Disruption Is Alive And Well, From Dairy To Hearing Aids To EVs

Disruption continues to be a familiar topic in today’s C-suite; almost always spoken about in hushed tones, with frequent glances over one’s shoulder, as if the inevitable is about to arrive at any moment. Disruption is the possibility that keeps both CEOs and startup-founders up all night, the former dealing with the foreboding that accompanies such thoughts, while the latter work late, trying to push their ideas further, faster.

Disruption Possibilities Today

There is ample reason for our interest in disruption, as it continues to be seen as an ever-more-likely occurance in many industries. Supply-chain breakdowns, digital transformation, diminished globalization and increased regulation are among the most common reasons given for this likelihood. Add to these the increased popularity of business-model innovation, as a way to work-around once impermeable scientific and technical barriers to industry entry, and the emerging penchant of new graduates, at all levels of the educational ladder, to eschew traditional career paths and, instead, become professional disrupters, and you have a compelling set of reasons for paying more attention to disruptive potential across a whole range of industries.

Current disruptive possibilities in three very different industries [arenas] provide a vivid illustration of how today’s disruption works: new and alternative dairy products, which are filling our supermarket shelves; affordable, non-prescription, hearing augmentation devices, which will be benefiting from recent legislation in the United States, and which promise to change the audiology-device landscape; and, major breakthroughs in electric vehicle technology, which are already changing that customer experience, completely. Using the concept of disruption, largely given to us by the work of the late Clayton Christensen, of the Harvard Business School, we can appraise the current disruptive situation within each of these industries and draw conclusions about their eventual outcomes. First, however, it is important to establish a common view of what disruption is and is not.

Disruption basics

Disruption is an outcome, rather than a strategy. It is a rupture in the present trajectory of an industry’s growth, which leads to the wholesale, often near-simultaneous, displacement of the existing cohort of previously successful, market-leading firms — think not only about Nokia, but also Ericsson, Motorola, Blackberry and other mobile phone makers, all of whom failed at about the same time, for the same reasons; like lemmings heading into the sea . Since these firms ostensibly know more about their business than anyone else, disruption almost always takes them by surprise. However, despite there often being ample time for well-heeled market leaders to respond; all too often, they fail to do so.

Disruption is almost always authored by organizations outside of traditional mix, and part of its disarming entrance into an existing industry is due to the invisibility of the organizations that initiate this challenge to the established status-quo. Disruption frequently begins with a beachhead, an area of vulnerability in the incumbents’ portfolio of offerings, or an unattended pain-point along the existing customer journey, which is then expanded over time to displace incumbent market leaders, and/or redefine the industry. It is most definitely an industry phenomenon; it is not so much that one incumbent, market-leading, firm is disrupted, as that they all are. As a result, the single most telling marker of disruption is not the new technology, nor novel business-model, that have become the industry’s new standards, but it is the fundamental restructuring of the industry’s membership. In addition, along with disruption of any kind, there is collateral damage that occurs throughout the existing value-chain, as new methods, materials and attitudes displace the old. Furthermore, once credible disruption gains momentum, whether it ultimately succeeds or not, the customer experience is forever changed. As a result, disruption can also be seen as the possible revitalization of a mature, yet stagnant, industry. New ideas being put into action, new organizations joining the fray, new opportunities to be explored and developed.

Electric Vehicles

No other disruption story is as high-profile, nor as successful, at the moment, as that of the present disrupting of the automotive industry, which in many respects is the story of one persistent insurgent, Tesla, that took the coming end-game for fossil fuels seriously, chose to revive the old idea of electric cars, and never looked back. Starting from scratch, in 2003, the brain-child of several engineers without prior automotive experience, who were then joined by Elon Musk in 2004, as the largest investor and “face” of the organization, Tesla today (2022) has a market cap of $870 billion, and is by far the best known EV manufacturer in the world; it had a twenty percent worldwide market share of Battery Electric Vehicles (BEV) in 2021. As Christensen’s model predicted, Tesla was an unknown outsider, which persisted in the face of industry ridicule, grew the business through technology, styling, affordability (although not necessarily low prices), and has expanded its portfolio of activities through investments in battery technologies that reduce purchasing hesitancy over distance-driving. Nothing that Tesla did was really a surprise, any industry incumbent could have done it, but they didn’t, and the speed of Tesla’s market penetration has been faster than anyone had forecast. It is said that “leadership matters,” and Tesla has surely benefited to a considerable extent by both the daring of Elon Musk’s vision, and the bravado of his public persona. All in all, the Tesla EV story conforms nicely to Christensen’s disruption concept, and explains well the upheaval that has been felt in the global automobile industry by this insurgent’s success.

