Reverse disruption is the process of redefining a company’s business model to reverse its fortunes and potentially being able to rebuild the business on top of the technology that disrupted or risked disrupting the business in the first place.
To explain reverse disruption, consider the example of legacy companies Amazon and Walmart.
Digital company Amazon has been able to grow online in an organic and purposeful manner – particularly in terms of its supply chain and distribution network.
Amazon has a diversified business model. In 2023, Amazon generated nearly $575 billion in revenues while it posted a net profit of over $30 billion. Online stores contributed over 40% of Amazon revenues. Third-party Seller Services and Physical Stores generated the remaining. Amazon AWS, Subscription Services, and Advertising revenues play a significant role within Amazon as fast-growing segments.
Walmart, on the other hand, was founded as a brick-and-mortar retailer and has had to adapt its existing infrastructure to become competitive online.
With over $555 billion in net sales in 2021 the company operates a differentiated Omni business model with three primary units comprising Walmart U.S, Walmart International, and Sam’s Club (approximately 12% of its net sales) a membership-only warehouse clubs. Together with Walmart+, a subscription service including unlimited free shipping, unlimited delivery from its stores, and discounts launched in 2021.
For a time, the fact that Amazon had the necessary infrastructure in place from the start meant it had a substantial advantage over Walmart.
But Walmart’s ability to not only adapt but ultimately beat Amazon at its own game is what we consider the essence of reverse disruption.
The Jet website was discontinued in 2020, but it is widely believed that Walmart was more interested in Jet’s executive team and infrastructure.
To that end, former Jet CEO Marc Lore was President and CEO of Walmart U.S. eCommerce between 2016 and 2021. Under Lore’s tenure, Walmart invested billions in digital infrastructure.
To help customers choose the correct size of clothes online, for example, the company acquired the dynamic virtual fitting room platform Zeekit in 2021.
The technology, which offers an immersive and personalized experience, shows what the clothes will look like on various body shapes, skin tones, and hair colors.
It is also more convenient, with Amazon Prime members required to send unwanted items back to the company in the mail.
In the years since the Jet.com acquisition, Walmart has strengthened its eCommerce business with the acquisition of menswear company Bonobos and the launch of mattress brand Allswell.
The company has also grown its curbside pickup and home delivery business, with the Express Delivery store-to-door service delivering products to customers’ homes in less than two hours.
With 90% of Americans living within 10 miles of a Walmart store, however, online growth has been primarily fuelled by the company’s click-and-collect service and diverse product range that makes it a “one-stop shop”.
Here is another example of reverse disruption, this time for the entertainment company Disney.
Disney’s ability to remain relevant since it was founded in 1923 is thanks in part to reverse disruption.
When interest in classics such as Donald Duck and Mickey Mouse started to wane, the company transformed them into theatre productions and live-action films and beat established production companies at their own game.
Much later, when Disney acquired Marvel for $4 billion in 2009, some believed it overpaid for the entertainment company because the Spiderman, Fantastic Four, and X-Men franchises had already been licensed out to 20th Century Fox and Sony.
Other critics noted that Warner Bros had saturated the industry in the late 90s and early 2000s with its numerous Batman and Superman sequels Despite question marks over the viability of superhero action films, Disney found success with lesser known franchises such as Avengers, Captain America, Thor, and Iron Man.
Unlike Warner Bros, which released its superhero films as a series of near-identical sequels, Disney reinvented itself (and indeed the industry) with a host of new characters whose stories were told in multiple but interconnected franchises.
In true Disney fashion, the company also ensures that each character is monetized in as many ways as possible.
Not surprisingly, Warner Bros has since strived to imitate Disney’s disruption of the superhero film industry. But it has not attained the level of success it enjoyed at its peak two decades ago.
Key takeaways
Reverse disruption is the process of redefining a company’s business model to reverse its fortunes and potentially revolutionize or reimagine an industry.
Walmart is now the second largest eCommerce player in the United States. This achievement required the company to abandon its bricks-and-mortar mindset and invest in online infrastructure and key personnel.
Disney is another example of a company that has used reverse disruption at various points to remain relevant. It reinvented the somewhat stale superhero film industry – then characterized by stale, uninspired sequels – with new characters whose interconnected stories spanned multiple different franchises.
Key Highlights
Definition of Reverse Disruption: Reverse disruption refers to the strategic process through which a company redefines its business model to overcome the challenges posed by technological disruptions or potential disruptions. The aim is to reverse the company’s fortunes and potentially lead to industry transformation.
