Some of the buzzwords you hear about today’s economic environment are black swans, unicorns and disruptive strategies. Describe each of these and discuss how industry leaders should prepare for them. Can you insulate your company from their influence?
Black swans are events that occur suddenly and cause a major disruption in an industry, economy or the world stage at large. They are unexpected in nature and it is extremely difficult to predict their manifestation (Taleb, 2016). The financial crisis of 2008 is a classic example of a black swan event. When it hit the world economy, it caused disruptions to every part of the globe.
It must be understood that the signs of these black swan events are most difficult to notice. There were only a few outliers who predicted the fall of the financial markets in 2008. But once a black swan event is triggered all that is left to check is who is most prepared. Similarly the dot com bubble burst in the year of 2001 and left everyone catastrophically impaired. Certain events cast their effect in a specific region like the Hyperinflation of Zimbabwe. This was the most unexpected and the steepest rise in inflation that the world has seen till today. The country’s inflation reached an astronomical 79.6bn percent (Koech, 2011).
The causes behind these events are different for different events and challenging to predict. However, in this report we will be discussing the impact of major black swan events and how an organization can protect itself from its devastating consequences.
Unicorns is a terminology given to startup firms which cross the $1 billion mark in terms of their valuation. The term was first coined by a venture capitalist Aileen Lee. According to research, there are over 100 million new startups every year. Not all of them see the light of the day and among the ones that do, hardly a handful are valued at over a billion dollars. Therefore, it is safe to presume that these unicorns are doing something different and better than their counterparts and hence it becomes imperative that the existing firms prepare themselves against their rise. A new startup either offers an entirely new line of products or adds on to an existing product line by offering it at a lower price. Either way, it hurts the existing organizations of the industry.
Another important point to note is that these unicorns are extremely beneficial for any economy at large. They bring about a constant wave of innovation and help industries grow and consistently offer something new (Lee, 2013). They help to widen the customer horizons and set a rather tall benchmark for other players in the industry to follow. Uber, Xiomi, Air BnB, Snapchat and Flipkart are at the moment top unicorns of the world (Fortune, 2016). Flipkart, since its beginning changed the face of the Ecommerce industry, Xiomi managed to lead the mobile phone market share across the globe and Snapchat became the face of social media by attracting 173 million new users every day in quarter 2 of the 2017 (Business insider, 2017).
Disruptive technology is the term used to address any new technology that emerges out of the blue and disrupts the status quo of the industry. The advancement of such technology is imperative for the growth of any economy. It must be kept in mind that every technology or innovation, may or may not be disruptive. However a disruptive technology most definitely challenges an incumbent business (Danneels, 2006).
Any new knowledge, expertise or equipment that first surfaces in the market, targets the overlooked customers of existing organizations. Here Parito’s principle plays an important role which defines that every company focuses on its 20% of customers who generate 80% of the profits for the company. Therefore a most common strategy adopted by upcoming entrepreneurs is to design products or services in order to target those 80% of disregarded customers. This is how every new startup establishes itself. Nonetheless when these new firms upmarket and start targeting the remainder profitable customers of the organization, disruption occurs. As this completely disorders the status quo and functionality of existing firms.
PESTLE analysis is a strategy tool followed by managers that helps them gain an insight on their industrial environment. This tool helps organizations be aware of the events surrounding them (Ramli, 2015). This awareness often helps firms get a bird’s eye view of any new business or technology emerging in the market and in turn keeping themselves prepared for black swan events, unicorns and disruptive technologies. One important aspect of this analysis involves not ignoring small hints thrown by the environment, which is often the trickiest part.
More often than not, the startups are taken for granted as organizations assume that firms will take time to grow and build a market share. Whenever a competitor firm changes its business pattern, it symbolizes that either it is expecting a change in the industry or a change in the consumer behavior. This makes it very important to track and keep aware of what competitors are doing (Huffington post, 2014).