To their credit, the existing, formerly exclusively gasoline-powered, market leaders, have responded, probably later than they should have, to the threat of EVs as the likely future dominant automotive technology, and have each introduced EVs of their own. Hyundai and, its affiliate KIA, are growing fast, with a combined market share, and profit margins, at about half of Tesla’s, and with their share prices at about a tenth of Tesla’s; Volkswagen is also in that mix. The other three, of the top six, are Chinese manufacturers (SAIC, BYD and Geely Volvo). There are no American automobile manufacturers in the top six, other than Tesla. The urgency of catching-up is visible everywhere, however, to the extent that Ford’s executive Chairman, Bill Ford, speaks of the April 2022 launch of the F-150 Lightning all-electric truck as the biggest launch in his career, where success is not a given: "Anytime you have a radical change to your most successful product, you really are betting the company." Complicating the legacy leaders’ hopes for recovery is the preference for local EVs by Chinese consumers; “Legacy automakers have barely any competitiveness in their electrified products,” according to one Chinese observer, “They are heavily relying on the path of gasoline cars.” As a result, 80% of the EV sales in the Chinese domestic market, for the first seven months of 2022, went to local manufacturers.

The future of EVs in the United States has received a recent boost from California’s legislation banning the sale of gasoline-powered automobiles in the state by 2035, with fifteen other states also banning zero-emissions in the future, joining the EU, China, Japan and a number of other nations who have announced similar bans or zero-emissions requirements. In addition, dramatic improvements in faster charging and longer battery life, is leading industry observers to suggest that faster charges could lead to smaller batteries, which in turn might hasten cheaper EVs, resulting in faster auto industry disruption. The reality of disruption, however, is that whether or not Tesla maintains its market lead no longer matters; the EV genie is out of its bottle, and the auto industry will never again be the same, with or without Elon Musk. There are even patent-data hints that suggest that Silicon Valley firms, including Apple, are eagerly considering entering the auto industry in order to deploy their skills and technology in this market-in-flux.

Disruption is already here, in the auto industry, and is likely to be a major force for profound change, for quite some time to come. The conventional model holds up well in explaining the unfolding drama, but added to it should be a recognition that a lot of Tesla’s success in this once unassailable market was due to business-model innovations in adopting direct-to-customer sales channels and deliberately employing an experienced workforce in non-union organizations. There is more than a modicum of irony in Tesla’s success producing cars in GM-Toyota’s former NUMMI factory, and taking it from what had once been considered “the worst workforce in the automobile industry in the United States,” to today what is “the most productive car factory in the U.S.” Such competitive moves may ultimately prove more difficult for others to emulate, than are Tesla’s technology and styling choices.

Greek Yogurt And Alternative Dairy Products

Far from the high-tech settings we instinctively associate with disruption, maybe the single easiest place to observe the disruption phenomena today is in what has traditionally been referred to as the “Dairy Section” of your local food market. There, a disruption saga is unfolding at scale, and with speed. Take a good look around at unrecognizable new brands, a multitude of new products, and even different looking containers. This is more than mere industry change; what we are seeing is an entire ecosystem in flux.

Chiobani, founded in 1994 to produce Feta cheese, by a Kurdish immigrant with a dairy background, is an excellent early example of disruptive dairy innovation. By 2005, however, it was clear that Feta was not the best path to success, so, the very charismatic, Hamdi Ulukaya, decided that Greek-style, strained, yogurt was a better bet, and out of that small start, in an abandoned factory, was born the “Greek era” in American yogurt; a sector that grew at seventy-seven percent, from 2007 to 2013, compared to the nine percent growth of the total yogurt market. This is a vivid example of a single-product supplier, originating on the industry’s edge and invisible to all, completely overturning the well-established rules of the game to establish a beachhead from which to grow; it is a classical disruption success story. Where Chiobani differed from classical disruption was that while it launched a novel product for the time, Greek-style, strained yogurt, it entered the market priced at a 50 percent premium over mainstream products in supermarkets, although at a significant discount to foreign yogurts in gourmet stores, but it grew fast, nonetheless, and today is the most consumed yogurt brand in America.

Chiobani’s dramatic growth spurt, in an industry that was otherwise fading, and its ascension into market leadership, despite being a relative unknown, also launched a new era of experimentation by firms who were not associated with traditional dairy ingredients and techniques. The Swedish alternative milk producer Oatly, founded in 1990, ushered-in the widespread introduction of plant-based alt-dairy products, which is now playing-out a disruption drama similar to Chiobani’s, but this time relying on plant-based alternatives in familiar markets; oat milk, almond milk, plant-based ice-cream, etc.. Given that as much as sixty-eight percent of people suffer from some form of lactose intolerance, unable to absorb the sugar found in milk and other dairy products, it should be no surprise that this long under-served segment of dairy consumers, or non-consumers, could serve as a launching pad for companies with sufficient imagination to change the competitive dairy products’ formula. Today, these once-beleaguered market segments are swarming with a variety of previously unrecognizable producers of plant-based dairy alternatives (alt-milk), who have gained a beachhead to enter the broader dairy products market and begin to disrupt the traditional market leaders, and their value-chains. As a result, we are seeing not only new entrants in almost all of the formerly dairy-exclusive product offerings, but new containers as well. Disruption is accompanied by collateral damage along the value-chains, and it is happening again in the Dairy aisles.

