Charted: Competing Against Startups? You Probably Didn’t Know That They Are Not Your Main Threat

Shelly Dutton

It’s not uncommon to encounter news of a digital startup changing the rules of a particular SAP SapphireNOW 2015, Orlando, USAindustry. We’ve all seen the potential of startups, including Amazon.com and eBay, for decimating entrenched competitors. The efforts of the likes of Uber, Tesla, and Airbnb are also widely known. Even emerging startups, such as BloomThat and Ginger.io, are being watched. Every day, executives of established industry leaders are looking ahead to see which of these wide-eyed, entrepreneurial businesses will possibly threaten their position. But are these tech startups the only ones chasing them?

In the Economist Intelligence Unit (EIU) study “The Hyperconnected Economy: Phase 2,” existing competitors – not the fear of being wiped out by a startup – are keeping executives up at night. More than half (57%) of executives are facing significant pressure from digital products launched by established competitors, compared with the 49% concerned about digital startups. And the pressure is not expected to subside anytime soon.

Startups are chasing you, but they’re not whom you think they are

Although some digital startups have been highly visible in recent years, most established players still own the top spot in their respective industries. In these markets, digital startups are forcing companies to adopt digital practices and provide relevant services that add value to their traditional offerings.

As a result, large or well-established companies are promoting innovation by creating internal startups. With the entrepreneurial spirit of a tech startup, these new business divisions operate at arm’s length from the rest of the company. Examples include Target retail stores, which began as an internal startup of Dayton’s department store chain, and Google’s Niantic Labs.

4 considerations when competing against startups – no matter who’s funding them

Peter Sondergaard, senior vice president and global head of research at Gartner, provided this encouraging advice about this competitive trend: “Thirty-eight percent of total IT spend is outside of IT already, with a disproportionate amount in digital. By 2017, it will be over 50 percent. Digital startups sit inside your own organization, in your marketing department, in HR, in logistics and in sales.”

However, taking this approach does come with a fundamental shift in business practices. Here are four things you should consider when competing in this new landscape

1. Treat digital services like physical products

By underpricing complementary services, you could be losing out on a new, critical, and highly profitable revenue stream. Consider supermarkets, for example. Online groceries were initially introduced by Internet-only brands such as Ocado in the United Kingdom. And over time, brick-and-mortar supermarkets created their own Internet-based grocery services.

The strategic significance of this move is evident when you consider that this service is typically underpriced. HSBC’s retail analyst Dave McCarthy found that supermarkets tend to charge around US$5 for their digital services. However, the real cost of home delivery is on average US$30. By undercharging each online transaction, major chains lose out on US$1.6 million in new revenue annually.

2. Disrupt competitors with personalization, simplicity, and 24x7x365 access

Customers in all sectors live with their smartphones and other mobile devices attached to them. As a result, they want choice when it comes to interacting with the company– in person, online, over the phone, or through social chats.

To take advantage of this new societal behavior, firms must connect their products with services and interaction channels similar to the omnichannel approach in retail. This strategy is focused on making the entire customer experience personalized, simple, and convenient. Many companies offer free mobile apps that allow customers to purchase their offerings, engage with the business, and access services that enhance product use. And as lagging companies begin to take notice, there are others that are hesitant about taking the plunge – at the risk of making people resent them for not offering the kind of ease and convenience they have come to expect.

3. Open your entire enterprise to the opportunities abound in the digital economy

As hyperconnectivity introduces new sources of competition, it also brings internal pressure to grow and expand into new geographies and industries. EIU recently uncovered that 47% of organizations have reacted to the digital economy by moving beyond automation, lowering prices, or exiting current market presence. Instead, they seized the opportunity to enter new markets.

With the emergence of hyperconnectivity, it’s getting easier to pinpoint which markets are suitable for entry. Consider the potential partnership between automakers and insurers. Motorists can use data generated by their vehicles to prove they are safe drivers. As a result, insurers can provide individualized offering that reflect each policyholder’s needs and behaviors. Also, banks can seize insight from this data by analyzing the risk level of a homeowner requesting a loan.

4. Embrace deep organizational change

For the most part, hyperconnectivity has had a positive impact. According to EIU, 45% of executives believe that collaboration – within and between organizations – have improved. Plus, business processes have accelerated for 47%. However, this is only a narrow view of the full potential of hyperconnectivity.

With the continued growth of hyperconnectivity comes a shift in power dynamics. While many companies are solid, stable, and predictable, they are still slow to react to real-time changes in customer demand and market realities. To exploit hyperconnectivity, organizations must be fluid with adaptable structures that can flow into new opportunities as they emerge.

To further explore how hyperconnectivity has changed the competitive landscape, check out the infographic below.

charted infographic