Also, customers at large have a tendency of comparing products and services from different firms of the industry before actually investing on it. A company must aim to get selected in that procedure of comparison by the consumer, at least by their targeted customers. This competition is also required and rather beneficial for the industry at large, as it helps to keep organizations on their toes and helps shake off complacency (Forbes, 2017). Keeping a stern eye on the competitor not only keeps the firm up to date but also enhances customer service and in turn customer satisfaction (Massey, 2000).
As the Parito’s rule discussed above implies that organizations gain 80% of their revenue from 20% of their customers. This makes firms myopic and they focus only on those 20% of the customers. Their advertising strategies, product positioning and service deliverability becomes increasingly focused on those 20% of the customers and the remaining 80% remain rather overlooked. This is exactly what startups take advantage of. They target this 80% and grab a hold on the market. Soon enough when they penetrate towards the rest 20%, disruption occurs. Therefore, it is essential that in order to protect the firm from the harmful impact of disruptive technology, an organization focuses on all of its customer segments.
Regular feedbacks from the customers, increasing service efficiency and improved customer relationships can help gaining customer loyalty which in turn can either completely prevent or at least reduce the impact of an emerging disruptive technology or a unicorn startup.
Needless to say that continuous innovation is mandatory to survive the competitive scenario that we live in today. Customer demands and buying patterns change at the drop of a hat and hence it is wise for any organization to keep up with this change and develop in accordance. A classic example of promoting innovation is the Google 80-2 rule which implies employees to devote 20% of their work time into developing something new, brainstorming on new ideas and working on them. Google has a clear motto of ‘Innovate or die’ (Wired, 2013). This is a major reason behind Google being a super unicorn with a mammoth valuation of over $100 billion (Huffington post, 2014). Google along with Facebook is a super unicorn and what is interesting to note is that not every new thing that these firms bring to table might be a hit with the customer. Some innovations like Google Video, Google wave and Google notebook were absolute flops (Fortune, 2014). Similarly Facebook gifts, Facebook credits, Facebook poke and recently Facebook stories have failed to garner the attention of its audience (Tech world, 2016). However what is important is that the company continues to innovate and consistently offers newness to sustain in the market (Denning, 2015).
In the world where every industry is trafficked with so many organizations, the only way to make a mark in the minds of the consumer is to remain differentiated. This differentiation could be in the form of price, product, place, target consumers or way of promotions. Carving a niche is a sure shot way of reducing the impact of unicorns hitting the industry day in and day out. Also as long as a firm is able to differentiate itself from its competitors, it is most like to protect itself by being washed away by disruptive technologies that might see the light of the day. This is the reason why many firms are consistently putting efforts to differentiate their offerings in order to build a loyal customer segment and to keep up with changing consumer needs.
Black swan events are challenging to predict and the most that can be done by any firm is to prepare for the worst at any given point of time. Organizations must perform a thorough industry analysis, consider the worst case scenario and ensure that the firm is prepared for it. This is the reason why many banks hire experts whose sole work on everyday basis is to tally their current performance and camouflage it over every possible scenario politically, legally, technologically, economically and financially. This gives the firm a clear idea of what it can survive and what it cannot. This contingency comes handy at the times of black swan events or swooshing off of a market by a disruptive technology.
Black swans, Unicorn startups and disruptive technologies are no more far away scenarios, rather they are today’s reality. They exist and as a matter of fact the frequency of their occurrence is on a rise. They are also important aspects of the world as without them there would be a definitive lack of innovation. It is extremely important that organizations prepare for the advent of such scenarios as and when they arise. In this era of cut throat competition, the strongest organization will survive while the ones that succumb will face a disappointing departure.
Therefore organization must be very aware of every move their competitors make, have a detailed knowledge of the industry and its factors, promote innovation as a culture of work, strive to remain differentiated and have a contingency plan in place for any hard times the firm may face. If not eradicate, these few calculative and strategic measures by firms are sure to reduce the impact of these unforeseen circumstance.
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