When Strength becomes a Weakness

 

Disruption is a popular topics. The use of the concept became popular due to Clayton Christiansen’s book, The Innovator’s Dilemma. His theory, The Disruptive Innovation Theory describes a process where new entrants to an established market, typically a small company with few resources, can use innovation to challenge the incumbent. Examples of disruptions are Ford Model T, Personal Computers, NetFlix, Skype to name few. However, there is another theory by Christiansen that is even more important. This theory is called The Resource, Processes and Values (RPV) Theory and it explains why good companies can’t respond to technology changes. It explains why companies fail.

The RPV Theory states that the resources of a company (the people, technology, information, cash etc.), the processes (how the company works), and the values (the believes of the employees) defines the companies strength and also weakness. In stable markets, the dominating incumbents can beat any new entrant competitor because they know their business so well and have optimised all the processes. On the other hand, when technology changes, new entrants use new technology to offer a new value proposition and the state of the incumbent company becomes a weakness. They can’t respond and fail.

History has number of examples. Netflix started with a simple subscription based DVD movie rentals service using the post office. Blockbuster, the dominating video store rental company, which owned the market, could not respond and failed. They were in the video rental store business and they did not have resources, processes and values to go into a new completely different model.

Now think about any traditional business. Companies in industries such as retail, healthcare, insurance, finance, transport and so on, will need to adapt to the chances due to technologies such as digitalisations of processes, real-time logistics algorithms, the Internet of things and sensors, robotics, drones, data analytics, and Artificial Intelligence to name some important ones. The RPV theory is important because it will define which companies survive the digital transformation that is taking place.

Any traditional company that uses manual work processes instead of digital and automated processes will be at risk. Call centres can be 80-90% automated by software. Applications, forms to manually fill out, and request for services can be turned into web page or an app. Such request, such as loan application in bank, can be evaluated by AI algorithm with feedback in few seconds. Going though documents, for example legal cases, can be done by algorithms. Coordination of people, for example a construction worker and a task to be done, can be done by software. These are just few examples. The digital transformation in inevitable and companies with resources, processes and values from the 20th century, need to move into the real-time intelligent software era.

 

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