Taxi companies should also consider focussing on innovation
Recently, a great deal has been written about Uber. Using a new approach to urban mobility, the company uses an app to connect customers to the nearest taxi driver with just one click. They are fast, accessible and a thorn in the side of regular taxi companies – and not just in Brussels. In the wake of the Uber phenomenon, the alternative accommodation provider Air BnB suddenly also came under fire. Is this really a case of unfair competition, and are they taking the food out of the regular providers’ mouths? Not according to Walter Van Dyck, Professor of Innovation Management at Vlerick Business School.
‘In fact both are classic examples of what in technical terms is known as disruptive innovation. This can be technological innovation, such as colour TV, whereby the new technology completely obliterated the old technology. Currently 3D printing is on the up. Alternatively, it can relate to product innovation, whereby new products raise questions about consumers’ habits. Electric cars are a good example of this. However, in Uber’s case, the situation is somewhat different. Here, a new player is disrupting the system with a fundamentally different business model. At the same time, they are also creating a new market and attracting new customers. Much like low cost airlines in fact. Other good examples of this are professional espresso makers for home use, meaning a good cup of coffee is no longer exclusively something you find in a coffee bar or restaurant. Or the Wii, which introduced a new target audience to gaming’, Walter explains.
The fear of cannibalisation
When discussing unfair competition, Walter believes this applies more to cases in which the law is circumvented, such as employing foreign workers at a low wage. In effect, Uber has simply taken existing supply and demand to a new and higher level, whereas previously, it was exclusively organised on a one-to-one basis. ‘The existing players could have done this themselves, but this requires an open attitude to collaboration, including with your competitors. The greatest obstacle to disruptive innovation is the fear of cannibalisation of your existing business.’
Innovation is a must for everyone
Too many companies are not yet focussing on innovation management. They think that innovation is only relevant to the likes of Google or Apple. When they do implement innovation management, all too often they limit their efforts to improving an existing system and/or internal processes. But Walter thinks this is the wrong approach: ‘Disruptive innovations almost always originate from an external stakeholder. The low cost concept in air travel was not developed by the industry itself, but by outsiders. Up to 95% of the budget of companies that focus on implementing innovation is earmarked for the optimisation of their core business. But searching for a new core should not have to cost more than 5 to 10%. You simply have to do it. You can only prepare for the future by starting to think out of the box, and by experimenting with ways of fundamentally changing the system yourself.’ Walter thinks that innovation should be incorporated into the strategy of every company, regardless of its size and the industry in which it operates. It is part and parcel of their business, like the recruitment or cost policy.
Uber’s simplicity is ingenious. A simple app and a small investment were sufficient to bring about a shock wave. Walter considers this case to be an excellent wake-up call. If you cannot look beyond the end of your nose, then someone else will step in. ‘Service providers, like taxi companies in this case, are not all oriented towards innovation. But the Uber case shows exactly what happens if you do nothing at all. Then others will take matters into their own hands and steal your thunder. This evolution cannot be stopped. The art is to be and to stay continuously one step ahead of the competition.
The government’s role
Should the government intervene? Walter thinks that this would be the wrong response. ‘Asking the government to intervene is essentially an easy solution that is prompted by a business that feels cornered. The more you regulate a sector, the more you will undermine initiative, especially at this early stage. Innovation is also a complicated matter for governments, because it is often a very organic process. Regulation is only relevant when such innovations develop into a professional business with a significant volume. Moreover, government intervention should only be motivated by customer safety, and should not be aimed at protecting the existing market players.’ Walter is convinced that initiatives like Uber and Air BnB will automatically start to self-regulate themselves over time. ‘When customers are not satisfied with their accommodation or their taxi ride they will show their displeasure. And this type of negative publicity easily does the rounds online.’
How to respond to disruptive forces?
Finally Walter has some tips to help companies to be better prepared.
- Do not allow yourself to be taken by surprise: take the initiative yourself before someone else does. What are the weaknesses in your own system? What can happen to you? And how can you develop your own new system?
- Highlight your own assets and focus on a better positioning vis-à-vis the new market player. How do you make a difference? (e.g. quality, comfort, service level, reliability, etc.) Simply copying others is not always possible, and does not always work. Instead, you should focus on identifying and maximising your own strengths.
- ‘Disrupt the disruptor’. Make an in-depth analysis of the new player and try to understand what he does differently and better. Identify his weaknesses. And do not be afraid of working with other market players or even with competitors.
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