On April 21, 2020, MIT Sloan Management Review celebrated its special spring issue on disruption, featuring Clayton Christensen's last interview. Paul Michelman, editor in chief of MIT SMR, kicks off the virtual event alongside co-moderator and guest editor Karen Dillon.
Editor's note: A version of this summary was provided by getAbstract.
Ever since Clayton Christensen introduced his theory of disruptive innovation in the 1990s, many organizations have transformed to become capable of dodging disruption — but many others have failed. Scott D. Anthony, a senior partner at growth strategy consultancy Innosight, and Michael Putz, a strategy and business development executive, pinpoint why leaders have lagged in preparing their organizations to forestall disruption and offer practical keys to moving forward.
Leaders miss opportunities to manage disruptive change because of four crucial misconceptions:
Many successful companies excel at the development of sustaining innovations, which enables them to serve current customers better. However, disruptive innovation requires a different mindset. Toggling between the two mindsets is difficult due to leaders’ unconscious biases and companies’ implicit values.
Christensen recommended that leaders move disruptive initiatives into separate entities where people can operate based on entrepreneurial values and practices. Nonetheless, senior leaders will have to be able to embrace and internalize both mindsets. To do that, leaders need more than intelligence and intention; they need self-awareness and must be prepared to face the challenges of stepping outside a familiar context.
Many tools and programs exist to help leaders develop the ability to take on new mindsets and shift from one to the other. Join or create a team that is dedicated to self-transformation to hold yourself accountable. Mindfulness can help leaders develop self-awareness, be more present, and foster a malleable mind. Bob Kegan’s immunity-to-change framework can identify the habits and beliefs that hamper your efforts to change and reach your goals. The capabilities that leaders develop for managing disruptive change will serve them well during crises.
During the COVID-19 pandemic, one more managerial misconception has come into view: Many managers have been telling themselves that they must focus on immediate concerns in times of crisis and thus can’t take action on innovation and disruption. But leaders must always lead for the present and for the future simultaneously. Those who have developed self-transformational capacities will be well positioned to seize opportunities during times of discontinuity.
Research shows that during the 2008 global financial crisis, incumbents such as Adobe succeeded in transforming. Many new companies emerged from that crisis, including approximately 100 unicorns — companies with valuations of more than $1 billion. Often, these companies based their growth on aspects of the downturn. Stripe and Square, for example, are two companies that built on people’s loss of trust in traditional financial services providers. Downturns and unsettled times also allow disrupters at the edge of the mainstream to push ahead.
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Editor's note: A version of this summary was provided by getAbstract.
Disruption — in the form of online learning and massive corporate reskilling initiatives — was already reshaping education when the coronavirus pandemic struck and revealed additional fault lines. Education consultant Michael B. Horn, the chief strategy officer at the Entangled Group and cofounder of the Clayton Christensen Institute, describes the drivers of disruption in higher education, the accelerating challenges to traditional educational institutions, and the new players and platforms that appear poised to take their place.
Online learning has improved since the beginning of the century, so that traditional educational institutions are now losing ground to more accessible and affordable digital alternatives. Meanwhile, corporations have widely adopted digital delivery or online formats for employee training. Some large employers find that traditional educational institutions aren’t rising to meet the challenge of reskilling workers at a massive scale. Amazon, for example, intends to invest $700 million to train 100,000 workers — roughly one-third of its workforce. Amazon’s leaders have decided that traditional higher education can’t provide the education Amazon employees need, so the company is taking ownership of the educational component of its value chain.
As a result of the COVID-19 pandemic, colleges and universities could suffer 10% drops in enrollment numbers and consequent hits to revenue of up to 20%. Some will have to close their doors or declare financial exigency — higher education’s form of bankruptcy. Laid-off adult workers, as well as college-age students who can no longer attend classes on campus, will turn to affordable online alternatives.
Even before the pandemic, online learning was already poised to displace traditional education. Online learning had already begun to disrupt the low end of traditional education before the pandemic struck. Southern New Hampshire University — which, at the start of the 21st century, was a small liberal arts college in financial straits — grew to a powerhouse online university by innovating to meet the needs of adult learners. Online learning environments can offer better interactions between students and professors than traditional face-to-face classes.
Platforms and tools such as Minerva and Lobster allow students to engage in active learning in flexible, immersive environments that incorporate synchronous and asynchronous elements, video conversations, and lab simulations. To create opportunities for community experiences, companies such as educational technology company 2U have begun to enhance online learning with brick-and-mortar elements by forging partnerships with coworking spaces.
