“Disruptive technology doesn’t sneak up on anybody; it’s nearly always loudly heralded long before its victims fall prey to it.”
That is one of the observations that Thornton A. May, a futurist and author of The New Know: Innovation Powered by Analytics, makes after researching why market leaders sometimes fall prey to disruptive technology.
Similarly, Steve Faktor, author of Econovation and CEO of IdeaFaktory, writes in Forbes:
“Sadly, just as many [corporate failures are] suicides, caused by complacency, lack of vision, or mismanagement. I talk to companies every day whose potential suffocates beneath their own inertia. Some lumber like they have more time than they do. Others misread market signals. Many more fail to build on the goldmine of growth assets they already have.”
Another common thread is companies focusing too much on short-term financial performance and maximizing efficiency — that is, on streamlining and optimizing current business models. As Steve Blank, entrepreneur and adjunct instructor at Stanford University, writes in Startup Grind:
First, companies bought into the false premise that they exist to maximize shareholder value — which said “keep the stock price high.”
As a consequence, corporations used metrics like return on net assets (RONA), return on capital deployed, and internal rate of return (IRR) to measure efficiency.
These metrics make it difficult for a company that wants to invest in long-term innovation. It’s a lot easier to get these numbers to look great by outsourcing everything, getting assets off the balance sheet and only investing in things that pay off fast.
To do that, companies jettisoned internal R&D labs, outsourced manufacturing and cut long-term investment. These resulting business models made them look incredibly profitable…[but they] jettisoned their ability to do disruptive innovation at speed and scale.
Ed McNierney, who led the development of Lotus 1-2-3 for Windows and ran digital strategy at Kodak, points to another contributing factor: companies being too tied and attached to their history and existing business.
“It’s difficult to create change in a large organization steeped in tradition, and even harder to disrupt yourself when you’re cranking out cash the way Kodak was,” writes Peter Diamandis, Chairman and CEO of the X PRIZE Foundation, in a post published by SingularityHub based on insights he gathered by interviewing Mr. McNierney. “Kodak was married to the ‘paper and chemicals’ (film development) business…their most profitable division, while the R&D on digital cameras was a cost center.”
Diamandis adds, “Just because Kodak was in the paper-and-chemicals business [didn’t] mean they [couldn’t] be something else…Don’t be overly attached to your existing business…You have to move with technology and the market. This is hardest when you are profitable, like Kodak. You must be aware that you’re most vulnerable when you’re doing well.”
Faktor echoes this point in more colorful terms: “[Companies] are dragged down by a potpourri of anchors, [including] financial and psychological sunk costs in old technologies, products, and services that should have been mercifully euthanized years ago.”
Most Important Lesson from Disrupted Companies
Simply put, the most important lesson learned from companies that have been disrupted is the danger of becoming too complacent with the status quo. The same caution that appears on investment prospectuses applies to companies across all industries today: past performance is no guarantee of future results.
And building off the title of Marshall Goldsmith’s best-seller “What Got You Here Won’t Get You There,” another lesson learned: that the processes, technologies, people, products and services, and business models that got you here (made you successful up to this point) are not necessarily going to be the same as what gets you there (enables you to achieve new levels of success moving forward).
This post is based on research conducted by Adelante SCM as part of producing “Competing on Customer Experience: The Driving Force Behind Supply Chain Innovation,” which was commissioned and published by BluJay Solutions (a Talking Logistics sponsor) in August 2018.