive innovation today with technology-based products and services such as cloud computing, mobile, and social media, it would be a misconception to think that market disturbance is always technology-based. This became apparent from Hogg’s quick history of this type of market force. He walked attendees through the story of the steel mill industry, which saw over time the dissolution of once-powerful large integrated steel mills that proliferated in the United States last century. Starting in the 1960s, smaller mini-mills ultimately eroded the larger mills margins one steel type at a time, starting with the lower-margin rebar steel type and ultimately usurping the larger mills’ hegemony in every steel category, including angle iron, structural steel, and sheet metal.

The steel mill example illustrated one commonality of most if not all disruptive innovations: they have the luxury of starting with a small lower-margin market. In general, these products and services tend to be affordable, accessible, and effective. In addition, performance thresholds can be lower for disruptors; the first generations of mobile phones had poor sound quality, but the benefit of mobility outweighed the negatives. Moreover, the first entry into these markets usually comes out ahead, whether it be Amazon (online retail), Dell (PC/desktop market), or Toyota (fuel-efficient cars).

One reason established companies fail to combat these forces is that traditional training sometimes fails to prepare them. According to Hogg, business school training emphasizes understanding your best customers and focusing on highest-growth products. However, disruptors can enter the market through products that are essentially rejected by the bigger players. Moreover, the aforementioned lack of similar margin pressure might steer a disruptor to a blind spot on the bigger player’s radar. Hogg used the term “asymmetric motivation”—the principle that one company’s strength is another’s weakness.

How can a big company protect itself? Through acquisition, internal development, and spinoffs such as Intel’s Celeron chip set series aimed at the low-end of that market segment.

“Intel essentially became its own disruptor,” said Hogg.

Moneris, Canada’s largest credit and debit card payment processor, is dealing with mobile devices as a disruptor to its market. It is working with partners on two fronts: for current clients, it is providing its eSELECTplus Mobile option to provide clients the ability to process payments with mobile devices; new customers can select Moneris’s Payd offering, which allows new consumers to download software that provides mobile payment processing.

The bad news for alliance managers? Product life cycles will be in the decline stage. Whatever was used five years ago will soon not be a strategic fit. Operational fit (resource allocation, time dedication, etc.) will erode with some longstanding partners with whom you may have grown comfortable.

On the other side of the coin, “ally” will be the right choice oftentimes following a build-buy-partner analysis since it is frequently a lower-cost avenue to approach a problem. It also provides quick entry into the disruptor’s market. Moreover, the exit strategy is commonly easier.

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