Incumbents that aim to learn from outliers can employ a number of approaches:
Look to the periphery. The history of business is filled with tales of companies that failed to appreciate the threat a newcomer with a new business model or approach posed to their business model. Most successful outliers start by identifying and catering to an underserved market segment (for example, low-end customers seeking inexpensive, no-frills products or services) and then use the foothold they establish to expand into the market’s core segments. Incumbents should, therefore, keep their eyes on their industry’s periphery.
Conduct a “maverick scan.” The mavericks on our discussion panel agreed that the biggest mistake incumbents can make is to underestimate the threat outliers pose. Incumbents should periodically conduct a “maverick scan” to identify companies that could threaten their position and also to understand how mavericks are challenging the industry’s core beliefs and assumptions. For an incumbent, this exercise might require suspending deeply held convictions. But it is a necessary precaution to avoid being taken by surprise. It is crucial for incumbents to examine carefully every player that is implicitly betting against their business model.
Ask what you can buy, beg, or borrow. One of the advantages that incumbents have over mavericks is their superior access to resources. Once an incumbent has identified a potentially threatening outlier, the incumbent has three options: acquiring the company and its competencies (buying), forming a mutually beneficial alliance that combines the outlier’s new ideas with the incumbent’s strong market position (begging), or copying or adapting the outlier’s business-model innovations (borrowing). Which of the three options is best depends on the maverick’s source of strength and the two companies’ relative balance of power.
Think and organize like a maverick. If there are no outliers yet in sight, an incumbent can try to preempt the threat by becoming a maverick itself. This requires changing the mindset from that of an incumbent to that of a challenger—developing, for example, a greater willingness to experiment and a greater tolerance for risk. It might also require organizational changes. In many cases, an outlier’s business model cannot be replicated by incremental changes to an existing model; rather, it must be adopted as a whole. To facilitate this, an incumbent might need to establish a separate business unit devoted to the new model, similar to the way several established airlines have set up their own low-cost businesses.
For most of the twentieth century, business was dominated by big corporations. Rising turbulence and technological change are changing the balance of power, however, empowering small businesses at the expense of large ones. In the 1970s, fewer than 5 percent of companies that were in their industry’s top three in revenues for a given year dropped out of the top three the following year; in the first decade of this century, more than 10 percent of companies in their industry’s top three dropped out of the top three the next year, with 40 percent of those companies dropping out of their industry’s top-ten positions or going out of business altogether within the next five years. The strong historical connection between profitability and size is also eroding, with the likelihood of an industry’s revenue leader also having the industry’s highest margins declining from 31 percent in 1979 to just 6 percent in 2011.
To thrive in today’s environment, big companies need to be more paranoid. They must keep their eyes open for outliers and react rapidly once they identify a potential threat. But big companies should also act to preempt threats by thinking like mavericks themselves. In other words, for a big company to remain big, it may have to act small.
To Contact the Authors
The authors would like to thank Simon Williams, CEO and cofounder of QuantumBlack; Rachel Kentleton, director of strategy at EasyJet; and Frédéric Gastaldo, CEO of Swisscom Energy Solutions, for their insights and their participation in the “Meet the Mavericks” panel.
See “Adaptive Advantage
,” BCG Perspectives, January 2010, for a fuller discussion of the strategies and capabilities businesses must develop or deploy for success in today’s increasingly turbulent environment.