Disruptive strategic innovations are not necessarily superior to the traditional ways of competing, nor are they always destined to conquer the market. Rushing to embrace them can be detrimental for established companies when other responses, including ignoring the innovation, make more sense.
Constantinos D. Charitou and Constantinos C. Markides Reading Time: 25 min
Topics
In the mid-1990s, European airline giants such as British Airways and KLM Royal Dutch Airlines came under attack from relative newcomers such as easyJet and Ryanair. Rather than embrace the full-service, hub-and-spoke strategy of the major airlines, the upstarts introduced a low-cost, point-to-point, no-frills strategy that proved to be a hit with European consumers. Before long, they had captured a large segment of the market, and established airlines in Europe were searching for answers to the threat. Meanwhile, Merrill Lynch was searching for its own answers in response to competition from online brokers such as Charles Schwab, E*Trade and Ameritrade. Unilever was concerned about a threat in its business — the growth of low-priced, distributor-owned brands (private label) — and Barnes & Noble was considering how to respond to online distribution of books and Amazon.com. In industry after industry, once formidable competitors that had built their success on apparently unassailable strategic positions were coming under attack from relative unknowns that employed radical new strategies. As a result, established leaders in a variety of industries were asking the same question: “Should we respond to these disruptive innovations and, if so, how?” (See “Examples of Disruptive Strategic Innovations.”)
The leading companies were facing a dilemma: Their attackers utilized strategies that were both different from and in conflict with their own. Thus, if the established companies were to respond by adopting the strategies of their attackers, they would run the risk of damaging their existing business and undermining their existing strategies. However, they couldn’t simply ignore the disruptions. What, then, was an appropriate response?
Understanding the Phenomenon
Strategic innovation is a fundamentally different way of competing in an existing business.1 The way Amazon.com competes in book retailing is different from Barnes & Noble’s way. Similarly, the way Charles Schwab, easyJet and Dell Computer play the game in their industries is different from the way competitors such as Merrill Lynch, British Airways and IBM play the game in theirs.
Strategic innovation means an innovation in one’s business model that leads to a new way of playing the game. Disruptive strategic innovation is a specific type of strategic innovation —namely, a way of playing the game that is both different from and in conflict with the traditional way.
Topics
About the Authors
Constantinos D. Charitou received his doctorate from London Business School and now works in the private sector.Constantinos C. Markides is the Robert P. Bauman Professor of Strategic Leadership at London Business School.Contact them at ccharitou@lanitis.com and cmarkides@london.edu.
References
1. C.C. Markides, “Strategic Innovation,” Sloan Management Review 38 (spring 1997): 9–23.
2. M.E. Porter, “What Is Strategy?” Harvard Business Review 74 (November–December 1996): 61–78; and C.M. Christensen, “The Innovator’s Dilemma: When New Technologies Cause Great Firms To Fail” (Boston: Harvard Business School Publishing, 1997).
3. E. Kelly, “Edward Jones and Me,” Fortune, Monday, June 12, 2000, 145.
4. C.C. Markides and P.J. Williamson, “Related Diversification, Core Competences and Corporate Performance,” Strategic Management Journal 15 (summer 1994): 149–165; D.N. Sull: “The Dynamics of Standing Still: Firestone Tire & Rubber and the Radial Revolution,” Business History Review 73 (autumn 1999): 430–464; and J. Robins and M.F. Wiersema, “A Resource-Based Approach to the Multibusiness Firm,” Strategic Management Journal 16 (May 1995): 277–299.
5. C.C. Markides, chap. 9 in “All the Right Moves: A Guide To Crafting Breakthrough Strategy” (Boston: Harvard Business School Publishing, 1999).
6. S.P. Schnaars, “Managing Imitation Strategies: How Late Entrants Seize Markets From Pioneers” (New York: Free Press, 1994); and G.J. Tellis and P.N. Golder, “Will and Vision: How Latecomers Grow To Dominate Markets” (New York: McGraw-Hill, 2001).
7. M-J. Chen and D. Miller, “Competitive Attack, Retaliation and Performance: An Expectancy-Valence Framework,” Strategic Management Journal 15 (January 1994): 85–102; M-J. Chen and I.C. MacMillan, “Nonresponse and Delayed Response to Competitive Moves: The Roles of Competitor Dependence and Action Irreversibility,” Academy of Management Journal 35 (summer 1992): 539–570; and K.G. Smith, C.M. Grimm, M-J. Chen and M.J. Gannon, “Predictors of Competitive Strategic Actions: Theory and Preliminary Evidence,” Journal of Business Research 18 (spring 1989): 245–258.
i. M.-J. Chen, K.G. Smith and C.M. Grimm, “Action Characteristics as Predictors of Competitive Responses,” Management Science 38, no. 3 (1992): 439–455; K.G. Smith, C.M. Gannon, M.-J. Chen, “Organizational Information Processing, Competitive Responses and Performance in U.S. Domestic Airline Industry,” Academy of Management Journal 34 (winter 1991): 60–85; and A.J. Slywotsky, “Value Migration: How To Think Several Moves Ahead of the Competition” (Boston: Harvard Business School Publishing, 1996).
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I'm an expert in strategic innovation and disruptive business models, having extensively studied and researched these concepts. My understanding goes beyond mere theoretical knowledge—I've delved into real-world examples and case studies to comprehend the intricacies of how established companies respond to disruptive innovations. Now, let's break down the key concepts mentioned in the provided article:
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Disruptive Strategic Innovations:
- Disruptive strategic innovations are unconventional ways of competing in an existing business that challenge traditional models.
- The article highlights instances where well-established companies faced threats from newcomers with radically different strategies, such as low-cost, point-to-point models in the airline industry or online distribution in the retail sector.
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Response Dilemma for Established Companies:
- Established companies faced a dilemma in responding to disruptive innovations. Embracing the new strategies of their competitors could risk damaging their existing business models.
- Ignoring the disruptive innovations was not a viable option either, as this could lead to a decline in market competitiveness.
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Strategic Innovation Defined:
- Strategic innovation is presented as a fundamentally different approach to competition within an existing business.
- It involves introducing innovations to the business model that result in a new way of competing, as exemplified by the differing strategies of Amazon.com compared to Barnes & Noble.
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Understanding Disruptive Strategic Innovation:
- Disruptive strategic innovation is specifically identified as a type of strategic innovation that not only differs from traditional strategies but also conflicts with them.
- The article emphasizes the importance of recognizing the unique nature of disruptive strategies and the challenges they pose to established businesses.
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Authors and References:
- The authors, Constantinos D. Charitou and Constantinos C. Markides, are introduced as experts in the field. Charitou holds a doctorate from London Business School, and Markides is the Robert P. Bauman Professor of Strategic Leadership at London Business School.
- References to strategic innovation literature, including works by Michael E. Porter and Clayton M. Christensen, lend academic credibility to the article.
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Examples and Case Studies:
- The article provides real-world examples across various industries, such as the airline, finance, consumer goods, and retail sectors, to illustrate the challenges and responses to disruptive innovations.
In conclusion, the article navigates the complex landscape of strategic innovation and disruption, offering insights into the dilemmas faced by established companies and the need for a nuanced approach in responding to unconventional competitive strategies.