Although online learning can enhance access and affordability, many low-income students lack the internet connectivity and hardware necessary to participate. The federal government, employers, and learning providers should bridge that gap to ensure all employees and students can access learning. Corporations are discovering the strategic value of education as a benefit. Corporate leaders have begun to see that education is more than a nice-to-have benefit. Instead, investments in employee education can offer substantial returns in the form of performance improvements, engagement, satisfaction, and retention. When Starbucks partnered with Arizona State University to provide online learning to baristas and other employees, the company saw significant gains in retention.
Other large employers are turning to Guild Education to build their relationships with education providers, to package learning as a benefit, and to measure the returns. Education as a benefit will likely remain robust thanks to metrics that are proving its value.
The realm of education can provide insights for improving the overall employee experience:
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Editor's note: A version of this summary was provided by getAbstract.
Digital technologies have changed the ways people cooperate and innovate — and created business environments of dynamic change. Businesses must help their workers adapt to the technological advancements that have emerged since the beginning of the 21st century and spawned the Fourth Industrial Revolution. In previous industrial revolutions, new tools increased productivity, but today’s digital tools also affect design, development, collaboration, and innovation.
Today’s workers need to adapt by developing four essential skills:
The coronavirus pandemic amplifies the need to develop workers who can adapt to change. Solving challenges such as helping remote workers use online cooperation tools efficiently or giving students access to online learning tools requires an integrated workforce with entrepreneurial vision.
Responsibility for fostering these core competencies lies both with the individual and the organization. Companies need to create environments where people can develop skills immersively as part of their daily jobs. A business's organizational structure must also support the four crucial skills. An entrepreneurial mindset, for example, can only thrive within a culture that tolerates failure.
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Editor's note: A version of this summary was provided by getAbstract.
Many successful startups have disrupted existing markets and companies. However, opting to work with a legacy company rather than disrupting it also offers substantial opportunity. To assess which strategy will work best for you, University of Toronto strategic management professor Joshua Gans recommends creating two business plans: one for disruption and one for cooperation.
Startups have choices, and many founders realize that working with existing companies is the better strategy. Grocery delivery service Webvan chose a disruptive strategy similar to Amazon’s initial approach, albeit in a different industry. By offering an online grocery option, Webvan sought to do away with grocery stores, but its efforts failed. Another online startup in the same industry took a different path. Peapod chose to work with existing grocers, successfully capitalizing on emerging technologies and marketing to a niche customer base.
Entrepreneurs need two business plans: one outlining a strategy of disruption and one assessing strategy in the context of cooperation. Within those business plans, define four areas:
Startups need to consider how their answers mesh with one another. The four areas need to be aligned. For example, choosing to compete for existing customers requires an organizational structure that has sound backing and flexibility.
Once a startup decides on one strategy, it needs to test it — for example, by rolling out to a niche market to see if the product or service creates value or by delivering a lower-cost product to see if it generates sufficient revenue. Keep in mind, though, that testing on a small scale may not give you insights about the competitive response, because your activities may garner less attention.
The restrictions that the pandemic response measures place on companies also present opportunities. Today’s economy — in the midst of the coronavirus lockdown and beyond — places many restrictions on marketing and selling products and services. However, those restrictions are also opportunities for innovation. Whether such innovations prevail will depend largely on how long restrictions last. Some startups will try to capitalize on improving customer safety, but measuring success will take time.
People often believe that disruption will naturally come to established companies. However, such companies are more often dominant because they do have distinct advantages. Established law firms, for example, may offer opportunities for improving customer relationships — but could be difficult to disrupt. Legal tech startups need to remember they have a choice — to compete or to cooperate — even in a deeply rooted industry.
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Editor's note: A version of this summary was provided by getAbstract.
Amid the COVID-19 pandemic and its economic fallout, many decision makers are feeling exposed — and wondering whether their organizations could have been better prepared. Amy Webb, the founder of the Future Today Institute, offers a framework for threat monitoring that can alert decision makers to disruption long before it strikes, even when the disruption emerges from unexpected quarters. Webb makes practical recommendations for moving forward and identifying opportunities in times of deep uncertainty.
Decision makers at every company should monitor 11 sources of macro change for signs of impending disruption: wealth distribution, education, infrastructure, government, geopolitics, economy, public health, demographics, environment, technology, and media and telecommunications, Webb argues.
