“False confidence will kill you and not enough confidence will kill you,” says Sean Cook, an Auburn alum who was the 52nd employee hired by Twitter.
Cook learned those two cautionary lessons about disruptive change during his time as an engineer and product manager at Twitter. Both came at the expense of one company and one well-known product.
In 2011, Cook and Twitter CEO Dick Costolo watched and waited as visitors from Research in Motion filed into a conference room and took their places at the far end of the table. One of the men had a briefcase handcuffed to his arm. The company, maker of the BlackBerry, was fighting to survive in a market it had dominated. Apple’s swipe-screen iPhone – the three-in-one iPod, mobile internet communicator, and cell phone – was poised to overtake its smart phone competitor
Cook saw the Protector of the Briefcase’s shoulders sag a bit as he put his cargo on the table and opened it. “Well, here’s what we’ve got,” the man said quietly, revealing a small device that represented BlackBerry’s answer to the iPhone. A few years earlier, Research in Motion co-CEO Jim Balsillie suggested that the phone wasn't much of a threat: "it had rapid battery drain and a lousy keyboard." His partner Mike Lazaridis concurred: "Try typing a web key on a touchscreen on an Apple iPhone, that's a real challenge. You cannot see what you type"
Now here they were, playing catch-up and asking Twitter executives to invest time, money and personnel into developing their social media platform for the BlackBerry Ocean. Team Twitter said thanks but no thanks. “It was so clear he didn’t believe in it and wasn’t behind it,” Cook said. “If he doesn’t believe in it, the rest of the company doesn’t believe in it. We got up and walked out of the meeting and said, `We won’t do a thing for it.’”
Within a year, the iPhone had overtaken BlackBerry in market share and the device delivered by handcuffed briefcase had fallen off the market. The company’s stock plummeted 87 points over a three-year period as false confidence gave way to no confidence. Finally, in September 2016, BlackBerry’s handheld division became a casualty of a device introduced nearly a decade ago. It was the end result of Research in Motion’s failure to adequately account for disruptive change introduced by a competitor – a computer company that identified ways to become something else.
The lesson? Don’t assume that the primacy you enjoy in the marketplace now will last. If you’re not willing to change your game periodically, you may lose the long game.
“BlackBerry failed to adapt early,” said Harbert College associate professor of management Garry Adams. “What is Apple now? They’ve been able to move into new industries and marketplaces. They’ve been good at reinventing themselves and expanding into new marketplaces while keeping their foothold in their existing markets.”
Coined by Harvard professor Clayton Christensen, the term “disruptive innovation” describes the manner in which a product or service progresses from those early, tentative steps at the bottom of the market to a relentless upward trajectory that eventually displaces more established rivals. Tablets replace personal computers, which replaced mini-computers and mainframes. Cell phones supplant land lines and pay phone booths. Wikipedia and Google searches free up bookshelf space once occupied by hardcover encyclopedia sets.
If it all sounds a bit Darwinian, well, it is. In his 1859 work “On the Origin of Species,” naturalist Charles Darwin described a process by which organisms change over time through changes to genetic traits. These changes enable an organism to acclimate to its environment (which undergoes changes of its own) and enhance chances for survival. There may be a gain of a new feature or the loss of an ancestral feature. A 2012 study by management consulting firm Innosight provides an overview of “adapt or die” in a business setting. The firm found that the 61-year average tenure that existed for S&P 500 companies in 1958 had fallen to 25 years in 1980 and 18 years at the time of the study’s completion. If that churn rate continues at that pace, then 75 percent of the S&P 500 will be displaced by 2027. In 2010 and 2011, longtime stalwarts like Kodak, Radio Shack, and the New York Times were replaced by the likes of Netflix, Salesforce, and Juniper Networks.
If you don’t change the game, your competition will potentially rewrite the rules. When a competitor introduces a product or service with the potential to alter the competitive landscape, a company may face a fight or flight scenario. As Cook suggests, if companies are caught flat-footed by a disruption in the marketplace, they often have themselves to blame. BlackBerry didn’t get blindsided by the iPhone. Apple launched Project Purple 2, its touch screen initiative, in 2005 and committed $150 million over a 30-month period that ended with the iPhone rollout. BlackBerry doubled down on what it had been doing and didn’t attempt its first real counter-punch until 2011. By then, it was already sporting a black eye and bloodied nose. As Christensen and Harvard Business Review co-authors Michael Raynor and Rory McDonald remind us, “different types of innovations require different strategic approaches.”
