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Innovation Assignment: Incumbents Being Beaten by Challengers

Question

Task: Choose an Incumbent (a company) that is struggling to survive in the market and a challenger (another company) that is successful in the market. Comparing these two companies (in same sector), Write a detailed innovationassignment report on “Why incumbents are being beaten by challengers in business?” with special focus on use of technological innovation and disruptive technologies by challengers for competitive advantage. You must be able to identify and synthesise relevant information.

Answer

Introduction
It is evident in this innovation assignment that the advent of technology and globalization has enhanced the scope for organizations to expand and conduct their business. Businesses are identifying the use of disruptive technologies for expanding their businesses as well as maintaining a competitive edge. Personnel in new businesses are developing learning and knowledge to assist human endeavor, creating goods as well as services for the final delivery of goods and services. The incumbent in business is a leader in the industry and has the capability to change the response to the changes in the market. Challengers are companies that expand market share by aggressively flooding the market with products/ services at a competitive price. They generally occupy second or third position in the market. The human resource industry has undergone tremendous transformation in recent years with the creation of new services for organizations (Schilling,2016). There are a number of start-ups that are entering the market with packaged customized offerings for large organizations such that they can be managed with ease. Once such an incumbent company is Flare, established in the year 2015. It is considered Australia's first all-in-one HR as well as Employee Benefits platform that is completely free of cost. Flare can be regarded as an incumbent in business as they are currently the leader in the industry and are responding in a dynamic manner to respond to changes. A successful HR company in Australia is 360HR, which offers customized, practical HR consulting as well as recruiting solutions for finding a match of suitable talent, managing performances, and delivering expert advice from their expertise. 360HR is a challenger in the HR business as it includes an array of HR products and offers them at a competitive rate.The current scope of analysis compares these two companies on reasons incumbents are being beaten by challengers in business, focusing on disruptive technologies by challengers for competitive advantage.

Literature Analysis
Applying literature analysis the identified incumbent and challenger in business has been compared to understand the reason incumbents are being beaten by challengers in the market.

Incumbents Industry Position
Christensen (2015) in his article discusses the dangers associated with disruption theory, where it has been frequently misapplied. There are required varied strategic approaches that need to be applied for a distinct type of innovation which brings about transformation in the competitive pattern within the industry. Learnings from disruptive might not apply across every company in a shifting market. Hence usefulness associated with the theory is limited in nature, which is the reason that the basic tenets are associated with the theory of disruptive innovation. Incumbents aim at enhancing their products and services to meet the needs of the most demanding and often most profitable customers. This leads to exceeding the needs of some segments and ignoring other’s needs. Participants are off to a disruptive start by successfully targeting sloppy segments and getting support with more appropriate features, often at lower prices. Incumbents prove disruption being successful by catering to more demanding segments with more appropriate and suitable functionalities at a lower price. As Flare being the first of its type HR consultancy firm in Australia offering HR as well as Employee Benefits for free of cost is one of the most preferred HR firms for meeting organizational needs (Flare, 2020). Flare has been selected as an incumbent in business in the field of HR as it is currently a leader in the industry with its service offerings being unique in nature. It is currently catering to leading organizations in Australia, hence can be regarded to be having the largest market share in the industry. Its client portfolio includes hundreds of leading companies some of which include Serco, Hudson, H&M, Accor, AHRI, Silk, Atlantic Group, KJR, Rockpool Dining Group, and many more.

Flare has enabled management of all HR needs of the organization such as connecting to payroll, onboarding, performance reviews, leave management, and so on. Established by Daniel Cohen, Jan Pacas, Saul Kaplan, and Colin Mierowsky, the company has effectively signed up 30,000 employees in the first year itself and successfully received initial seed investment Reinventure Group. Thus, it can be said that Flare is making use of innovative technologies for the creation of new and improvised services as well as processes where appropriate leading to client satisfaction. 360HR provides an HR solution that allows organizations in providing cost-effective solutions suited to the organization's culture. Values and strategy. The company undertakes evidence from the organization to which it is providing a solution to provide processes that can meet HR consultancy needs along with training which can lead to success. With highly qualified and experienced professionals, they are rendering high-quality support services for supporting in all aspects of people management as well as development. Different roles performed by the company include strategic HR, developing and growing people, attracting & leading talent, as well as engaging people. Thus, services provided by the company are mostly customized and include the broad spectrum of HR services that are performed by organizations.