Usually, people limit the scope of their monitoring to their own industry — but the interconnectedness of today’s world means that change can arise from any of the 11 sources and affect an organization. All 11 have equal importance. Give priority to examining the source you feel bears the least connection to your organization. It may yield important insights, because you probably haven’t given it careful attention.
For deeper insights, observe where changes intersect. Combining the sources of disruption can help you see interconnections. For example, consider infrastructure and geopolitics together and look at China’s Belt and Road Initiative. How might the coronavirus pandemic affect Beijing’s interest in investing massively in Africa or Latin America? Questions like this can begin to shed light on ways the global economy might shift as a result of the pandemic. Take a wide view of each source of change. Infrastructure means more than roads and bridges; it also means supply chain routes, technology, and surveillance.
Futurists use the question “What would it take for X to be Y?” as a tool to envision potential developments. For instance, given that students are learning at home during the pandemic, many people assume that distance learning will be more commonplace in the future. To move beyond presumption, ask what would have to happen for that to occur: What infrastructure, technology, and governance would need to be in place?
Looking at these connections will also allow you to extrapolate trends from actual developments and reflect on the second-order consequences of current events: How will the current education gap affect the future workforce? Will the lessons people are learning about climate change during the pandemic make a lasting impact?
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Editor's note: A version of this summary was provided by getAbstract.
The internet sparked rapid standardization within value chains, enabling innovative interlopers to break them faster than ever before. Yet, companies that occupy only a small space in an ecosystem risk losing sight of the big picture. Often, these disrupters focus solely on consumer demand without regard for any long-term negative consequences on society. SAP chief innovation officer Max Wessel explains why it’s in your business’s best interest to develop technology that addresses potential ethical issues from the very start.
The creators of autonomous automobiles carefully considered the moral issues pertaining to the development of technology that enables multiton vehicles to operate in the same space as pedestrians and human-driven transportation, Wessel notes. However, not all technology innovators tread as carefully. Often, disrupters limit their visions to fulfilling consumer demands with cheaper, less complicated, and more accessible products without considering the long-term repercussions of their business models.
The late Clayton Christensen’s Theory of Interdependence and Modularity holds that when companies develop new technologies, they attempt to manage every aspect of the system’s design to optimize performance. For example, Apple initially controlled every part of the iPhone’s complex system. As the components became standardized, other companies entered the fray to specialize in specific pieces of the system. The internet and other technologies increase modularity in value chains across industries, which enables other businesses to insert themselves into the value chain.
Morally responsible startups develop technology and create ethical benchmarks as if they already dominate the industry. As new developers create products in response to consumer demand in a narrow slice of a system, individuals enjoy the abundance of choice without worrying about the overall negative effect on society. Moreover, the rate of innovation outstrips governments’ ability to regulate preventively. That’s why the onus of establishing these ethical priorities rests on the innovators.
As an organization, “put yourself in the role of standard-bearer, instead of just imagining what you can do to break apart the value chain,” Wessel argues. Assuming ethical responsibility for an innovation may decelerate a company’s development in the short run but will be a competitive advantage in the long run. Apple’s attention to privacy protection in its technology may have slowed its progress compared with competitors’, but Apple has gained public trust.
Other companies, such as Uber, were late to address certain moral issues but worked to adapt, which arguably helped fend off user backlash.
Create an objective advisory board to review the ethical considerations of your company’s activities. Genetic testing firm 23andMe handles possible regulatory and user concerns proactively. Executives created an independent board to review the ethics of the company’s activities — for example, around its customer data. Such prudence has given 23andMe an edge when dealing with regulatory bodies and made its good intentions more credible for consumers. Taking its responsibility seriously has helped the company create a more solid foundation for future success.
Advisory boards made up of people with different perspectives, backgrounds, and expertise provide guidance on relevant issues and counter the cognitive bias that exists in every organization. In the media industry, for example, established companies such as The New York Times and The Washington Post understand the role they play in society. Relative newcomers building the next generation of communication technology must be aware of the implications of their business models at scale and understand the existing players’ precautionary measures.
Management’s role is crucial. The CEO should provide clear guidance on ethics and infuse those principles into the culture. Don’t take shortcuts, even in times of crisis. Google and Apple are stepping up to trace and track infected individuals in response to the COVID-19 crisis, yet they can’t disregard privacy considerations, even during a global pandemic.
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