The emergence of e-commerce giant Amazon, for example, has forced retailers to re-examine supply chain processes and increase investments in omnichannel presences. “A lot of times companies get into the idea of `follow the leader’ and benchmarking things that are going to help them catch the leader,” says Adams. “But if you start out behind, you’re always going to be behind because you’re trying to catch up with where they are and not where they’re going. A lot of companies fall into those traps.”
It’s not easy to create disruptions or to confront the change they set in motion. Stanford researchers described a “first mover advantage” in the late 1980s, but there’s a danger in being the company that introduces a new product, process, or platform. An old adage reinforces the point: “It is easy to identify the pioneers. They’re the ones with the arrows in their backs.” A larger company may have the resources to fend off an aspiring game-changer who pushes too far too fast. A decade after the Stanford study, Peter Golder and Gerard Tellis reported a 47 percent failure rate for first movers but a mere 8 percent failure rate for “fast followers” who demonstrate a deeper understanding of the market where change is introduced.
How do you avoid getting left in the dust? Be observant, for one. Keep a close eye on your competition and engage in periodic evaluations of your own products and processes. “You have to have a constant understanding of what your competitors are doing, what you’re doing, where you’re moving – both that external and internal eye of the marketplace,” Adams said.
In the article “Meeting the challenge of disruptive change,” Christensen and co-author Michael Overdorf say that companies’ capacities to adjust to disruptive change are affected by their values, resources and processes. Values represent a crucial factor in determining what an organization can or can’t do. For executives, the decisions frequently revolve around whether or not to invest in new products, services or processes. But values also cascade down from the C-suite, affecting on-the-spot decisions of middle managers, salespeople and so on.
When executives and managers evaluate resources, they should be considering human and monetary capital and technology, as well as company brands, product designs and relationships with customers and other key stakeholders. AIG offers one example of how resource analysis relates to internal and external change. The insurance company serves more than 88 million customers whose lives could be changed in an instant by fires, hurricanes, tornados and other calamities. In 2012, a self-study led to the creation of a “science team” as a means of gaining a competitive advantage in a marketplace long reliant on individual expert judgment. The team, which grew within two years to 130 employees from various management and scientific backgrounds, focuses on analytics as a catalyst for evidence-based decision making. Harbert College graduate Murli Buluswar, the company’s chief science officer, credits the internal change to “imagination” winning out over “inertia.”
One of the critical goals of the move was to avoid being surprised by changes in the market. “The power of fear is quite tremendous in evolving oneself to think and act differently” and to “ask questions today that we weren’t asking about our roles before,” Buluswar said.
That self-study and commitment of new resources also brought about a change in processes. To embrace or effect change, you must be willing to examine what Christensen and Overdorf described as “patterns of interaction, coordination, communication, and decision making” that convert resources into deliverables of heightened worth. Some processes are clearly defined and documented, while others are informal routines that take shape over time.
To understand how much attention to process matters, think about Amazon and the struggle more traditional retailers have faced in responding to changes they’ve introduced. As Brian Gibson, Harbert College's Wilson Family Professor of Supply Chain Management, notes, the idea of omnichannel retail has been around for 20 years. But Amazon has continually adjusted, not only expanding the line of products it delivers, but the ways, the channels over which it connects with consumers. They have remained in a lead position, in part, because the companies chasing them haven't been able to clone their secret sauce – a well-oiled procurement and supply chain operation.
Changing your processes may be a painful but necessary exercise. Gibson said executives must be willing to make hard decisions about whether they (A) "have the right strategy" or (B) "the right people developing the strategy."
Sometimes refocusing, making those major shifts in strategy or process, is hard to do with the existing people who built them," he said. "You want to bring people in with a fresh set of eyes to say, 'We need to blow this up and start over again.'"
* This story first appeared in the Spring 2017 issue of Harbert Magazine