To drive strong sustainable growth and profits, stop thinking disruption and start thinking proruption. Yes “proruption” is a word and it means bursting forth. Imagine your business bursting forth from the competition and having sustained strong growth and profits. This is hard to do with disruption, as disruption has become about doing it cheaper standing still. The disruptor Uber is grabbing a share of a current market by a model that drives price down. There is no net gain to the market or the economy. The iPhone on the other hand is proruption. Apple burst forth from the traditional mobile phone market creating a new market. It became a market leader and charged premium pricing. It has grown a whole new ecosystem of applications and devices that has grown the economy. Apple and Uber have both had dramatic impacts on their markets. Only one of them is highly profitable and has a more sustainable business model and that is Apple.
One could look at disruption as a red ocean strategy of fishing in crowded waters. Whereas, proruption is a blue ocean strategy of being the only fisherman on the ocean. The red ocean is seen as the safer option, but this is no longer the case. The red ocean is shrinking and a few dominant players are taking control. For instance, the crowded retail market. Giants such as Macys are shutting down 68 stores and retrenching 10,000 staff as Amazon’s online shopping model dominates. I have strong belief that being stuck in the red ocean has led to businesses and global economies becoming stagnated. We have now experienced a decade of flat growth and shrinking margins. 2017 is the tenth anniversary of the Global Financial Crisis and there is still no light at the end of the tunnel. To break out of this stagnation, we need to go back to blue ocean strategy and that means prorupting the market.
We have to accept that disruption is never going to break flat growth and shrinking margins. Disruption has become about the use of technology to minimise cost, reduce staff and discount pricing. We are in an era where margin is being sacrificed for market share. The blunt reality is that businesses are investing in a race to the bottom. For all the talk about disruption, few disruptors are actually profitable. Bloomberg reported that Uber could have losses as high as $3B for 2016. So whilst they are making billions in revenue, they are not profitable. They are not alone. The question has to be asked, why are businesses trying to duplicate an unprofitable business model? Why are businesses getting involved in a race to the bottom pursuing cost cutting and discounting to compete with the new disruptors?
Trying to become a disruptor to avoid disruption is not the answer. Consider instead what successful companies do when they cannot win the game. They change the game to one they can win! Proruption is about Game Changing. It is about innovation that reinvents the market. Yes, it is about stepping out into unfamiliar waters, but this is the best path to sustainable growth and profits.
Take the example of Lego, the toy brick manufacturer. Lego faced digital disruption in the form of PlayStation, Xbox and Nintendo. At the same time, Lego’s patents expired and cheap imitations came to the market. In 2003 sales had fallen 29% worldwide and they made a $270M loss. Lego could have looked at how to disrupt their business. They could have introduced technology to reduce costs, to retrench staff and to out discount their competition. That is not the approach Lego took. Instead they prorupted to become the number one toy company in the world. They aligned with movie franchises such as batman and Star Wars. They made themed computer games and block sets with aligned marketing campaigns. They drove premium pricing. They made movies. They even have a creativity consulting arm. This is a stunning example of proruption delivering a far more powerful outcome than disruption could.
Likewise, businesses are not seeing a return from their investment in innovation. Yet they should not be surprised as they are investing in a race to the bottom. They are investing to cut costs and discount prices rather than innovating to attract premium pricing. This is where the mindset between disruption and proruption can have a real impact. Challenge the objectives of innovation and start driving stronger returns from your investment in innovation.
Oren Harari said that “Edison’s electric light did not come about from the continuous improvement of candles.” When you think about disruption, it is about grabbing a share of the old candle market through price and dominance. Proruption is about creating the new light bulb market that replaces the candle market. Who would you rather be. The large multinational dominating the old candle market or the new entrant with the light bulb. It is a worrying trend, that whilst most want to be the new entrant with the light bulb, the vast proportion of investment is in incremental innovation and continuous improvement. Experts keep promoting that businesses will get the best return from incremental innovation over any other form of innovation. Management are easily persuaded into taking the path they see as the lowest risk. Yet at the end of the day, are we not just making a cheaper candle in a disappearing market? Are we not locking ourselves into a world of sacrificing margin for market share? Is it not time to have the light bulb moment (pardon the pun) and reinvent a new market that you can dominate? Where you have greater growth and fatter margins.
Many will still not be convinced, opting to be more conservative and remain in the red ocean. I cannot stress enough how this is no longer a safe option as the red ocean is shrinking. We are going through economic upheaval. An event similar to the beginning of the industrial revolution. An event that has resulted in economies across the globe remaining flat for a decade now. We are faced with change as significant as cars replacing horses as the main form of transport. Would investors really thank those taking the safe option of making a better saddle in a market where people are opting for cars. Those following the ideology of making better candles are going to lose out to those adopting sweeping innovation such as light bulbs. Yes, many see sweeping innovation as risky. However, failing to adapt to significant change is a far greater risk. If you want to future proof your business, stop being fixated on disruption and start thinking proruption.