Knowing both how and when to embrace disruption is key to your organization’s long-term success.
Today’s firms have to be increasingly concerned with innovations posing a threat to their core businesses, given the emergence of technologies such as the Internet of Things, 3-D printing, cloud computing, Blockchain, alternative energy, artificial intelligence – the list goes on. How can incumbent firms respond to disruption proactively? Via a series of studies and practitioner articles, Wharton Assistant Professor of Management Rahul Kapoor offers insight into how managers can take steps to adapt and also discern when it’s most crucial to do so.
In a study of the pharmaceutical industry, Kapoor and coauthor Thomas Klueter examine how organizations fare when faced with a technology that doesn’t obviously fit their existing business model. They observe that when even when firms foresee a threat, they often fail to devise a new commercialization strategy that accounts for the looming new technology.
The greater the threat to the incumbent’s current business model, the more difficult it will be to pursue commercialization, Kapoor and Klueter find. The companies who succeed tend to have an important factor in common: outside perspective.
In the MIT Sloan Management Review article “Organizing for New Technologies,” Kapoor and Klueter recommend “creating an organizational structure where resource allocation and decision making around emerging technologies are decoupled from the established company and involve outsiders with different mental models.” Whether through alliances, acquisitions, or new organizational units, outsiders have proven more likely to sacrifice the current business model, lean into the disruption, and develop a new commercialization strategy that ultimately succeeds.
As important as it is to predict how technological change will threaten existing business models, it’s equally important to understand when it will do so. Otherwise, firms will miss their opportunity to ride the technological wave to its peak. In the Harvard Business Review article “Right Tech, Wrong Time,” Kapoor and coauthor Ron Adner stress that, in order to predict when a new technology will upheave an incumbent, one must learn to read the signs in the surrounding ecosystem.
Adner and Kapoor develop a four-part framework to understand the pace at which new technologies will supplant the old. At one extreme, they describe “creative destruction,” where the new technology “is not held back by bottlenecks elsewhere in the ecosystem, and the old technology has limited potential to improve.” The new technology will achieve dominance relatively quickly in this scenario; think of the replacement of dot matrix printers with inkjet printers.
At the opposite extreme, “robust resilience,” the new technology struggles to develop an ecosystem while the incumbent has strong opportunities to improve its own. This results in a slow pace of substitution, such as RFID chips and bar codes. In between are the “illusion of resilience,” where rapid substitution occurs after a period of stasis, and “robust coexistence,” where substitution is gradual. Understanding their position in this framework can help incumbents as well as newcomers shape their strategies, particularly regarding the nurture of their surrounding ecosystems.