By | Dr. Sundar Parthasarathy | Helping you with insights and actions for success
Incumbent firms can deal with the innovator’s dilemma and the threats that could come from disruptors who pick industry/market niches, by adopting a Fast Follower Strategy.
An Indian company that is the leader in branded coconut oil recently announced that it is “entering” the category of “organic, cold-pressed virgin coconut oils.”
Recently, I put out a post [https://bit.ly/2V0TPgo] where leading players in an industry are choosing to follow a lower-ranked niche-player. Decades ago Harvard’s Prof. Clayton Christensen coined the term “Innovator’s Dilemma” (ID). A deeply entrenched (and so heavily invested) incumbent firm (and often in the upper echelons of its industry) is so locked-in into the present scheme of things that it faces the dilemma of deciding where to deploy its finite and dear resources – i.e., for keeping up with their growth in existing product-market play, or go after new products-market spaces that are fraught with uncertainties with regard to profits, scale and sustainability. Here’s a quick summary on ID: https://bit.ly/1mI6a7W
Christensen observed how disruptors (who challenge incumbents) adopt new technologies to create highly differentiated offerings in a niche market. The Incumbents facing the ID can be lulled into believing that their product-market spaces are safe, and their dominance permanent. Over time, the disruptors end up redefining markets, and in some cases, even industries – and incumbents either are left scrambling, or even rendered irrelevant.
Incumbents, rather than be in a state of dilemma or denial, can opt for another way to deal with the threats that could come from disruptors who pick industry/market niches. It can be called the “Fast Follower Strategy” (FFS). In this approach, the incumbent firm is not in any dilemma. Instead, the firm invests in actively scouring the ecosystem for new entrants (or potential new offerings), and tag them. The firm provides adequate resources for keeping a close watch on what they tag, whereby vital information on the tagged “suspects” is kept up-to-date. Over time, the watchlist keeps getting refreshed (i.e., dropping what was tagged previously and adding new ones).
At an opportune moment (i.e., as defined by a combination of a few vitally essential market criteria) the incumbent firm chooses to enter a disruptor’s niche. The up-to-date research that the firm has done will help in getting the timing of entry right. And, thereafter, the firm brings to bear it’s significantly mature and deep capabilities and resources to deploy a well thought out FFS with the clear objectives of dominating the niche and growing the demand. At times, such entries are also marked by the rapid acquisitions of one or two early-mover niche-players.
Now back to this Indian firm – the leader in branded coconut oil. Consider some of the data from its recent annual report, (a) the firm has a brand whose name is synonymous with coconut oil and is claimed to be the “world’s largest coconut oil brand”; (b) for their “India business, the Coconut Oil franchise reached a volume market share of 59%”; (c) their coconut oil based product-revenues are “44% of India business”; (d) its distribution reach in India is marked by its ability to penetrate the shelves of 4.7 million retail outlets (e) the firm’s supply chain has very strong (and longtime) linkages with coconut farmers, and every 10th coconut produced in the country falls into its supply chain; (f) and in 2017 it launched a special initiative “aimed to create a positive impact on coconut farming income and make (a) difference to the farmer lives.” The firm has reported revenue of over INR 63 bn (just under USD 1 bn), with a market capitalization of USD 6.5 bn).
It appears that the firm wants to deploy an FFS strategy, whereby it can bring to bear its deep competitive advantages across many parts of its value chain (especially in the inbound supply chain, and the GTM- and channel-related). Organic oils are increasingly finding favour as healthy alternatives to refined cooking oils. With more than 50% of the revenue comes from “Edibles” segment (other major segments being “Hair Oils” and “Personal care”), the firms foray into cold-pressed coconut could be relatively more focused into the edible oils market.
Incumbents can escape the curse of the ID if they proactively scan their ecosystem for potential discontinuities and threats appearing on the horizon, tag the threats and keep tabs, and time the entry into a developing niche by deploying an FFS strategy. On the other hand, niche-players who create categories must be clear of a long term game plan on how to stay ahead of the pack – like how Aldi is doing!