Towards disruption

What is in common between companies which reverted to their benefit the radical transformations brought about by the evolution of technology and the new consumer behaviors

By Marco Antonio Barbosa

January-March | 2017

In a dynamic business environment, driven by the exponential advancement of technology, there is no business segment that is free from the threat of disruption: suddenly, it can create, totally destroy or modify markets, management methods and means of product supply. To adapt to the speed of society’s digital transformation, an also agile strategy needs to be adopted, before the company becomes a victim of a disruptive process.

With the study ”Patterns of Disruption”, Deloitte has identified nine types of disruptive innovations and driven by new digital technologies. These innovations can either threaten the leadership of firmly established organizations or offer opportunities for transformation. “It is important to note that these standards are not universal and can occur in one or more markets, jointly or individually”, says Marcia Ogawa, lead partner for Technology, Media and Telecommunications industry in Brazil. “Many companies are afraid to make radical changes in their business model, but this disruptive scenario also poses many opportunities for the exploitation of new products and services within a digital approach.”

“Many companies are afraid to make radical changes in their business model, but this disruptive scenario also poses many opportunities for the exploitation of new products and services within a digital approach.”

Marcia Ogawa, lead partner for Technology, Media and Telecommunications industry in Brazil

Learn more about each one of the disruption patterns, how they already affect the Brazilian economy and the questions to ask to find out if your business is threatened:

Standard 1 – Expand the market reach: connect fragmented sellers and buyers, in any place and at any time

Occurs when a company can expand its potential base of customers by exploiting new distribution technologies. The Magazine Luiza retail network stood out among the competitors by applying a digital approach in all business areas, not only in e-commerce. Among the proposals implemented by Luiza Labs, the innovation laboratory of the group, Magazine Você (channel that allows consumers to create virtual stores), production of interactive multimedia content for customer service and mobile applications for sellers and consumers stand out. “We want to show all the benefits that the digital resources can bring to people” said Magazine Luiza’s Chief Executive Officer (CEO), Frederico Trajano, in a recent interview to IstoÉ Dinheiro magazine. Result: even before the crisis and the reduction of consumption, the network has been registering impressive increases in revenue and profit.

Is my market vulnerable?

  • • Are there large segments of the market poorly serviced?
  • • Do my current operations require significant investments in infrastructure?
  • • Do my customers use my products in a variety of ways, in a wide variety of contexts?

Standard 2 – Unlock resources from adjacent markets: explore market asymmetries and underutilized assets

This is when a company entering a particular market explores (idle or little used) resources from other markets in an innovative way, to offer new forms of service and pricing. The classic case is Uber, which promoted a disruption in the taxi market by using technology (mobile application) for connecting passengers and private drivers (whose cars were the underutilized resources). The app’s success completely unbalanced the relationship established between taxi drivers and users. From its founding in 2009 to 2015, the market value of the company went from zero to $62.5 billion. “Uber helps the economy with new job opportunities, helps the cities, the planet and the consumer, who has an excellent experience for a better price than to have the car itself”, the CEO of the company in Brazil, William Telles, commented in a recent interview.

Is my market vulnerable?

  • • Are there other products or services, not yet marketed, that can provide the same as mine?
  • • Is the demand for my product volatile and the supply inelastic?
  • • Does my sector face taxes and regulations that limit the supply and increase the cost?

Standard 3 – Transform products into platforms: provide the foundations on which others can build

Companies that use technological innovations to offer completely customized products and solutions to its customers, as opposed to the established pattern of mass production. It is the concept of product platform, in which supplier and customer work together to obtain exclusive items. In Brazil, the idea has already been put into practice by StudioDLux, a design and architecture office that not only offers (free of charge) their projects to those who want to manufacture them, but also customizes exclusive products. “The possibilities are nearly endless”, says Denis Fuzii, founder of the company. “We are creating a network that shares projects, produces locally and distributes globally. It is a scalable model for any size of business, and Brazil is on the cutting edge.”

Is my market vulnerable?

  • • Does my customer base have a wide variety of needs and preferences?
  • • Does my current line of products offer opportunities for customization?
  • • Is there the possibility of sharing my production infrastructure with the infrastructure of other related products?

Standard 4 – Connecting peers: promote peer-to-peer connections

This is a central idea within the concept of the digital economy, which covers the creation of platforms for the connection between individuals with a certain type of need and others who can offer solutions for this demand. In a similar manner to the Uber revolution, AirBNB has caused a disruption in the hotel market by creating a service in which people seeking cheap lodging connect with others who have available places for rent for short periods. Today, the network offers lodging in more than 50 thousand cities around the world. In November, the company launched the Trips application, which offers less conventional travel routes based on the suggestions of the registered hosts. “Travel can be something magical and, at the same time, uncomplicated, and our application offers this experience”, said Brian Chesky, AirBNB founder, at the release of the app.

