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How to prevent disruption from happening to you? AKA avoiding the “Vanjoki fallacy”

Introduction

A major issue of corporations is how they can avoid being disrupted. This is a commonly established issue, e.g. Christensen discusses it in his book “Innovator’s dilemma”. But I’m going to present here a simple solution for it.

Here it is.

Rule Number 1: Don’t look at absolute market shares, look at growth rates

I call this the “Vanjoki fallacy” which is based on the fatal error Vanjoki did while in Nokia, namely thinking that “Apple only has 3% of market share, we have 40%. Therefore we are safe”, when the guy should have looked at growth rates which were of course by far in Apple’s favor. Looking at them forces you to try and understand why, and you might still have a chance of turning the disruption around (although that’s not guaranteed).

“How can I do it?”

So, how to do it? Well, you should model your competitors’ growth – as soon as any of the relevant measures (e.g., revenue, product category, product sales) shows exponential growth, that’s an indicator of danger for you. Here’s the four-step process in detail.

First, 1) start out by defining the relevant measures to track. These derive from your industry and business model, and they are common goal metrics that you and your competitor share, e.g. sales.

Second, 2) get the data Рeasy enough if they are public companies, since their financial statements should have it. Notice, however, that there is a reporting lag when retrieving data from financial statements, which plays against you since you want as early knowledge of potential disruptors as possible. You might want to look at other sources of data, e.g. Google Trends development or some other proxy of their growth.

Third, 3) model the data; this is done by simply fitting the data into different statistical models representing various growth patterns — remember derivation at school? It’s like that, you want to know how fast something is growing. Most importantly, you want to find out whether the growth resembles linear, exponential growth, or logarithmic growth.

How to interpret these? Well, if it’s linear, good for you (considering your growth is also at least linear). If it’s exponential growth rate, that’s usually bad for you. If it’s logarithmic, depends where they’re at in the growth phase (if this seems complicated, google ‘logarithmic growth’ and you see how it looks). Now, compare the competitor’s growth model to yours – do have reason to be concerned?

Finally, 4) draw actionable conclusions and come up with a strategy to counter your opponent. Fine, they have exponential growth. But why is that? What are they doing better? Don’t be like that other ignorant Nokia manager Olli-Pekka Kallasvuo who publicly said he doesn’t have an iPhone, and that he will never get one. Instead, find out about your competitors products. Here is a list of questions:

  • What makes them better?
  • What makes their processes better?
  • What makes their brand better?
  • What makes their business model better?
  • What makes their employees better?

Find out the answers, and then make a plan for the best course of action. You may want to identify the most likely root causes of their growth, and then either imitate, null (if possible) or counter-disrupt them with your next-generation solution.

Conclusion

In conclusion, don’t be fooled by absolute values. The world is changing, and your role as a manager or executive is to be on top of that change. So, do the math and do your job. The corollary to this approach, by the way, is to create a some kind of “anti-disruption” alert system — that would make for a nice startup idea, but it’s a topic for another post.

Dr. Joni Salminen holds a PhD in marketing from the Turku School of Economics. His research interests relate to startups, platforms, and digital marketing.

Contact email: [email protected]

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