How can Incumbents Respond to Disruptors?
The challenges to incumbent majors across industries have come mainly from low-cost competitors and from dotcoms (e.g. british Airways and KLM versus EasyJet and Ryanair, Merrill Lynch versus Charles Schwab and E*Trade, Barnes&Noble versus Amazon.com etc.).
These low-cost firms changed the paradigm of doing business the "traditional way". According to Charitou and Markides, the response to disruptive strategic innovation depends of the incumbent's motivation and ability: "If motivation is low the response should be to ignore the disruption and focus on the main business; If motivation is high, the appropriate response is dictated by ability and circumstances". The authors single out five possible response strategies
1. Focus on the Traditional Business
. A strategic innovation might capture only a fraction of the market and not overtake the traditional way completely.
2. Ignore the Innovation
. The new business model "targets different customers, offers different value propositions and requires different skills and competences".
3. Disrupt the Disruption
. Emphasize totally different product attributes and make them more attractive to customers than the attributes stressed by the disruptor.
4. Adopt the Innovation
. If a strategic innovation is a real threat to existing business, it might make sense to play both games in which case the greatest challenge is how to manage the conflict between the two models and, if possible, achieve synergy.
5. Embrace the Innovation Completely and Scale it up
. The incumbents may have a competitive advantage in the form of resources and competences to adopt a disruptive innovation and bring it to mass market faster and in a more efficient manner.
Source: C. Charitou and C. Markides, "Responses to Disruptive Strategic Innovation", MIT Sloan Management Review, winter 2003