By WSJ. Custom Studios for GE Capital
It’s often said that the first rule of disruption is disrupt, or be disrupted. That’s easy to say, but how do you know when it’s time to shake up your business before some other company shakes up your whole industry? Here are five red flags:
1.) Your product pipeline is full of certainties. A portfolio overweight with business-as-usual products, or incremental improvements on established products, could be headed for trouble. “If the percentage of revenue or profit your company earns on new products or innovations is declining year-on-year, you need to reevaluate the kinds of ideas you are launching and push yourself further,” says Lisa Bodell, founder and CEO of futurethink, an innovation research and training firm.
2.) You’re coming under unusual pricing pressure. If your customers are threatening to leave if you don’t cut prices, your products are becoming commodities, with nothing but a cheaper price to beat them. This is the dreaded commoditization of an industry, where me-too products vie for customers’ attention, forcing frequent price cuts. “You have to find something that the customer needs and add it in to your product to make it unique,” says Mohanbir Sawhney, the McCormick Tribune Professor of Technology at the Kellogg School of Management. “If you have something they can’t get elsewhere, you can focus attention away from price.”
3.) It takes you a long time to bring a new product to market. Endless development for new product launches can signal you have too many restrictive policies in place. “Kill a stupid rule,” says Bodell. “Too often, we don’t question why procedures are in place. But if you can figure out which rules can be scrapped, it’s very productive and clears space for people to be more innovative.”
4.) Your new competitors make money differently than you do. Think of how eBooks changed bookselling for traditional brick-and-mortar retailers, or how online streaming services altered the way people rent movies. “If your competitors seem to be playing a different game, you may need to take steps to beat them at their own game,” says Sawhney. “You can either acquire a business to directly compete with the newcomer, or you can use your assets to fight back.” A bigger sales force with more personal customer care can offset the attraction of a lower price and meager customer service, he suggests.
5.) Your bottom line grows faster than your topline. If your profitability is increasing but your revenue isn’t, your growth is unsustainable and probably not coming from true innovation. “In the long run, there is no way of increasing profitability with persistent cost-cutting,” warns Sawhney. “That will boost your profits in the short term, but you can’t sustain it. You can’t cut your way to greatness.”
