They say that if you always do what you’ve always done, you’ll always get what you always got. But will you?
Sometimes you have to question a basic assumption. Often this leads to your colleagues (or your family) getting annoyed with you, but sometimes it leads to greater insight. We often hear talk about an “era of disruption” but what does it really mean?
There was a great article in the McKinsey Quarterly back in July 2015 that examined disruption from a novel angle, disrupting disruption as it were. In the article, the authors looked at how new entrants to a market were able to disrupt the incumbents. They posited that “every industry is built around long-standing, often implicit beliefs about how to make money.” Beliefs are often considered inviolable, until someone comes along and violates them. At this point you have disruption.
A company like airBnB has introduced an innovative workaround to legacy licensing rules regarding holiday lets; Uber does something similar with taxicabs. What both these companies do is use technology to create a market that puts buyers and sellers together – after all, Uber doesn’t own any cabs nor employ any drivers nor does airBnB own any property.
We often think of corporations as being the natural way for goods and services to be supplied to consumers, but that is not the way classical economists think about it. For them a market is the most efficient way for buyers to meet sellers and prices to be negotiated; the corporation is an aberration that only exists when markets are not “perfect.”
Economists talk of the ‘transactional costs’ of using a market. One of these is the cost of search and information – the time and effort it takes to find and/or to know the information you need to secure or produce a good or service. Corporations arise where they can arrange to produce it internally and somehow avoid these costs. The cost reduction needs only to be marginal to make the corporation likely to exist rather than a market.
Take the example of the holiday market. There have always been people who wish to go on holiday and people who have holiday accommodation to let. In the absence of any mechanism for holiday-wanters to find holiday-providers, a firm of travel agents springs into existence. They internalize the details of the holiday-providers (so reducing their ongoing search costs to zero) and advertise their existence to the holiday-wanters. All works perfectly.
However, once the technology exists that allows the holiday-wanter to directly search for holiday-providers, independently and at zero cost, the reason for a travel agency to exist disappears. From a holiday-wanters point of view the agencies are unnecessarily expensive (not just the cost of the holiday but also the cost of visiting them, of waiting in line and the psychological cost of not knowing if a better holiday can be gotten from a different travel agent!).
The independent technology in this case is the internet. Now, travel agents cater only to those without the internet or those to whom the cost of search and information gathering personally is too high. Travel agents alternatively re-invent themselves as providers of bespoke packages, or accompanied holidays, or stay in the realm of the exotic.
The McKinsey article goes on to talk about how incumbent companies can become their own disruptors; by examining their own core beliefs and be willing to make change in order to continue to exist.
So what does market research actually do?
In the world there are people who seek insights (let’s call them Insight Managers) and those who have insights to give (let’s call them Participants). The mechanic by which an insight flows from Participant to Insight Manager is a question (and an answer).
Market Research firms internalize (and reduce) the costs associated with collecting and disseminating Insights. The transaction cost for an Insight Manager to find and engage with Sampling experts, Questionnaire designers, Survey Programmers, Interviewers, Data processors, Analysts and Data Visualisation experts makes it cost-effective to engage a firm to do the work. Money is made by the firm by charging the customer some part of the transactional cost.
We may think that some elements of the process are already disrupted. Online research, for example, removes the need for interviewers. But these are not really disruptive, just a gradual change in the nature of the business process.
DIY survey scripting tools, for example, only replace the survey programming expert in the cases where the project is simple and no additional work is required on the part of the survey author. The transactional cost of fully acquiring the skills of a survey programmer are too high for the Insights Manager.
What then would be disruptive?If disruption occurs when a market replaces the firm, i.e. the transactional costs are reduced to zero, then we need look for instances where markets are being created that remove the friction between buyer and seller. Greenbook’s Savio is one such attempt. If successful would it disrupt the industry? Very possibly.Imagine.
An Insights Manager wants the answer to an international business problem. They find a researcher though the market who designs a study. The find a questionnaire writer, again through the market, who writes the survey. They have it translated (this has always been ‘outsourced’). The questionnaire is programed by an outsource agency/bureau (lots of these around) or using a DIY tool (also plenty around, mainly free). Sample (and all quotas, etc.) are provided by an Access Panel Provider (possibly using their DIY tools). Data is collected. Data is analysed – perhaps by the Insights Manager, perhaps by a Data Analyst found through the market.Job done, and no MR firm in sight.
What stops this being a lemon market – how can you guarantee quality? The same way that TripAdvisor, eBay, booking.com and airBnB do – open and transparent customer feedback.
So what should MR firms do to prevent themselves being disrupted out of existence? Here’s McKinsey’s 5 steps:
- Outline the dominant business model in your industry. What are the long-held core beliefs about how to create value?
- Dissect the most important long-held belief into its supporting notions. How do notions about customer needs and interactions, technology, regulation, business economics, and ways of operating underpin the core belief?
- Turn an underlying belief on its head. Formulate a radical new hypothesis, one that no one wants to believe—at least no one currently in your industry
- Sanity-test your reframe.
- Translate the reframed belief into your industry’s new business model.
Which of course takes considerable nerve. Many might think it’s easier to keep on doing what you always did. And hope for the best.