Changing economic and geopolitical circumstances, evolving customer demands and disruptive technologies offer new opportunities for "challenger" brands to catch up and even outperform more established industry players. But being a challenger is not tied to size. Many of today's industry-leading businesses act as insurgents — leveraging new technologies and business models before their competitors and opening new revenue streams through aftermarket services on products they sell.

But can challengers sustain the advantage they have over others through agility in global sourcing and innovative technology developments or will dominant companies gain more access to capital and tech initiatives and prevail? A recent IFS research study asked businesses across various manufacturing disciplines — process and discrete manufacturing, commercial aviation & defense, trade contractors and service providers — to classify themselves as niche, challenger or market leader based on their market position. The findings provide deep insight into how challengers can harness disruptive technologies and also point to three critical actions they must take to seize market share in the future.

Mind Over Matter

Regardless of whether a challenger is a small, middle market or enterprise-size company, what sets it apart from the competition — more so than revenue — is mindset. It is the desire to either gain market share or protect territory through proactive business processes and product innovation. 

For smaller and middle market companies, ambition counts for more than the size of annual turnover, whereas for larger businesses, it is the fear of fast decline if measures are not taken to regularly reinvent themselves to adapt to changes outside their four walls. Even the largest companies leading the way in their respective product or service category today need to adopt a challenger mentality in order to evolve their offerings. This involves constantly flanking existing products and transforming business operations — something typified by modern technology giants Amazon, Google and Facebook.

The IFS study has shown that while challengers aspire to unseat established players, market leaders are often more progressive in the use of disruptive technology. Why? Because their enterprise software is likely to integrate AI into core business disciplines, which enables them to deliver not just products, but cognitive services to their customers that support their businesses in new ways. But this same technology can also provide a leg up for challengers.

Today it is much easier for new entrants to enter a market with disruptive technology, because their physical infrastructure footprint is smaller than current industry leaders — this is where challengers can gain true competitive advantage. Especially as it is difficult for a product originating from a larger company to be drastically changed to meet shifting consumer demands — as for example in the process manufacturing sector — leaders are under constant pressure to reinvent themselves. However, as they are likely to have significant brand equity in a product which cannot be modified without sacrificing the brand position, their hands are often tied. This is where smaller, agile companies able to rapidly get new products to market can seize advantage over entrenched consumer packaged goods companies.

Leverage Artificial Intelligence

What will be a key determining factor for challengers to steal market share from leaders is their expectations for AI projects. The automation readiness of respondents in the survey shows that market leaders are largely focused on internal processes which are ripe for automation, whereas challengers are more likely to be concerned about enabling growth rather than increasing efficiency. 

The study revealed that challengers who make strategic use of the technology will reap the highest rewards. The IFS study found 43 percent of challengers plan AI projects that add value to the products and services they sell to customers but while small gains in efficiency and increased productivity are initially the most direct routes to return on an AI investment, the true potential of AI is in its ability to create net new products, services and business models that were previously unachievable. 

AI can be used to create a strategic advantage in two ways. First, it can be embedded in enterprise software to drastically transform business processes. This involves enabling a manufacturer to offer predictive analytics on customers’ equipment or allowing a company to schedule the distribution of products to precise locations through intelligent forecasting, which improves both product availability and customer experience. AI can also be integrated in discrete products. Consider recent examples of food company NotCo’s AI-enabled line of plant-based analogs of animal-based food products, or the use of autonomous farm robots such as those from Dot Technology.

The strategic role of AI does not stop with efficiency and productivity gains. The technology can also add greater value by solving problems differently. This requires decision makers to ask hard questions about the problems they are facing and solve issues that were previously intractable. It is then about finding the right AI tooling to solve a specific problem in a novel and unique enough way for a company to differentiate themselves from competitors.

The Cloud Component

Manufacturers that run in the cloud are at a serious advantage when it comes to adopting transformational technologies that hold strategic, structural advantages. Harnessing advanced techniques such as data lakes or information from sensors in the field are easier by an order of magnitude when enterprise applications are in a cloud instance which can be easily integrated with external data sources. 

The IFS study found that challengers are more inclined to run their enterprise software through software-as-a-service (SaaS), whereas market leaders are most likely to own the license for their enterprise software and run it on their own hardware. SaaS entails paying a monthly subscription to use an instance of the software on a vendor’s server. This offers unique advantages for companies who want to preserve their capital spending capabilities because the software is paid for as an operating expense. 

But in business no one can predict changing circumstances. Cloud-based models including SaaS and managed services also make it easier to support users regardless of their location, wherever there is internet connectivity. To cope with these business scenarios, challengers and market leaders alike must make cloud choice a priority so that the software they integrate supports them irrespective of how their business evolves in the future.

Whether they are creating unique products or services, rolling out new business models or building customer trust through radical supply chain transparency, challengers are in a stronger position than ever to threaten the dominance of market leaders using disruptive technologies. And while challenger companies may hesitate to take on large investments, they already possess the vision and boldness required to make enterprise technology adoption a success — to unseat established industry leaders, they just need to add strategic planning into the mix. The right enterprise software will help them sustain innovation and make sound, strategic, long-term decisions on products and services to underpin productivity, increase efficiency and capitalize on evolving customer needs.

Rick Veague is chief technology officer for North America at IFS.