How businesses can create a successful niche even in a mature market

Here, Dr Paul Langley and Professor Alison Rieple discuss how businesses can use disintermediation to come up with something new.

Digitisation is transforming the world around us in myriad ways. 3D printing, big data, blockchain, Bitcoin, the sharing economy, mobile connectivity, social media, cloud services, the internet of things, artificial intelligence, and automation are all coming to a town near you – and very soon. These are threats for many organisations, but they also create opportunities for those that can be nimble and digitally savvy.

Disintermediation (the reduction in the use of intermediaries) and the sharing economy are areas where small businesses are able to gain a competitive position quickly. They reduce the need for physical assets that historically might have disadvantaged small firms or start-ups. Digitisation has allowed some very innovative, and in some cases rather counter-intuitive, business models to emerge, based on completely different economic principles from traditional businesses.

All these disruptive business models were created by start-ups. As Tom Goodwin, senior vice president of strategy and innovation at Havas Media said: ‘Uber, the world’s largest taxi company, owns no vehicles; and Airbnb, the world’s largest accommodation provider, owns no real estate.’ These organisations all depend on being able to bring together unexploited resources to meet consumers’ needs, most of which were previously unmet and maybe also unrecognised. Instead of owning the asset and renting it out, profits are made from advertising, commission from the consumer or asset owner. Profits also go to the asset holder themselves, who gain income from an underused resource that is broadcast to a wide network of potential consumers.

Although not based on the sharing economy, retailers such as Chinese multinational Alibaba (a start-up in 1999) also use digital technologies to bridge buyers and sellers. Alibaba is the world’s most valuable retailer, yet it has no inventory. Because these organisations act as the sole link between supplier and consumer, and remove other intermediaries such as stores, they can reduce costs for makers and buyers alike. Other examples closer to home include ASOS and Net-A-Porter.

Learning by example

The business models developed by Uber, Airbnb and Alibaba are not new today, but their principles still provide plenty of opportunities for small businesses. Skills in curating, presenting items in a way that will make consumers want to stop and browse online, and then follow the path to a service experience that they trust and respect, can be developed by small organisations as well as large ones.

Another area where small businesses can compete just as successfully as big corporations is through the use of 3D printing technologies. 3D printing is democratising the design and manufacturing of products. Anyone with the money to buy a desktop 3D printer and in possession of a certain amount of business competence can start up a business manufacturing, for example: replacement parts for household goods, products for medical use, jewellery, or components for manufacturers. All you need is a digitised design blueprint; either one that is bought off the shelf or that you have created yourself – and the raw materials. In geographical locations where it is not possible to achieve economies of scale in physically holding supplies of spare parts, a 3D printer can make an item to order using the same raw materials that can be used for other items.

For UK business moving into 3D printing ought to be an especially attractive proposition. The UK government predicts a rosy future for the 3D printing industry: it defines it as a disruptive technology ‘that offers huge potential for UK businesses’. The worldwide market is growing at a compound annual growth rate of 35 per cent which is forecast to reach £70 billion by 2025. The government hopes that the UK can win around 5 per cent of the global market for 3D printing products and services, and to this end has been prepared to invest large sums in making UK 3D printing companies more competitive.

Yet, despite all these advances, it seems that much of the industrial world is woefully unprepared for the era of digital disruption. For each large incumbent organisation that embraces digital technologies successfully, we can find numerous examples that do not – including many of the most dominant firms in any given industry. Start-ups and SMEs are probably for the first time less disadvantaged than large companies in this competitive space. They can use innovations in digital technologies to quickly establish themselves in the marketplace, often at the expense of less digitally savvy incumbents.

Three questions for businesses looking to move into digital products

However, some thought still needs to go into this type of move. So there are three questions that all start-ups and SMEs who are thinking about moving into digital products and technologies should be considering:

  • In many sectors digital technologies bring much lower barriers to entry, the potential for a different basis of competition and changing power dynamics:
    i) What sectors exist where we could find opportunities to disrupt through digital technologies?
    ii) What do we need to do to win in this new environment?
  • Essential to success in a digital future are enhanced, targeted, resources and capabilities. What do we need to do to acquire these so that we can implement a winning digital strategy successfully?
  • Incumbents can be sleepy and slow to react. How can we take advantage of that? But … how will we deal with their reaction if they wake up and start to notice us?

Start-ups that provide serious answers to these points, and creatively identify markets ripe for digital disruption, should be able to take advantage of the enormous opportunities digitisation brings.

Further reading on finding your niche

Dr Paul Langley is a senior lecturer in strategic management and Professor Alison Rieple is a professor of strategic management, both at Westminster Business School.

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