You Can’t Sue Your Way to Creativity

You know things are bad when a corporation sues for defamation.

You know things are bad when a corporation sues for defamation.

Once again, a legacy business player finds itself outmaneuvered by a disruptive startup. And once again, the disrupted incumbent is heading toward the courts for protection.

It’s further proof, to paraphrase Samuel Johnson, that legalism is the last refuge of a scoundrel. Or in this case, the last refuge of a company caught sleeping for too long.

Fighting for Relevance

The incumbent racing for court-induced relief this time is ADP, the payroll behemoth that’s dominated the employee payroll business for generations and controls nearly 20 percent of the market. The life-threatening disruptor on the other end of the legalism? Zenefits, a two-year-old startup that is taking the market by storm (and racking up huge VC money at a current valuation of $4.5 billion).

The fight started this spring, when some Zenefits clients who also use ADP noticed ADP was blocking their Benefits plugin services. (Zenefits does not do payroll processing, but instead focuses on all the other aspects of employee benefits, providing a free cloud service for managing insurance, investments, etc. and making its money from brokering insurance sales to its clients.)

Things escalated, with Zenefits accusing ADP of trying to block its growth while it scrambles to launch a competing product, and culminated with ADP suing the upstart for defamation in federal court.

A Chance to Wake Up and Innovate

The good news for ADP shareholders is that the company has finally awakened to an existential threat. Cloud-based apps are upending high-value businesses like ADP that are based on complex proprietary systems. By coming out swinging like a barroom brawler, ADP shows it at least knows this is a serious problem. No incumbent can afford to rest on its laurels even if it dominates its market.

And here’s where Zenefits could be an unwitting ally to ADP: Zenefits is doing the market research, product development and testing for ADP, showing them how they can move to the cloud, what works, what new market segments are out there that ADP’s traditional products haven’t attracted.

The question for ADP: are they willing to listen, or is a creative response drowned out by the noise of fear that what has worked in the past might not work as well in the future?

Even more interesting: as ADP moves its business inevitably to the cloud, how will it have to change itself to operate in the new era? One tip: give up running to the courts to protect the past and instead run toward disruption to create the future.

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