It has become conventional wisdom that established companies cannot be market leaders and market disruptors at the same time.
For illustrative purposes only.
This thesis was originally articulated by Clayton Christensen in his seminal work The Innovator’s Dilemma, which explored why large, established companies have difficulty prevailing in the face of disruption.
In Mr. Christensen’s view, subsequently echoed by numerous books and articles on corporate innovation, the cultures, systems and organizational alignments that are responsible for the success of established companies make it difficult for them to respond to competitive challenges from new entrants with new capabilities and new business models.
The names of market leaders that have failed because of the inability to rapidly adapt to technology and market changes include well-known firms such as BlackBerry, Blockbuster, Kodak and Polaroid among others.
Mr. Christensen went on to argue that it was impossible for established firms to maintain leadership in their traditional markets while at the same time being a disruptor because the skills, organization and culture required to do both are unable to coexist inside the same organization. His solution to the innovator’s dilemma was to spin out disruptive businesses so that they are completely separate and independent from the incumbent organization.
The authors of Lead and Disrupt, both professors at Stanford Business School, draw on a decade of research and on their consulting experience to challenge Mr. Christensen’s argument. From their perspective, it is not only possible for incumbent companies to do both, it is absolutely necessary if they are to be able to survive in a fast-paced competitive environment.
Data clearly suggest that corporate survival in a rapidly changing environment has become a significant challenge. Large successful companies are failing or faltering at an increasing rate. As the authors note, half a century ago the life expectancy of S&P 500 companies was 50 years. Today, it is close to 12.
As a result, CEOs increasingly need to be able to build organizations that can both succeed in their current markets and react quickly to disruptive threats. They can achieve this by taking what the authors refer to as an ambidextrous approach to the innovator’s dilemma.
Ambidexterity requires an organizational design that can succeed in mature industries where the keys to success are rigorous execution, incremental product improvement and close attention to customers and at the same time compete in an emerging business where success requires speed, flexibility and tolerance for mistakes.
Instead of spinning off the new enterprise, this hybrid structure gives the emerging business the ability to leverage assets from the larger organization that are unavailable to new entrants. These could be technological advantages, brand, access to customers, sales channels, manufacturing capabilities, proprietary data and others. By leveraging these capabilities, the new venture gets a head start and has a competitive advantage over other new entrants.
The authors provide examples of successful ambidextrous companies, which they suggest provide a template for achieving ambidexterity. These include CIBA Vision, Cisco and IBM. The authors argue that achieving successful ambidexterity requires the following:
- Senior level support to protect and support the new venture;
- Physical separation from the large organization to break free of the old structure and processes and to allow the new business to align its people, structure and culture around the new mission;
- A careful design of the organizational interfaces to ensure access to the needed capabilities from the mature side of the business; and
- A vision, values and culture that provide a common identity across the units to ensure that everyone knows they are on the same team.
The authors make a compelling case for today’s CEOs to be able to design and manage organizations that are able to both lead and disrupt. For many, success in the future will depend on being able to orchestrate the many complex tradeoffs that ambidexterity requires.
However, while this is an interesting riposte to Mr. Christensen’s Innovator’s Dilemma, the challenges involved in achieving the type of ambidexterity the authors describe are likely to be extremely daunting for many large organizations. Mr. Christensen’s pessimism about the ability of companies to successfully accomplish this balancing act should not be dismissed too readily.
Lead and Disrupt: How to Solve the Innovator’s Dilemma by Charles A. O’Reilly and Michael Tushman. Stanford Business Books, March 2016.
Micheal Kelly is the Dean of The Lazaridis School of Business and Economics at Laurier University and the founder of the Lazaridis Institute for the Management of Technology Enterprises.