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Picking losers: How to know when you’re about to be disrupted

The Sloan Management Review has created a handy check list for self-diagnosis. It’s not the cure for cancer, nor for Xeroxistis, but it’s a start. 

1. Your profits are dominated by maturing businesses in which you see limited opportunities for growth

Nothing breeds complacency like success, and the right time to be paranoid is when you are at the top of your game. In 2007, Nokia was the number one mobile handset manufacturer, and BlackBerry was the “killer app” for mobile email. Now, Nokia’s handset business has been sold off to Microsoft, and BlackBerry is struggling for survival. Executives at both companies were seduced by their success into thinking they had time to react. Although they saw their respective threats as serious, they made the mistake of assuming that the threats were all part of normal competition rather than an existential danger. Both companies didn’t grasp, in time, that the smartphone introduced a fundamentally new capability to the market and thus represented a different type of competitor.

2. There is a direct threat to your core source of profits

Regional newspapers in the United States have seen their profits dry up as classified advertising has largely left print media and moved online. We have passed the point where incremental innovation (for example, better printing techniques) will matter; local listings can be posted on Craigslist for free. New digital business models have put the profits of incumbents at risk. Whether the threat is digital technology, emerging markets reshaping economics, foreign competition or breakthroughs in genetic medicine, if it has the potential to redistribute profits, beware.

3. The opportunity (or threat) is outside your core markets

One thing that made the introduction of the iPhone and Android difficult for Nokia to anticipate is that they both came from players that had not previously been involved in the mobile phone industry. Nokia executives had been bracing for incursions from Ericsson, Samsung and Motorola, not Apple and Google. They were focused on the industry as it was, and they didn’t anticipate the extent to which the newcomers would break the rules. Dramatic change is often driven from the outside, challenging the very basis of an industry and stimulating an immune response from the incumbent.

4. New ways of making money are a threat to your core capabilities

Nintendo’s introduction of the Wii video game console in 2006 was a masterstroke of innovation that enabled it to regain market leadership. It opened up a whole new market for computer gaming by introducing a simpler interface that made it possible for parents (and grandparents) to play alongside their children without having to memorize a list of arcane commands. However, the next wave of innovation may be more problematic, as it will put one of Nintendo’s fundamental rules about only producing software for its own consoles to the test. Popular Nintendo games like Super Mario Brothers and Donkey Kong operate exclusively on Nintendo devices. But the overall market is changing. Starting in 2011, consumers began moving from game consoles to smartphones and tablets in droves. So far, Nintendo has refused to make its games for other platforms. If the company maintains this position, it could miss the next wave, a decision that would put the company’s entire future at risk.

This article originally appeared on Idealog’s sister site, The Briefing

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