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Disruption: Market Leaders Struggle to Evade the Trap of the Innovator’s Dilemma
Staying on top is tough. A common trend for businesses that currently dominate or are highly successful in one segment of an industry is that they are often very reluctant to change the formula that’s led to their success. Eastman Kodak‘s slowness to adopt digital technology and cannibalize their existing analog imaging dominance, for example, led to their downfall. In the food industry, tweaking of the flavor used for popular brands has almost never been successful. Think Coca-Cola’s Classic Coke versus New Coke.
There are an almost endless list of examples of incumbents that get put out of business or severely diminished by upstarts that nimbly introduce improved technologies or better business plans. It’s not that these businesses aren’t aware that they are vulnerable. Most vow that they won’t let it happen to them. Some companies like Alphabet, Amazon, and Facebook worry that disruption will happen to them, and to avoid that, they try to stay current with technology by investing heavily in “skunk work” projects.
Data from Statista show that well over 80 percent of existing companies are investing in emerging technologies like AI, the Cloud, Digital Transformation and Big Data. And then, Big Tech companies with lots of cash, like Apple and Microsoft, often buy up potential competitors to help them to maintain their dominance.
Once companies become successful and grow, why is it so hard to remain innovative? Companies like Kodak, Nokia and Blackberry suffered from severe cases of what is called the innovator’s dilemma. They tried too hard to protect their market share and ultimately ended up falling hopelessly behind disruptive trends.
Another problem is that large companies don’t have a clear plan for innovation. Companies know that they shouldn’t be idle, so they will set aside funding and resources dedicated to do something innovative, but there is no clear goal for what they actually want to achieve and politics within the company may actually secretly hope that efforts to change the current status quo will fail.
Clark Gilbert and Joseph L. Bower argue in a Harvard Business Review piece that there are at least three things that current market leaders can do to improve their success probabilities for innovation:
- Invest in the development of disruptive ideas via independent business units, subsidiaries, or small companies that have full autonomy and which operate separately from the main business. Be open to acquisitions.
- Fund innovative operations incrementally and provide milestone expectations rather than committing long-term funding up-front.
- Bring in new perspectives from people not associated with the existing core business to stimulate new ways to think about how to do things.
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