A key element of the Christensen’s classical disruption model is that the well-entrenched successful market-leaders are slow to respond to possible disruptive insurgents, doubting the attractiveness of new products from unknown producers. Oatly’s founders, two brothers in Sweden, tell the story that “we tried to sell it to the milk industry, and basically they laughed me out of the room.” This same complacency appears to be still be found in Dairy, today, where a casual review of the 2022 Dairy Food’s Top 100 Dairy Companies, for reveals only a small number (perhaps as many as nine) companies who presently self-identify with alt-dairy products, including New York City’s last dairy, Elmhurst (number 87 on Dairy Food’s Top 100), established in 1925, closed in 2016, and reborn as a plant-based producer of alt-dairy products in 2017. While no one really foresees an eventual demise of Dairy, in the United States, it is sobering to see how large the alt-dairy sector has become, and how fast, and to conjecture how much cash-flow the legacy producers are losing as a result.

Hearing Aids And Audiological Devices

Hearing loss has long been a national problem in the U.S., and most other countries, as well. Expensive to treat, yet outside of most insurance coverage, hearing loss has exposed an aging population to a variety of social problems that include isolation and possibly dementia. According to the American National Institutes of Health, about 30 million Americans above the age of 12 suffer from such problems, yet only 20 percent of the deaf and hard of hearing wear hearing augmentation devices of any type. Part of the reason for this is that the global hearing aid market is an oligopoly that has long been dominated by six major players. While the products are sophisticated, prices are high, the profit margins are substantial, and historically there has been not much chance of challenging this oligopoly.

Hearing aids have always been a sort of high-tech industry, at the forefront of digitalization, but over the past few years, there has been some nibbling at the edges of this market, by other high-tech firms coming from other markets, including audio systems, such as speaker-producer Bose, who attempted to win acceptance for the use of headphones with smart-phone microphones, to enhance conversational participation. Bigger change is about to occur, however, as a result of President Biden signing of the Over-the-Counter Hearing Aid Act (2022), which allows hearing augmentation devices, for mild to moderate hearing loss, to be sold over the counter, without prescription, and which mandates that stores stock hearing aids that cost as little as $600, which would lower device costs by as much as $3,000. While it is too early to know for sure what sort of devices will emerge from this partial relaxation of the old regulatory regime, it is clear that there will be legitimate market insurgents, who on the basis of lower price, will be entering a once protected industry. Most likely, at first, the future hearing device industry will look a lot like the present, with the addition of a much larger entry-sector, that introduces first-time users to the benefits of hearing enhancement, but at a lower price than today. Out of this sector should emerge real contenders for eventual market leadership, as the classical disruption model would predict. Disruption is never easy, and Bose, which eventually produced a SoundControl conventional-looking hearing aid, and sold it for less than $900, recently withdrew from this market and sold its technology and direct-to-customer business to Lexie, in effect admitting that it was first and foremost a technology company, and citing the difficulty of understanding such a complex market, while acknowledging Lexie’s ability to move faster in serving high-volumes in that market. Apple, however, and its AirPods, is extremely consumer-savvy, and has been seen by many observers as a likely emerging new entrant in just such a market.

Even without Apple or Bose, the entry-level hearing-augmentation market is almost certain to grow, and grow fast, and likely also without participation from the entrenched hearing-aid market leaders. This opens-up a potentially massive low-end market segment that could well be the springboard for one or more design-savvy new entrants, who could create an agreeable customer experience and secure a beachhead that would ultimately lead to a broader set of product offerings, at higher prices. Disruption, while likely to be slow, will probably be relentless, as low-end, first time users graduate into the more sophisticated, and expensive, high-end products, that typically accompany aging.

Conclusions

Disruption is, at least in these three industries, alive and well and posing a considerable threat to formerly successful, incumbent market-leaders. While the Christensen model holds-up well as a portrayal of disruption dynamics, time to disrupt has, if anything, sped-up, and disruption is no longer exclusively for lower-price entrants, only. What remains most striking, however, is the continued lack of leadership imagination within legacy firms, who despite all the discussion of disruption, remain seemingly incapacitated in the face of such threat.