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Eight Hard Lessons from Disruption

Sep 23, 2015

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Despite Naysayers, Framework Provides Useful Guidance

By Henry C. Lucas, Jr.

SMITH BRAIN TRUST -- Failure doesn’t hurt so much when it happens to someone else. Bystanders can watch and learn from a distance as new technology flattens slow-moving companies and industries. Despite fresh claims to the contrary, the disruptive innovation model — laid out by Harvard professor Clayton M. Christensen in the 1990s — remains a relevant tool for scoring the action at home.

So pay attention as Uber cuts into the taxi business. Or as newspapers respond to social media. Even my own industry, higher education, provides teachable moments as online courses shake up traditional classrooms. In all of these cases, my research supports at least two pillars of disruptive innovation.

First, as organizations grow through strong leadership, systems and attitudes emerge that hinder innovation. Second, the same organizations fall into a related trap when they listen too closely to customers — because most people don’t know what they want until after they see it. (I didn’t know I wanted an iPad until Apple showed it to me.)

In both of these ways, widely accepted principles of good management — rather than incompetence — create openings for upstarts to overtake the old guard. This is the incumbent’s dilemma.

Borders, Blockbuster, Kodak and entire industries show the dilemma in action. So why the pushback from critics of disruptive innovation, who claim the theory falls apart under rigorous academic review? Some of the discrepancy has to do with definitions and how tightly the narrative is parsed.

Disruption does not always follow predictable stages nor fit within rigid parameters. The latest research confirms the messiness of the process. But when viewed as a practical model for framing discussions, disruptive innovation provides helpful guidance for incumbents struggling to survive in turbulent times.

Major discontinuities do not have to be fatal. Alert leaders can help their organizations morph to accommodate new competitors and opportunities. In other situations, they can abandon existing strategies and adopt new ones.

The third choice is failure, which usually means a merger, buyout or liquidation. Acknowledging the incumbent’s dilemma can help leaders guard against eight common traps outlined in my book, “The Search for Survival.”

Denial: The first of these is denial, a common response to new technology. Managers might not understand the disruption or know how to predict responses to it. So they downplay or ignore it. 

History: A long record of success is also hard to overcome because it can lull leaders into a false sense of security. Kodak made a good living selling film for 100 years. So why not keep doing what has always worked?

Resistance to change: Humans like their comfort zones. They surround themselves with the familiar, and inflate the risks of changing something that works.

Mindset: People also tend to confine themselves within imagined boundaries. If employees of a company see it only as a film company or a company that rents DVDs, they will have trouble adapting. Mindset helps feed denial, and the two traits work together to hinder response to change. 

Brand: Marketing departments work hard to build brand awareness, but a great brand can also create restraints. Blockbuster associated its name with physical stores, telling customers: “Come to our convenient locations.” This gave room for Netflix to claim the digital space. 

Sunk costs: Every accounting class talks about sunk costs and the need to ignore them. But this can be hard to do in the real world. Blockbuster, for example, had huge sunk costs in real estate and physical inventory. Kodak had a huge investment in chemical and paper plants.

Profitability: It’s hard to argue for change when profits are high. For two years after the Internet became available for commercial use, the circulation of the top 30 U.S. newspapers actually increased. News organizations are scrambling for survival today, but few recognized the threat in the 1990s.

Lack of imagination: People spend considerable energy worrying about survival today. They often fail to consider what might happen as new technology comes along — or what the firm might look like in a year or two by taking advantage of the new technology.

Henry C. Lucas, Jr., is a professor of information systems at the University of Maryland’s Robert H. Smith School of Business. He is the author of several books on disruptive technology, including “The Search for Survival: Lessons from Disruptive Technologies.”

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About the University of Maryland's Robert H. Smith School of Business 

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, specialty masters, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.