Surviving Disruptive Technologies

Research by Henry Lucas

Companies must make an early move to either adopt a new business model, or morph the existing model to take advantage of the disruptive innovation.

"Innovators applying information technology did not set out to bankrupt Blockbuster and Borders, destroy Kodak’s film business, demolish the market share of the New York Stock Exchange, or sink the U.S. Postal Service, but all of these things have happened." This passage opens Smith School Professor Hank Lucas' book: The Search For Survival: Lessons from Disruptive Technologies.

While innovation has disrupted dominant systems through history, the fall of Blockbuster and Borders illustrates the more recent effect of information technology, which has turned innovation into a powerful disruptive force

Henry C. Lucas, Smith Professor of Information Systems, addresses how and why this phenomenon threatens the survival of many companies today. His new book presents a model of survival to guide managers in responding to potentially disruptive technologies. It presents numerous examples of firms that have not been able to respond successfully to innovators that have disrupted their businesses.

A company’s survival depends on an early move to either adopt an entirely new business model or morph the existing model to take advantage of the disruptive innovation. The latter option, said Lucas, is more feasible and has been the approach of the early survivors.

Kodak is a highly visible example -- disrupted by the commercialization of digital photography – it has faltered and recently filed for bankruptcy under such pressure. Lucas devoted a chapter to the latter in his latest book. “I've followed Kodak for 5-6 years, studying their annual reports and collecting analyst stories about the company,” he said. In the process, he collaborated with Maryland Public Television for a 2008 documentary, The Transformation Age, which aired on about 200 public television channels.

For the new project, Lucas studied companies and industries that are having trouble responding to disruptive technologies along with survivors like Apple and Verizon. He addresses looming disruption in such areas as cloud computing, PC tablet production, television and movies (with the advance of online video content via Hulu, YouTube and Facebook) and the GPS industry where cell/smart phone manufacturers have found it inexpensive to include GPS capabilities. With consumers starting to abandon the fixed GPS devices, sales are dropping for the likes of Magellan, TomTom and Garmin.

Such industry players could learn well from IBM and Kodak -- both initially hampered by insular cultures and resistance to change. “The stakeholders assumed their firms’ longstanding success made them unsinkable,” Lucas said.

Kodak stayed loyal too long to its outmoded business model. With 100-plus years of success, a market share that at times exceeded 90 percent and a rigid bureaucratic structure, the company wanted to protect its cash cow film business as long as possible, Lucas said. But the market flood of digital cameras, combined with the Internet, changed how consumers capture and share images. Kodak’s slow response to this disruptive technology cost it dearly. The workforce shrank from 145,000 in the 1980s to around 19,000 at the time of its January 2012 bankruptcy filing.

IBM perhaps unwittingly saved itself by turning to an industry outsider, Lou Gerstner. Previously head of RJR Nabisco, Gerstner took command in 1993, as IBM’s board of directors was contemplating a plan to carve up the financially struggling firm into five smaller companies. “Unfettered with no history inside the company or technology-industry experience, Gerstner looked at the plan and said ‘I am a lifelong IBM customer and do not want to deal with five IBMs,’” Lucas said. “So he developed a strategy based on providing a one-stop solution, recognizing that customers didn’t care whether they have an IBM problem or an AT&T problem. They simply want business solutions. Now the company profits more from services and consulting than from its software and hardware divisions.”

Ultimately, executing the change takes extraordinary courage. It may mean changing the company power structure and taking stakeholders from a comfort zone into unchartered territory, said Lucas. "These are very difficult, but necessary, decisions."

Published by Praeger, The Search For Survival: Lessons from Disruptive Technologies will be available from booksellers in June.

Tips from The Search for Survival

• Understand your business. Kodak thought it was in the business of “taking pictures” rather than “capturing and sharing images.”
• Prioritize assessing future technologies, even if it means going outside to a consultant.
• When facing technology disruption, look to establish a new market position. Quickly abandon an existing business model whose days are numbered and move on.
• Determine whether you have the resources and expertise to deal with the disruption in-house. Explore options for merging with a new venture if it threatens your business.
• Beware of internal resistance to change and strategize to proactively overcome it.