Pontus Siren at Innosight illustrates the difference between direct competition and Disruption by looking at one of the most competitive industries - shipping.
The basis of competition in the industry continues to be the efficiency of moving a metal box from harbor to harbor.
In the last 50 years, ships have grown from 500 containers to 24,000, to the point where harbours are unable to cope. Even the sheer volume of ships is straining the world's main canals.
The industry is highly competitive:
Naval engineers are planning and building ever bigger ships. As the ships grow, their engines have become vastly more efficient and sophisticated, the fuel mix has changed, and complex IT infrastructure has been put in place to coordinate the movement of the containers and ships.
But fundamentally the underlying cost structure of the business has not changed from 1950.
Pontus makes a case that in choosing direct competition or Disruption, you need to consider the efficiency of the industry itself:
It's all part of the relentless drive to reduce the cost of ocean-going freight that has made transportation very cheap indeed. In a private conversation, a shipping executive noted that the cost to ship a pair of sneakers from Vietnam to Europe is two cents. Another executive noted that the container shipping business is a near perfect market with highly standardized products (the ships, the containers, the routes). "It's an impossible business," he concluded. Rather ominously, another executive observed that it's also an impossible business to exit.
With the incumbent players getting ever bigger, the efficiency of their industry drives profits down and ties them to their existing business models. They're handcuffed to a sinking ship!
Which makes a the distinction between competing and Disrupting very clear. When considering how to Disrupt such a competitive industry, you need to look outside it:
There are at least two technologies on the horizon. One is the advances in robotics that could reduce the global wage arbitrage and move some manufacturing closer to the end consumer—from Asia to America, for instance. Likewise,3D printing could have a similar impact if it becomes vastly more sophisticated and accessible. If manufacturing moves closer to the end user, the need to ship goods halfway around the world would be reduced.
The term "disrupt" gets used a lot in the startup world, often incorrectly when you consider the definition coined by Clayton Christensen.
A Disruptive Innovation is an innovation that helps a new market become customers, or separates and focuses specifically on a low-end market which the existing industry doesn't value. It's contrasted with sustaining innovation, which only helps the existing industry improve how they serve their current customers.
If you're truly Disruptive, you'll Disrupt an entire industry, not just the players within it.
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