Imagine you’re at the top of a successful company. You know what product you sell and you know who your customers are. Things are ticking over nicely. But beware complacency. If your business hasn’t been disrupted by innovators already, the chances are it soon will be. Your instinct will be to defend your business, attack your disruptor, or both. But tackling an attacker head-on will rarely succeed. You need a smarter strategy. To outflank your disruptor, you need to take a different path.
Think of it this way. Your established business is playing the first game. The disruptor is playing the second. To survive and flourish, you need to play a third, not just fire cannonballs at them in the hope they retreat. Just look at how established, successful businesses have dealt with the challenges of disruptors: how have they responded to – and profited from – tackling a threat? What was their third game?
The Swiss comeback
Start with the watch industry. In the early 1960s, if you wanted a quality watch, you bought a Swiss one. The craftsmanship and accuracy of their timepieces meant the Swiss dominated the 300-year old watchmaking industry. Come the 1970s, and enter Seiko, Timex and a clutch of Japanese watchmakers who used quartz technology to offer new functions and features – all at a lower price. The Swiss watchmakers’ market share plummeted from 48% of global production in 1965 to 15% by 1980. The disruptors adopted the cardinal rule of any successful attack: they did not try to beat the Swiss at their own game – the promise of quality and accuracy. Instead, the newcomers offered something different - lower prices, more features and greater functionality.
At this point, the Swiss could have responded to the invasion by tackling it head-on. They could have offered cheap, modern watches, in an attempt to claw back previously loyal customers from the Japanese. But they took a different approach. They fought back with their own, completely different value proposition– style and fashion. The Swiss reinvented the watch as a fashion item. They reasoned that consumers could buy a new watch with a distinctive look every few months to go with their clothes or mood. The strategy succeeded. That product – the Swatch watch – became the most popular watch in the world.
The first game, played over hundreds of years by the Swiss, was about the accuracy of the watch. The second game, played by the Japanese, was won by offering cutting-edge technology and a cheaper price. In the third game, the Swiss came back. By making the watch a fashion item, they capitalised on a hitherto unexploited attribute of the product. Three decades on, the Japanese encroachment on the Swiss watch market seems little more than a hiccup.
Nintendo: finding a new playing field
Now look at games consoles. If you were a teenager in the Nineties, you either had a Nintendo or you were the only one of your friends without one. Nintendo ruled the global games console market. Then along came Microsoft’s X-box and Sony’s Playstation, who chased Nintendo so far out of town that by 2001, industry analysts predicted that the company would withdraw from the home console market completely.
Nintendo was unable to compete with the superior graphics, sophisticated games and profits reaped from grown-up audiences - audiences with plenty of cash to spend. Nintendo was the loser in an unrelenting battle between the three games manufacturers, in which X-box and Sony were continually outpacing one another with better technology, processing speeds and graphics.
However, Nintendo wasn’t going to give up. In 2002 with the appointment of Satoru Iwata as CEO, the company took on a transformative new strategy. Iwata wanted to abandon the relentless pursuit of ever-advancing technology. Instead, Nintendo set about focusing on a completely different, and hitherto ignored, audience segment.
The increasing complexity of games then on offer had shrunk the audience to a minority of young men who had enough time on their hands to perfect playing them. These young men played alone, away from their parents, siblings and partners. Iwata made a decision that, in hindsight, seems an elementally simple one: he decided to make games for families.
Wii will rock you
In 2006, the Wii was born. The Wii was far more than just a different product. It offered a fundamentally different way of playing games. Everything before it had targeted teenagers who would spend days in their bedroom killing things on screen.
Nintendo’s Wii was to provide wholesome family entertainment that got people moving and interacting with one another. It would include everyone - mothers, fathers, sisters and brothers. By allowing whole body movements using motion sensor technology, people could play tennis, baseball or golf, with a controller that looked more like a TV remote than a complicated console. Nintendo was smart. Everything was made as family-friendly as possible. Reflecting on this approach, Nintendo rejected the idea of a fancy celebrity-filled Hollywood launch; instead, they staged a kick-off event with working women as guests of honour.
Wii outsold the Playstation 3 by a factor of three-to-one in Japan and five-to one in the US. It was the fastest-selling console ever seen in the UK market, selling more than one million in just eight months of 2007. The Wii Fit game was rolled out in the same year, with yoga, aerobics, balance and strength exercises included. It became the fifth best-selling videogame in history.
Nintendo, which appeared to have been soundly beaten by the end of the Nineties, ended up on top. By August 2009, Nintendo had 49% of the market. Microsoft had 29.3% and Sony had 21.7%. Nintendo provides one of the best examples of how to disrupt your disruptor in the history of global business.