The Incumbent’s Path to New Growth

Part 1 of 3

 

by Steve Wendler, Senior Strategist, & Brian Lett, Product Marketing

A paradox surrounds the topic of business growth. On the one hand, many well-regarded projections suggest that we’re entering an era with tremendous economic prospects. For example, the World Economic Forum projects that digital transformation across industries will deliver $100 trillion in value-creation opportunities through 2025. But CEOs, CFOs, and P&L owners in established enterprises consistently say that their top business challenge is … growth.

Why the discrepancy? Shouldn’t new growth be easier for established companies and organizations that can leverage their size and scale advantages?

In this three-part series, we’ll examine the reasons for this paradox and how incumbent enterprises can address it. First, we’ll examine the main reasons that growth remains such a big challenge. In posts 2 and 3, we’ll look at the new management capabilities that are needed to succeed against this backdrop, and how a new category of technology can make these capabilities a reality.

Reason 1: The Way We Were

Most large, incumbent enterprises achieved their success in mature markets by scaling their systems and processes. These investments not only enabled steady growth; they also provided stability. But they also tended to create hierarchical organizations, functional specialization, siloed operations and infrastructure, and isolated data.

As long as the underlying market assumptions on which these decisions and investments were made stayed the same, a business would be fine. But when conditions changed, the strengths of scale and stability would become impediments to growth that increased costs, slowed market response, and reduced financial performance for incumbents.

Reason 2: The New Market Dynamics

And change those assumptions did.

In mature, traditional markets, organic growth has virtually evaporated. A big factor behind this: The Internet and mobile computing shifted power to consumers by providing

  • Almost limitless choice
  • Extensive price transparency
  • Easy, real-time access to information and alternatives
  • Easy, real-time ability to publish and amplify opinions via social media

As a result, customer preferences now develop and disappear rapidly. That churn continuously fragments and reforms markets. In turn, revenue and profit opportunities become increasingly perishable and unpredictable. But most established market incumbents haven’t figured out how to sense these new dynamics—and respond appropriately.

Reason 3: Top-Down and Bottom-Up Threats From Tech Giants and Insurgents

Amazon, Netflix, and other tech giants have exploited the Internet to achieve extraordinary growth by offering direct connections and value to consumers. They are invading seemingly every industry with personalized offerings that can be produced at low cost, configured dynamically, and delivered instantly.

Their “hyperagility” provides important lessons for incumbents. The winner-take-all strategy of tech giants is reshaping consumer perceptions of value. It’s also resetting expectations of customer experiences and fulfillment in every industry—including non-profit and government organizations. Finally, it’s enabling tech giants to scale rapidly, gain share, reduce marginal costs, and further squeeze the already-thin margins of market incumbents.

At the same time, digital and micro-market insurgents can seemingly appear from nowhere and quickly disrupt existing markets. Insurgents tend to be small, nimble companies solving targeted problems and capitalizing on incumbents’ inefficiencies. But they also can be established companies—even from your industry—that have learned the lessons from the tech giants.

Predictions of Incumbents’ Defeat are Premature

Scale and stability, ever-changing market dynamics, and competition from tech giants and insurgents are the new business realities for incumbents. Clearly, threats abound—but so do tremendous opportunities. Incumbents that leverage their scale and stability, and combine those strengths with hyperagility, will position themselves to leapfrog the competition.

Why choose between having scale and stability, or being agile? Why not say you want both? You can. But getting there and succeeding against the new market dynamics will require a new approach to running a business, which we’ll examine in the next post in this series.