Three Signals Your Industry Is About to Be Disrupted

It’s safe to say that no industry will be left untouched by digital disruption. Is yours next?

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Legacy companies are falling like dominoes to disruptors. Together, emerging technology and new business models have created new ways of serving customers. The same way Airbnb, Uber, and LinkedIn fundamentally changed the lodging, taxi, and recruiting industries, titans such as Amazon, Google, and Facebook are now poised to disrupt every industry as wide-ranging as health insurers to grocers. It’s safe to say that no industry will be left untouched — but is yours next?

A number of industries seem to be “safe” from disruption, but often the markets most at risk do not see it coming. Who would have predicted, for example, that Amazon would follow its acquisition of Whole Foods Market with a jump into health care? We have looked at common patterns among more recent business model innovations and determined three major signals that your industry could be on the precipice of major change.

Sign No. 1: Your Industry Has Significant Regulatory Burdens

The first major sign is that your industry is highly regulated. While heavy regulations have a long tradition of protecting companies from new entrants, this may not be true in the future. Industries with high regulation often suffer from complacency, as they may not have had to worry much about customer experience or optimizing operations. However, emerging technology is changing this landscape.

The thing about new technologies is that they are not well-regulated. Years ago, people likely would not have anticipated that turning their back bedrooms into pseudo-hotels and advertising them on apps would be an accessible and profitable venture. Therefore, regulations regarding hotel lodgings didn’t clearly apply to Airbnb rentals, allowing the startup to accelerate user reach quickly, unfettered by the constraints of the hotel chains that were its primary competitors. Airbnb grew quickly and become a major player in the market before city and state regulations began to catch up. A similar story can be told for Uber, telemedicine, and even autonomous cars. If you think regulation will protect you from disruption, just remember that startups are bold and many will ask forgiveness later, rather than permission now. By the time regulations catch up with disruptors, they may have already taken your customers and market share.

Sign #2: Your Customers Have to Work at Managing Their Costs

The second signal for disruption is that your cost models are difficult to understand for customers. This is often the situation when there are one or more middlemen between the origination point of the product or service and the customer. Handoffs in the supply chain often increase cost without adding value, and they also can contribute to poor customer experience. A good example is how Tesla Inc. sells cars directly to consumers, cutting out dealerships. This greatly improves the experience for customers, most of whom hate the hassle and haggle of the car dealers. Mattresses are another great example. Innovators like Tuft & Needle, Casper, and Leesa are selling directly to customers online rather than going through retailers that sell the same product at a wide variety of price points and often negotiate with customers. If your product requires a great deal of work on the part of customers in order to manage their cost, either through price tracking or haggling, consider yourself at risk.

Sign #3: Your Customers’ Experience Isn’t Positive — or Even Neutral

The third signal often exists as a side effect from the first two: Your industry is not optimized for modern customer expectations — which means that customers aren’t delighted to interact with you. This often happens in industries where the consumer doesn’t have a lot of choice and is beholden to the provider out of necessity.

Ask yourself: Do customers regularly complain about the experience of doing business with us? The taxi industry is an example that exhibited pain points start to finish. Riders had essentially no choice, taking whatever cab was available regardless of safety, cleanliness, or ease of payment. Uber has improved the experience dramatically — even considering its many stumbles along the way. The same can also be said for the experience of purchasing a car or mattress, both of which have been streamlined by disruptors.

Industries in Danger of Disruption

Given the three major harbingers of disruption, let’s apply this thinking to three industries that may be next:

  1. Air travel. With its long security lines, tiny seats and frequent delays, there may be no industry that provides more friction in customer experience than air travel. Pricing is another risk factor, with airlines using highly complex pricing software that makes the cost of flights rise and fall dramatically and unpredictably, creating stress for their customers. Finally, air travel is highly regulated from start to finish. In fact, airlines are so constrained and consumed by regulation that it is almost impossible for them to innovate.

    Now, we admit that a startup airline operating outside of federal regulation is highly unlikely. What is extremely likely, however, is that self-driving cars will take a huge bite out of the air travel market. While some long-haul or overseas flights may be immune, a great portion of air travel could be converted to cars. The trade-off is clear: Even if the door-to-door trip time was an hour or two longer, many travelers would prefer to work or sleep in the comfort of a private vehicle rather than subject themselves to the gauntlet of air travel.

  2. Real estate. The process of buying a house is complicated, lengthy, and involves many steps and processes that add little value for the consumer and could be improved by automation. The high cost of transactions is also a concern, with one of the highest being the agent’s fee. Customers are increasingly questioning the value of real estate agents when they can both list and shop homes online.

    Although there is a great deal of regulation from both the government and mortgage providers, much of the process can be handled online. The mortgage and home buying process is a great opportunity for robo-advisers, similar to what we have seen in investing.

  3. Health care. Managing one’s health can be challenging, time-consuming, and stressful. Finding a good health care provider can be difficult, and the cost of health care is almost completely unpredictable. The nuances of what insurance does and doesn’t cover are often inscrutable, even to medical staff, and the cost of medical procedures varies wildly between hospitals.

    It’s not surprising then, that Amazon sees health care as an opportunity for disruption — the opportunities for improvement are nearly endless, and we look forward to a future where we can use our PrimeInsurance to visit PrimeDoctors and improve our PrimeHealth.

If you find yourself in one of these industries, or any other where you can see the hallmarks of imminent disruption, it is time to take action. Shake off your complacency and recognize that disruptors are going to ignore the rules you play by — and take your customers with them into their brand-new game.

You need to take on the challenge of disrupting your own industry. Stop hiding behind regulation; instead, consider how you might operate outside of your traditional ways. Take responsibility for the customer purchasing experience and make costs clear, consistent, and easy to understand. Above all, recognize that if you fail to deliver on customer experience out of complacency, someone else will innovate a solution and knock you out of the competition.



An MIT SMR initiative exploring how technology is reshaping the practice of management.
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Comments (3)
Subramaniam Iyer
There can be a disruption in these three industries only when the baton of control is passed to the Customer / Consumer rather than the businesses. All the three are essentially Service Oriented sectors that are critical to the Life Journey of an individual. The enterprises in this sector must transform their mindsets from being the master to the servant. It is only then that the true value of the disruptions will impact positively for both the enterprises and their customers. Until then every other thing that is touted in the name of disruption is a hogwash.
Thank you for some excellent analysis.  You remind us that the customer demand is the source of economic value so disruption is most likely to occur in industries where current customer demand is being met, but poorly (whether due to regulation, complacency, or simple monopolistic behavior by the incumbent providers).  I particularly appreciate you sharing some ideas about the industries that you consider ripe for disruption.
Alberto Randazzo
Thank you for an interesting articles. 
Sooner or later all industry and business model get disrupted and I think the challenge is to identify what is the timeline. 
It seems to me that there're two forces that increase or reduce maturity for disruption in industry;
1-  emerging of  enabler for business model substitution: for instance Uber relied on the universal availability of mobile phone and apps to connect demand and supply and a lot of B2C direct selling was made possible by development of logistic that enable a cost effective and timely home shipment; On the other side disruption in the movie-content industry was delayed until wide spreading of increase in internet bandwidth allowed smooth online streaming (Netflix and Youtube)
2- reliance of physical asset: the more the business model is linked to physical asset the slower it is the disruption: Although there have been transformation in the airline industry (with Ryanair and southwest) full disruption with say a high speed train will require the long time for infrastructure to be set up; Similarly for car production, although Tesla brought disruption in the market,  given the relative long time  it took Tesla to set up and run an efficient production-supply chain system,  big players had time to adapt to the new threat and develop their E-car. 
Any other thoughts?