Suddenly I felt inspired to share some mythbusting with you. When I led the digital transformation workshops in the past, of course I talked about the famous incumbents. Do you know the examples of Nokia, Blackberry, Kodak? Like many others, I believed that technological disruption would destroy the old, big companies. But to what extent this actually happened? Did disruption become reality?
Digital disruption is real, but…
Julian Birkinshaw, professor at London Business School, published an interesting article in the Harvard Business Review. He sketches a nuanced perspective. Digital disruption is real, but it has been oversold by three myths:
- every sector is under threat;
- disruption happens quickly and is accelerating;
- established firms are struggling to adapt.
The figures
Birkinshaw investigated the Fortune 500 and the Global 500. He compared the list from 1995 and 2020. He found that only 17 of the companies in the 2020 Fortune 500 didn’t exist in 1995. He investigated for US companies, but found the picture is similar internationally.
In 2020, 198 of the organizations that had made the Fortune 500 list in 1995 were still on the list. Only 35 of the companies went bankrupt. The list also contained 231 organizations that existed in 1995 and grew enough to get on the list in 2020. Another 54 were spin-offs and restructurings of previously existing organizations. Only 17 organizations were founded after 1995. Among them Facebook (now Meta), Google (now Alphabet), Tesla, Netflix and Uber.
Bottom line: there has been less creative destruction than prior studies have suggested, and indeed less than most people believe.
The adaptation strategies
Industry transformation happens very slowly, and incumbents can successfully respond to disruptive challenges in a couple of ways.
- Fight back. Incumbents can go head-to-head against disrupters by setting new units, making an acquisition, or entering a joint venture. Fighting back is appropriate if the new technology represents an existential threat to the firm, but that isn’t the case very often. And fighting back is extremely hard to do well.
- Double down on existing assets. Here, an established firm plays to its existing strengths. Like Disney built on its proven strenghts in moviemaking. They bought Pixar and Marvel and created some more blockbusters. Their strong existing library helped in launching their own streaming service.
- Retrench. This is a defensive move, to ensure their own continued survival. For example mergers and acquisitions. Another tactic is to seek help from government and regulators in putting additional constraints on new entrants.
- Diversify into new businesses. The established organization simply migrates to new opportunities, creating new products and services.
The lessons
Regardless of which option you choose, you must embrace technology to improve operational effectiveness. But don’t make any generalizations based on anecdotal and high-profile examples. Second, judgment beats paranoia. It is still important to know your WHY as an organization. You need to keep in mind that there’s a possibility that your company will be disrupted, but also that it won’t.
When you know your why as an organization and/or the why of your customers it’s possible to play the long game. Stay alert, plot scenarios, be proactive, and find the adaptation strategy that best fits your organization’s needs and capabilities.
Now I’m curious: are you surprised by these findings? Or is it exactly as you expected to be? Let me know!
Source: https://hbr.org/2022/01/how-incumbents-survive-and-thrive
Essence of Change 