Amazon vs. Walmart Example: Amazon, a digital native company, capitalized on its inherent online capabilities to build a diversified business model. In contrast, Walmart, a traditional brick-and-mortar retailer, had to adapt its infrastructure to compete online.
Walmart’s Transformation: Walmart embarked on a reverse disruption initiative in 2016 by acquiring Jet.com. The company invested in digital infrastructure under the leadership of former Jet CEO Marc Lore. Acquisitions like Bonobos and the launch of Allswell strengthened its eCommerce business.
Innovations and Strategies: Walmart introduced innovative technologies like the virtual fitting room platform Zeekit, improved curbside pickup, and home delivery services. The company’s click-and-collect service and diverse product range fueled online growth, making it a “one-stop shop.”
Results of Walmart’s Initiative: Walmart’s online sales reached $46.44 billion in 2021, positioning it as the second largest eCommerce retailer in the United States. The company’s shift from a bricks-and-mortar mindset to a strong online presence contributed to this success.
Disney’s Reverse Disruption: Disney has consistently utilized reverse disruption to remain relevant since its founding in 1923. When interest waned in classic characters, the company transformed them into successful theater productions and live-action films.
Success with New Franchises: Disney’s acquisition of Marvel led to success with lesser-known franchises like Avengers, Captain America, Thor, and Iron Man. Unlike competitors that relied on similar sequels, Disney interconnected stories across multiple franchises, reinvigorating the superhero film industry.
Monetization and Imitation: Disney maximized monetization by exploring various avenues for characters’ profitability. Competitors like Warner Bros. sought to replicate Disney’s success but didn’t achieve the same level of impact in the superhero film industry.
Key Takeaways: Reverse disruption involves redefining a company’s business model to transform its fortunes and potentially reshape an industry. Walmart’s transformation required embracing online infrastructure, while Disney’s ability to adapt and reimagine kept it relevant in evolving markets.
Additional Case Studies
Nokia’s Shift from Mobile Phones to Network Infrastructure
Background: Once a leader in the mobile phone industry, Nokia faced significant challenges with the advent of smartphones.
Reverse Disruption Strategy: Pivoted from consumer electronics to focus on telecommunications infrastructure and network equipment.
Outcome: Became a leading supplier of 5G technology and network solutions worldwide, illustrating how companies can find new life in different sectors through reverse disruption.
Kodak’s Entry into Digital Printing
Background: Kodak, synonymous with film photography, struggled as digital photography became mainstream.
Reverse Disruption Strategy: Shifted focus to digital printing technologies, leveraging its imaging technology expertise.
Outcome: Successfully penetrated the digital printing market, offering services for both consumers and businesses, demonstrating adaptability and resilience.
Blockbuster’s Late Move to Streaming
Background: Blockbuster, once a dominant player in video rental, was slow to adapt to the rise of digital streaming.
Reverse Disruption Strategy: Attempted to launch its own streaming service to compete with Netflix and other streaming platforms.
Outcome: Despite the effort, Blockbuster was unable to reverse its fortunes in time, underscoring the critical timing in executing a reverse disruption strategy.
IBM’s Transformation into a Cloud and Cognitive Solutions Provider
Background: IBM, traditionally known for its hardware, faced stagnation as demand shifted towards software and services.
Reverse Disruption Strategy: Reoriented its business model towards cloud computing, artificial intelligence, and cognitive solutions.
Outcome: Successfully repositioned itself as a leader in cloud computing and AI, demonstrating how established companies can lead new technological paradigms.
Adobe’s Shift from Software Sales to Cloud Services
Background: Adobe’s traditional business model was based on selling software licenses for products like Photoshop and Illustrator.
Reverse Disruption Strategy: Transitioned to a cloud-based subscription model, Adobe Creative Cloud, offering continuous updates and cloud storage.
Outcome: This move not only revitalized Adobe’s revenue growth but also set a new industry standard for software distribution and monetization.
Michelin’s Drive into Digital Services
Background: Known for tire manufacturing, Michelin faced the need to diversify beyond its traditional product offerings.
Reverse Disruption Strategy: Expanded into digital mobility services and solutions, including fleet management software and telematics.
Outcome: By leveraging its expertise in tire technology and vehicle dynamics, Michelin successfully entered new markets, enhancing its value proposition.
Fujifilm’s Transformation into Healthcare
Background: Like Kodak, Fujifilm was heavily impacted by the decline of traditional film photography.
Reverse Disruption Strategy: Diversified its business into healthcare, focusing on medical imaging, pharmaceuticals, and biotechnology.
Outcome: Fujifilm’s successful pivot to healthcare has secured its growth and sustainability, showcasing how core technologies can be repurposed for entirely different industries.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
