Keep Calm and Manage Disruption

Many business leaders are terrified by the word “disruption.” Over the past 20 years, Harvard Business School professor Clayton M. Christensen’s theory of disruptive innovation has led to widespread fear and paranoia among executives. For many, disruption is just around the corner, and the fear is palpable.

Several academics have challenged the accuracy of Christensen’s theory — specifically, the extent to which disruptive innovations actually cause businesses in their path to fail. Author Joshua S. Gans concedes that disruption is a possibility, but he contends that the link between disruption and failure may not be as strong as many managers believe. In particular, Gans argues that disruption can be averted. “Many businesses find ways of managing through it, and this can weaken any relationship between a disruptive event and the actual disruption,” he writes.

The question, Gans says, is whether companies facing disruption are able to counter its effects. He describes three approaches to dealing with market entrants: beating them; joining them; and waiting them out.

Beating Them: The first approach involves investing aggressively in new innovations after entrants bring them to market. Although Gans says managers may not know right away whether an entrant’s innovation will become a threat, when the situation becomes clear, they must act to protect their market position. He uses the example of Microsoft Corp., which introduced its Internet Explorer in the mid-1990s to compete against Netscape Navigator, which at the time was the dominant product in the browser market. Microsoft created a new division dedicated to defusing the Netscape threat.

Joining Them: The idea here is for established businesses to “wait and see” whether a market entrant’s innovation improves and becomes a competitive threat. Then, instead of waging war, the existing player can acquire the entrant’s business and its products, thereby averting disruption. When disruption is upon them, Gans explains, incumbents realize they will face stiffer competition in the future, so they have an incentive to neutralize the threat. But there are also advantages to disrupters in avoiding a long period of intense competition with an established incumbent.

Waiting Them Out: Gans suggests that established players should assess what they have that entrants lack -- entrants rarely have every element of a value chain. Indeed, he notes, sometimes incumbents are in positions of leadership precisely because they have invested in elements that are difficult to replicate. For example, in the printing industry, Mergenthaler, which pioneered the Linotype machine in the 1880s, also developed more than 1,000 typefaces, which established a high barrier for new entrants even as printing technology evolved. Under some circumstances, Gans writes, “incumbents may be able to afford to wait disruption out and react on their own timeline.”