reverse-disruption

Reverse Disruption In A Nutshell

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.

Understanding reverse disruption

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-business-model
Amazon has a diversified business model. In 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services,  Amazon AWS, Subscription Services, Advertising revenues and Physical Stores.

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.

walmart-business-model
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.

Walmart’s reverse disruption initiative 

Walmart’s transformation into an online company started in 2016 with the acquisition of eCommerce start-up Jet.com for $3.3 billion.

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”. 

Walmart is now the second largest eCommerce retailer in the United States with sales of $46.44 billion in 2021

Other examples of reverse disruption

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.

Read Next: Business Model Innovation, Business Models.

Related Innovation Frameworks

Business Engineering

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Business Model Innovation

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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.

Innovation Theory

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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.

Types of Innovation

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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).

Continuous Innovation

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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

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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.

Business Competition

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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

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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.

Diffusion of Innovation

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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.

Frugal Innovation

frugal-innovation
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.

Constructive Disruption

constructive-disruption
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.

Growth Matrix

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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).

Innovation Funnel

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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.

Idea Generation

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Design Thinking

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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.

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