Is my market vulnerable?

  • • Does a large part of customers and partners do not feel fully satisfied or have high costs to use my services?
  • • Do customers and partners feel constrained by my terms of use?
  • • Do participants have reason to be wary of my use of their data?

Standard 5 – Distribute the product development: mobilize partners in the creation

The advances in communication and in collaboration tools started to allow organizations to work with external partners, in the search for internal acceleration of their innovation processes. This can bring gains in scalability and on the speed of implementing new solutions. In Brazil, one of the best highlighted examples is Natura. The company maintains no less than four separate open innovation programs, bringing together around 200 partners that contribute with new technologies in areas such as product development and marketing. “The open innovation is one of our strategic drivers since the beginning of the 2000s”, says Alessandro Mendes, Innovation director at Natura. “We started focused on complementary competences and this has formed a collaborative network, with an entrepreneurship profile.”

Is my market vulnerable?

  • • Does my segment involve products with a short life cycle?
  • • Does my business involve the consumer in product development?
  • • Is my company ready to share the creation of intellectual property with third parties?

Standard 6 – Split products and services: provide only the necessary, nothing more

The advances in technology also provide the chance to discard underutilized services or replace features that are inadequate for new customer profiles. This may bring lower prices and more personalized products. The banking market already feels the possibilities opened up by this trend; a clear case is Banco Original, which discarded physical branches and offers fully digital customer service and management solutions to its users. “The bank has become an application that customers customize at will and that is updated on a weekly basis”, says Guilherme Stocco Filho, Innovation director at Banco Original. “In the traditional model, this would be equivalent to change branches every week. In the digital medium, the customer not only expects this type of functionality, but also demands that more and more features should be made available.”

Is my market vulnerable?

  • • Does the product I offer have many features, but that are not accessed in a uniform manner?
  • • Does my current production and distribution process depend on the convergence of products to be efficient?
  • • When using my product, do customers have ease to select only the features they want to use?

Standard 7 – Shorten the value chain: transforming the stages of value delivery

With the spread of tools like 3D printing and rapid prototyping, the traditional manufacture processes go through disruption. Factories that employ these technologies can quickly design and bring products to market, with low cost and great customization possibilities. In this context, companies like Polygon Lab contribute with the scenery change by offering, for industries of all sizes, 3D prototyping solutions. “It is a shortcut between research and development. Many companies that would not be able to invest in the old model are now adhering to the new model” says Gustavo Takara, CEO at Polygon Lab. “It is possible, for example, to use pieces created in 3D printers directly as components of final products, integrating the new technology into mass production.”

Is my market vulnerable?

  • • Does my chain of value have a large number of steps?
  • • Does my business depend on third party products to offer value to my customers?
  • • Is my customer base fragmented, with low purchasing power?

Standard 8 – Align price to use: Reduce entry barriers with proper pricing

It is the pricing of services and products according to the need and use of customers. Enhanced by digital transformation, this trend allows to identify and exploit markets not reached by traditional business formats. The impact is especially strong in segments which, before, demanded high investments. “Our approach is: pay only for what you use”, says Mario Rachid, executive director of Embratel’s Digital Solutions. He specifically refers to cloud computing services of the company, which have tiered prices according to the size and the usage level of each customer. “The user can quickly start using the infrastructure, without prior planning or expense, and – if needed – can use more processing power, memory or disks automatically.”

Is my market vulnerable?

    • Is my product expensive and is there a large base of consumers out of the market because they cannot afford it?
  • • Does my product have a low or volatile usage level?
  • • Could my product be offered in smaller or cheaper options than those that it is being offered?

Standard 9 – Converge products, causing 1+1 > 2

It is when, via technology, a company manages to modify an existing business model by joining two or more products or bringing together features from various products into one solution. The insurance sector has recently been impacted by this trend, with service and procurement decentralization and the offer of customized coverages, based on data provided by the consumers themselves – all via applications such as Protector, launched by the company Argo Seguros. “For the broker, the app adds marketing tools, file registry and information about the portfolio. For the customer, it allows the creation of very specific insurance, such as coverage against medical errors or bicycle theft” says Roberto Uhl, creator of the platform. “These services are customized and the customer himself works collaborates in the risk management.”

Is my market vulnerable?

    • Is the use of my product already well established?
  • • Do my products have limited applications and functionality?
  • • Does my most basic and inexpensive product have sufficient quality to meet the needs of a large number of customers?

Access the ”Patterns of disruption” research in its entirety.