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Why businesses must learn to disrupt themselves

Nicol Fraser By Nicol Fraser,  June 26, 2019

Pivoting strategic direction will always be a leap of faith argues Dunedin Partner, Nicol Fraser, but standing still is not an option

Even the most successful businesses risk failure if they stand still. While they carry on doing all the things that brought them success, the world changes around them: new technologies supersede their business models, customer tastes evolve and competitors with different skills bring disruption. Eventually, what was once a high-performing enterprise starts to decline. This is more pertinent now than ever, with the rapid evolution of technology and computing power.

History is littered with examples of businesses that have suffered this fate, from Kodak to Blockbuster. But failure isn’t inevitable: the key is to map a path for your business so that it can reinvent itself for the future and define its position in a brave new world.

In other words, disrupt your own business before someone does it for you.

Sprinting in a new direction

When Dunedin invested in CitySprint, it was a prosperous same-day courier business well-placed to benefit from the rapid growth of ecommerce. It also saw opportunities to expand into the healthcare market, where many hospitals were paying taxi firms to deliver pathology samples and medical supplies.

But while CitySprint was excelling as a B2B delivery services provider, its business model required reinvention. It operated in the business-to-business courier market, a model which itself had been disrupted by the advent of sending documents by email. To take advantage of the rapid growth in ecommerce, CitySprint had to develop the model to make deliveries direct to the consumer for its new retail clients. It had also only just begun to make inroads into healthcare.

The answer was to build a business with the scale and technology required to pivot into these new markets. That resulted in a buy and build strategy, making more than 20 acquisitions of smaller courier businesses to build density and bring additional service lines but also, crucially, the development of proprietary technologies to power the new business model.

In the direct-to-consumer marketplace, CitySprint developed a logistics technology called “On The Dot”, which enables it’s retail customers to offer consumers a one-hour delivery slot of their choosing. This was market leading and gave the consumer what they wanted most, convenience. It also allowed retailer customers to compete against Amazon in delivery. The technology also meant healthcare providers could establish and monitor a chain of custody for their goods, which is a crucial in this heavily regulated sector.

The results were transformative. By the time Dunedin exited CitySprint five years later, it had evolved from a straightforward courier and logistics company servicing the B2B market into a high-tech provider of logistics solutions for retail and healthcare customers. The business has exciting prospects and the potential for international expansion through licensing its technologies for use in new markets.

Lessons from the frontline

The lessons of the CitySprint story can be applied to any successful business now contemplating its future in a fast-changing world. Above all, transforming a business from a position of strength is a more attractive proposition than responding to a weakness. This is partly because the business has more time to make smart strategic decisions – and to test out what works in practice. In practical terms, it also helps to use cash flow generated from the core business to invest in its future without needing to seek additional shareholder funding.

This is not to suggest that changing direction is straightforward. It’s crucial to have a chief executive and board who can look beyond the day-to-day business, to scan the environment for emerging threats and the right opportunities to embrace. The job of any chief executive today, when the pace of change is accelerating, is to be one step ahead of the market.

There will be practical difficulties too. People are often resistant to change and can represent the biggest issue: as the company pivots direction, it may need new talent with different skills, but recruiting such staff for a business that has yet to make the leap can be challenging. Some businesses go as far as setting up a new venture with autonomous leadership within the company to drive transformation, not least to develop the sort of entrepreneurial culture necessary to attract the right talent.

It is also important to work in partnership with shareholders and keep an open dialogue with them about strategic options for operating in a future world, so that they are on board and alongside for any transition that requires further investment.

Meanwhile, management cannot afford to neglect the core business. Transformation can be a significant distraction, but the core provides the foundation for change. It may be necessary to appoint an interim head of the existing business with a sole focus to keep it performing strongly.

Then there are fundamental questions to ask about the change process, particularly where this involves substantial technology investment. An important early decision is whether to develop in-house or work with a “best-of-breed” partner. The latter may be preferable for companies worried that they do not have the internal expertise necessary to develop their own work flows and products;

Judgement by results

Smart businesses set themselves up for change and success through thorough preparation and focused execution. They talk to customers about their evolving needs and their readiness to integrate with new solutions. They understand exactly what their competitors are up to – both existing rivals and new entrants.

Nevertheless, it’s crucial to set key milestones for the change process – and to be prepared to tweak the strategy if and when they aren’t achieved.

In the end, disrupting your business involves brave decision making and something of a leap of faith. That’s bound to feel unsettling and there will be ups and downs along the way. Still, one truth should give companies the nerve to break out of their comfort zone: doing nothing is likely to be the only option that’s certain to lead to decline sooner or later. It’s not an option at all.

Contact Nicol Fraser to see if your business is ready for disruption on 020 7292 2110 or nicol.fraser@dunedin.com.

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