Incumbents Target Market
One of the primary reasons for disruptive innovation in low-end or new markets hence often incumbents are beaten by challengers. Disruptive innovation is possible because they operate in two markets that are ignored by market scenario as Flare is devising software and retirement benefits for organizations. They aim at catering to the most profitable segment in the industry, who have ever-demanding needs for improvising their HR products and solutions, hence totally ignoring out on less-demanding customers. As can be clearly understood that Flare’s products are such that it has appeal amongst well-known brands as well as amongst organizations, which are large in nature and need to plan for their retirement of their employees in advance. As can be clearly understood that small also middle-sized organizations in Australia have more contractual employees with younger staff populations who are paid less than mean or medium wages. Apart from the top-level employees, most of the ground staff are rotational or have high rates of turnover. 360HR on the other hand caters to a more wide range of products, hence their profitability not being dependent upon large organizations/ customer base (360HR, 2020). Incumbents offerings thus often overshoot the performance requirements of the challengers. Hence while 360HR is able to provide a greater market segment. Also, disrupter such as Flare creates markets that did not earlier exist, which increases risks associated with their profitability and sustenance as well. Often starting with low-end customers for establishing a foothold in the new market, it often becomes impossible to establish a continuous flow of profits or revenue streams due to lesser acceptance of the disruptive innovation in the market space. The challenger is able to beat incumbents as Flare was not aware of the business opportunities created by the changing technology. With Flare's focus on efficiency, they overlooked other opportunities that were prevalent in the market. They aimed at enhancing the effectiveness of their retirement solutions more and more such that they ignored the other more acceptable products in the market. They focused more on employee compliance, enhancing onboarding experience as well as on retirement products, ignoring the more prominent HR solutions of recruitment, selection, consultancy, and so on.

Incumbents' Products/ Services Don't Match Up With Mainstream Customers
Disruption theory distinguishes between disruptive innovation and sustainable innovation. These improvements may be progressive and allow companies to sell a greater number of products to their profitable customers (Bergek et al., 2013). Incumbent’s customers often perceive disruptive innovations as being inferior and these customers do not readily accept the offerings merely as they are cheap. As Flare initially started with its product offerings its packages were available free of costs, yet they were not able to gain much foothold amongst leading companies across Australia such as Woolworths, Coles, BHP, and so on. 360HR with its normal product offerings was able to establish a more concrete foothold and brand name in the market hence beating Flare. This implies that the customers willing to purchase HR product offerings were not ready to accept Flare's offering even it was providing value as compared to traditional HR products developed by 360HR. Customers in cases of disruptive innovation developed by incumbent Flare, which included retirement solutions, will wait till the quality of product/ service offering increases so as to satisfy them. Once such takes place then the new products will be adopted with greater ease. Meaning Flare has to invest a considerable amount of marketing expenses to establish their products and service offerings across Australia. Flare’s disruptive innovation can be viewed to be riskier and more uncertain in nature as compared against incremental improvements, which includes sustainable innovations. Founders of Flare feels that the organization has more capability to grow and develop within their own market segment. However, with the risky innovation, it often becomes impossible for Flare to estimate the return on investment for their business. Though the company has been successful in obtaining some investment during recent times yet the company needs to obtain continuous sources of funding for its business sustenance. Investment firms are often averted to invest in disruptive innovation as they do not want to spend their resources on a concept that might or might not pay-off in the future time period.

Incumbents Adopt A Disruptive Innovation Process
The term "disruptive innovation" is misleading at any given time, rather than developing a product or service over time. Most innovations, disruptive or not, begin to live like small experiments. Disruptors tend to focus on getting a business model, not just a product, just a better one. If successful, the transition from peripheral markets, from the lower end of the market or new markets to the main markets will first reduce market share and then reduce the profitability of existing operators. Retaining with the traditional business model might provide incremental profits from business and returns from the new model might require a prolonged-time period (Karimi, and Walter, 2015). Hence it might not be possible for Flare with their disruptive innovation to start generating short-term profits with a short-term focus. Hence incumbents such as Flare focuses on “larger-later” rewards as compared to “smaller-sooner” rewards.

