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How Blue Chips Respond to Threats from the New Generation of Startups


Established markets such as healthcare are looking increasingly vulnerable to disruption, with blue chips like CVS facing fresh challenges from smaller, more agile startups. These startup organizations disrupt the value chain by focusing in on one part of the chain, either excluding or outsourcing other parts to established businesses.

In healthcare, home testing companies such as EverlyWell, 23andMe, and FitnessGenes enable consumers to take food sensitivity, STD, and testosterone checks, among others, from home. This reduces the consumer’s medical expenses and saves them a trip out, but also cuts into the business of blue chips such as UnitedHealth, who rely on physical locations to offer the same services.

The situation is similar in banking, where online banks such as Ally Bank and Discover Bank have cut out the traditional physical branch in favor of reduced fees and better returns.

How Can Blue Chips Survive When Faced With Disruption?

Disruptors don't always succeed, but when they do it can be devastating for the more established players in the industry. Over time, these businesses can radically reshape an industry. To survive, blue chips must overcome several challenges:

Challenge #1: Assessing Threats

There is no shortage of businesses trying to disrupt established markets, and while many of them will ultimately fall short of their goals, plenty will succeed and cause the key players to stop and take notice. The challenge is trying to assess which of these new business models pose a credible threat. Getting this wrong means either missing a key threat or wasting resources competing with a disruptor which is unlikely to succeed or isn't actually competing for the same audience after all.

Challenge #2: Determining How to Respond

Once a threat has been established, the company must respond and decide whether to compete or work with the disruptors. Although these companies have the resources to compete, it is often better to work with select disruptors to provide value rather than create a whole new business line. Humana and CVS, for example, have partnered with EverlyWell to increase the value they provide their customers, presenting a positive outcome for all parties.

Challenge #3: Overcoming Inertia to Commit to a New Direction

Responding to disruption requires leadership to make bold choices, often committing substantial time and resources to new directions and projects. To achieve this, they may have to overcome internal resistance. Near-term incentivization, in particular, will make this a challenge, since publicly addressing the challenge of disruption may risk sparking alarm among investors.

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