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Why Middle-Market Companies Need to Embrace Disruption Now

It's easy to see we're in the age of business disruption. Companies like Facebook, Netflix, Uber and AirBnb are turning inside out every industry from entertainment to transportation. Manufacturing is being disrupted by 3D printing and Amazon has shaken retail by its core. It seems as if virtually every business is being touched in some fashion by innovative companies that are using technology to create new business models.

Unlike larger companies, middle-market firms that sit on the sidelines for too long could lose their positions much more quickly than competitors with deeper pockets and stronger brands.

Author and business advisor Geoffrey Moore told the Middle Market Institute that mid-market firms are in an awkward position when it comes to how much disruption to embrace. They usually don’t have startup capital or time to wade out strategic investments, and unlike large companies, they don’t have the size to absorb the cost or create experimental side businesses. Some mid-marketers feel they can’t afford to make bets on new technologies, but Moore said they’ll eventually have no choice.

“There is no reasonable chance that any sector of the economy can escape digital transformation sooner or later,” he said. “Despite claims to the contrary, nobody ever knows exactly when the next wave of change will land on a company’s shores,” says Moore.

Thankfully, many middle-market firms are already embracing new technologies. Forty-eight percent of middle-market executives said their company’s leadership views technology as a key differentiator and driver of growth, according to Deloitte. Six in 10 also said their organization’s C-suite has at least “some level” of involvement in the adoption of next-generation technologies.

“The risk is still high—you could lose your whole company if things turn out badly—but rewards may be enough to warrant the gambles.”

Moore says companies need to carefully consider what point in the technology adoption life cycle is right for them. Some may take the risk in exchange for the potential rewards of being an early adopter, while others may limit their risk and adopt technologies once they’ve been proven and tested.

Proactive measures
For mid-market firms looking to get ahead of the herd, Moore said companies should have access to an adjacent market. He points to Apple’s entrance into digital music and Dell’s deal to take on competitors with direct distribution. They were both bold moves with big risks, but they paid off. “The risk is still high—you could lose your whole company if things turn out badly—but rewards may be enough to warrant the gamble,” said Moore.

Another strategy is to be pragmatic and try to get ahead of the herd, not for competitive advantage, but for “neutralization.” This can work when a company is losing market share or seeking to preserve its existing customer base. Moore points to Samsung’s heavier investments in mobile technology to keep up with the Apple iPhone. “You are not trying to out-innovate or leapfrog the disruptive challenger, just to catch up to them,” he says.

One of the late-stage strategies is for companies to postpone new technology adoption as long as possible. Moore feels this could be a reasonable option for companies that are not under duress and have more important things to do with their cash, time, talent and management. These companies will often wait to implement and produce a return not from innovation, but from optimization when the technology fits the business’ model and needs.

Meanwhile, researchers said in the Harvard Business Review that a “digital divide” is opening up among companies with digital leaders leaving the rest behind. Many big incumbent firms are struggling to keep up with more agile digital challengers.

While it may seem risky, middle-market companies can stand to lose significantly by not engaging in disruption. Failure to do so can eventually leave the company stagnant with outdated technology and practices and a customer base that moves on to competitors.


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