Technological innovation being the most important driver of competitive success especially in the current scenario, Flare has been able to make use of technology successfully to assists Australians live their financial lives to the very best (Geissdoerfer et al., 2018). By making use of consolidated solutions, the company is providing leading HR software for employers. The software enables advanced superannuation as well as retirement products such that employees can retire with more funds. They are allowing onboarding benefits as well as an employee management platform. With the advancement in information technology, there has developed a faster innovation process with rapid designing and shorter service runs. With the innovative HR solutions, organizations have been able to gain tremendously with new rapid service introduction, lower organizational costs in developing HR/ employee-related solutions, more effective products for employees as well as greater access to such services by smaller and medium-sized firms. The use of new technology has a cascading impact on the business resulting in transparent as well as an efficient pricing mechanism for its services. With the adoption of new technology, the company has been able to provide its services at lower prices and more efficiently leading to more profits. With the availability of cloud-based services along with the availability of multiple software, it has become possible to devise employee service specific to meet the needs of organizations. Flare is getting beaten by 360HR due to changes in competitive patterns in the industry. The current scope of literature discussion reflects reasons Only with the advent of technology it has been possible to increase outsourcing levels by firms to lower their costs. Flare enables companies to adopt improvised employee performance as well as other HR solutions which allow lowering cost set by the organization. Companies are currently outsourcing various functionalities for arriving at an effective cost setting.

The third common mistake is to focus on the results obtained and focus that the company is disruptive due to its success. However, success is not embedded in the definition of disruption and every disruption cannot lead to success. Though Flare is gradually catching up in the marketspace and building up its market share in a gradual manner, yet it has not been able to successfully have as many customers as 360HR. Challenger is beating the incumbent in getting the share of target customers as well as in getting an appropriate foothold of the products in the market. The HR industry in Australia is very dynamic and adaptive to changes, however for a new product/ solution to gain a foothold in the market it becomes considerably difficult. It takes a tremendous amount of time as well as aligning of strategy, skills, systems, shared values, and structure of the firm to adapt to changes. Often people do not like changes and have a tendency to remain unchanged. Incumbents can beat challengers and master disruptive innovation by increasing awareness of the several opportunities that their products/ services deliver. By way of external research, bringing in outside consultants, engaging in trend analysis can assist in increasing market share. It can engage in embracing smart risks by way of adopting research and development for disruptive innovation. Flare needs to build a strategy for both short-term as well as long-term plans for gaining a greater share in the market.

Conclusion
In conclusion, incumbents having disruptive innovations often have lower performance. In the current scope of analysis, literature has been undertaken for comparing reasons why challengers beat incumbents. Businesses are identifying the use of disruptive technologies for expanding their businesses as well as maintaining a competitive edge. Personnel in new businesses are developing learning and knowledge to assist human endeavor, creating goods as well as services for the final delivery of goods and services. Using relevant literature materials, there have been varied reasons cited as to why challengers beat an incumbent in business. Selected businesses are from the HR industry in Australia, where the incumbent selected is Flare HR whereas the challenger selected is 360HR. Risks, absence of awareness, inertia, and short-term focus have been cited as primary reasons for the challenger is beating the incumbent in the business. Existing companies need to respond in the event of a disruption, but they should not overdo it by interrupting a growing business. Instead, it must continue to strengthen its relationships with key customers by investing in innovation. In addition, a new facility dedicated to disruptive growth opportunities has been created.

REFERENCES
Bergek, A., Berggren, C., Magnusson, T. and Hobday, M., 2013. Technological discontinuities and the challenge for incumbent firms: Destruction, disruption or creative accumulation?. Research Policy, 42(6-7), pp.1210-1224.

Geissdoerfer, M., Vladimirova, D. and Evans, S., 2018. Sustainable business model innovation: A review. Journal of cleaner production, 198, pp.401-416.

Karimi, J. and Walter, Z., 2015. The role of dynamic capabilities in responding to digital disruption: A factor-based study of the newspaper industry. Journal of Management Information Systems, 32(1), pp.39-81.

Schilling, M.A. 2016. Strategic Management of Technological Innovation 5th ed., McGraw-Hill, New York.

Christensen, C.M., Raynor, M.E. and McDonald, R., 2015. What is disruptive innovation. Harvard business review, 93(12), pp.44-53.

Holderness, A. 2018. 100 Australian Stratups to Watch in 2018. The martec. Retrieved from [https://www.themartec.com/insidelook/100-australian-startups]

Flare HR. 2020. Company details. Flare HR. Retrieved from [https://www.flarehr.com/about-us/]
306HR. 2020. Company details. 360HR. Retrieved from [https://360hr.com.au/about-us/]

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