Disruptive Innovation with LBM/Component Companies

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Issue #10223 - February 2018 | Page #46
By Ben Hershey

Over the years, our industry has seen a lot of innovation in how we handle materials, how we manufacture, and how we take a house from an idea to a component using the computer. But, over the past few years, we have seen an acceleration in big ideas, disruption, and what we can do using technology developed in ours and other industries. Are you creating your own disruptive innovation in your market?

Disruptive Innovation

You have probably heard the term, “industry disruption”—“a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses.” But, have you given consideration to how you can create your own disruption? For the past 20 years, the theory of disruptive innovation has been enormously influential in business circles, and it has proven to be a powerful tool for predicting which industry entrants will succeed. We have seen it in our industry in several different ways; and this is just a short list:

  • How we deliver material to a jobsite
  • How we cut material, both wood and EWP
  • Whole house testing we conduct at the Structural Building Components Research Institute (SBCRI)
  • Automated equipment used in our component operations (saws, tables, etc.)
  • Incredible advances in our software for order processing, layout, and engineering
  • Robotics use in gantry and framing tables and material handling

Some of us, like myself, who have been in this industry for life can look back and see the leaps we have taken and the incremental effect on our businesses. I was one of those who was doing cutting lists for the plant in Junior High using a slide rule or a Smoley’s table.

The theory of disruptive innovation has proven to be a powerful way of thinking about innovation-driven growth. Many leaders of small, entrepreneurial companies praise it as their guiding star. Classic disruption entails—a small enterprise targeting overlooked customers with a novel but modest offering and gradually moving upmarket to challenge the industry leaders. Companies like Uber or Amazon are commonly hailed as a disrupter. Some of the traits of disrupters include focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.

How You Can be a Disruptor in 2018

I have had the good fortune of working with several key companies over the past seven years who have been disruptors to our industry. Without getting into a lot of theory or details about what we did, I would like to simplify some of the key things you can do to change your market, your company, and ultimately your future.

  1. Learn that Disruption is a Process
    Most every innovation—disruptive or not—begins life as a small-scale experiment. Disrupters tend to focus on getting the business model, rather than merely the product, just right. When they succeed, their movement from the fringe (the low end of the market or a new market) to the mainstream erodes first the incumbents’ market share and then their profitability. This process can take time, and incumbents can get quite creative in the defense of their established franchises. For example, more than 50 years after the first discount department store was opened, mainstream retail companies still operate their traditional department-store formats. Complete substitution, if it comes at all, may take decades, because the incremental profit from staying with the old model for one more year trumps proposals to write off the assets in one stroke. The fact that disruption can take time helps to explain why incumbents frequently overlook disrupters. Think Netflix and Blockbuster; it was just reported last week that Blockbuster closed its last store in the Dallas-Fort Worth area, a far cry from the time when they used to be a leader and on every major corner.
  2. Disruptor Business Models are Different than those of Incumbents
    By addressing the basic needs of your customer and revising your business model to focus on this, you create an innovation environment in your company. Through continuous product improvements, and continuous production improvements, those companies who address the basic of needs find a process solution model and disrupt what incumbent companies miss.
    When was the last time you worked with your customer in the field, really listened to their issues, and then made the decision to create a service or product that solves their problem or makes them more efficient?
  3. Some Disruptive Innovations Succeed and Some Do Not
    Some make the mistake of focusing on the results achieved—to claim that a company is disruptive by virtue of its success. But success is not built into the definition of disruption: not every disruptive path leads to a triumph, and not every triumphant newcomer follows a disruptive path. Think of the first time our industry was introduced to robotics—at the time, it was clearly the right path to take, but the technology had not caught up to what was needed. Today, we see a whole new generation of robotics and the technology needed for our operations, so now it can succeed by learning from the past.
  4. Disrupt or be Disrupted
    Disruption will come, from you or someone else, but that should not cause a company to over-react. Incumbent companies do need to respond to disruption if it’s occurring, but they should not overreact by dismantling a still-profitable business. Instead, they should continue to invest in sustaining innovations. In addition, they can create a new division to focus on the growth opportunities that arise from the disruption. This can mean that, for some time, incumbents will find themselves managing two very different operations.

What Disruptive Innovation Can Reveal

Each of us can point back to a technology advance or product and say that it was disruptive. When new technology is developed—whether that is in equipment, a process, or engineering design—it helps managers make strategic choices between taking a sustain path or a disruptive one. History shows that entrants pursuing a sustaining strategy for a stand-alone business will face steep odds, but with each technological development we have a choice to adopt the new development, improve it, or develop something else that will allow our companies to succeed.

The question for our industry, and for your company, is whether there is a novel technology or business model that will allow you to disrupt and move upmarket without emulating your competitor’s high costs —that is, to follow a disruptive path. The answer seems to be “yes,” and we have several industry suppliers who can help you make that leap. There will be stumbles along the way, but when we learn from the process and constantly improve upon what we have, you can be a disruptor too. And, if you need help with where to start, give me a call!

Here’s a Place to Start

One of the tools you should start with is the SBCA Component Marketing Toolbox. It contains is an abundance of marketing tools based on the SBCA “Framing the American Dream®” including videos, brochures, infographics, photos, and PowerPoint presentations. Many of us in the industry have participated in assembling this information to help your business grow, and help you gain market share by disrupting the market. Take a look and see how you can use this material to help you start the disruption process.
 

Visiting our Industry

During the Christmas Holidays, I had the opportunity to visit with a friend and former business partner, Jeff Oitzman with Crown Components in Tolleson, AZ. I had heard that Jeff and his business partner Bob Barrette had moved their component operation to the location of TruTrus, one of the companies I owned and where my Dad (Don Hershey) innovated many new ideas for our industry. It was great to see what Jeff has done with the place, and we could reminisce about my Dad and talk about his influence in both of our lives. Good Luck at the new location, Jeff!

Ben Hershey is CEO of 4Ward Consulting Group, LLC, the leading provider of Management and Manufacturing Consulting to the Structural Component and Lumber Industry. A Past President of SBCA, he has owned and managed several manufacturing and distribution companies and is Six Sigma Black Belt Certified. Ben has provided consulting to hundreds of Component Manufacturers, Lumber Dealers, and Millwork Operations in the past seven years.  He is highly recommended by customers and leaders throughout the industry. You can reach Ben at ben@4WardConsult.com or 623-512-6770.

© 2018 4Ward Consulting Group, LLC

Ben Hershey

Author: Ben Hershey

President & Coach, 4Ward Consulting Group, LLC

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