Surfing the Wave of Disruption
Ten Lessons for thriving during industry upheaval
We have moved from “The Internet of Things” to “The Internet of Threats.” Relentless technological advances are demolishing barriers to entry in one business after another. Tech companies are entering new marketplaces directly and enabling new sources of competition, eliminating much of the friction that created moats against global competition. This raises the question for today’s executives: Is your organization prepared to deal with the havoc wreaked by truly disruptive innovation in your industry? The pace of technological change suggests that you’d better be.
As a leader in the newspaper publishing business at The Washington Post, I lived through a crucible of disruption that rivaled that seen in any industry, and we came out the other side with flying colors. The Post was written off by almost everyone. Then, in 2015, we grew more audience than any single media company in the United States – including all the new media that were supposed to supplant us. Fast Company named us “The Most Innovative Media Company in the World” for 2015 before this growth took place. In October of 2015, we passed the New York Times in total digital audience size. And, we achieved all of these results after cutting more than $200M from our overall cost structure over the preceding decade. One of the lessons of disruption is that the war is never over, but it is now widely accepted that The Post successfully surfed a tsunami of disruption and is enjoying a level of success today that few would have predicted for a ‘legacy’ media company.
To those who are being disrupted – or who want to prepare for what might come – here are ten battle-tested lessons from the front lines for thriving during radical industry disruption:
Surfing the Wave of Disruption – Ten Lessons:
1. Pay attention to early signs of disruption
One good test of disruption is: “Are customers increasingly satisfied with what your team believes to be ‘inferior’ products or services?” Examples of entire industries ignoring symptoms until it is too late are plentiful. If customers are satisfied with the product or service of a rival, then you are priced too high, at least for that segment. Spend time with customers to learn, first hand, why they are defecting so you can spot trends early, and determine if the defectors are an anomaly or the canaries in the coal mine.
2. Don’t overvalue your assets
Famously, executives from Detroit ridiculed Japanese cars because their infatuation with the heft and exterior design of their cars left them blind to the growing consumer preferences for lower prices, improved gas mileage and utility-based design. Your assets are only worth what consumers believe they are worth, and they vote every day with their pocket books.
3. Play your game as well as it can be played
In times of disruption, there is great internal and external pressure to change the game you are playing. For The Post, for instance, there was constant pressure to ignore fact-checking in service of speed – but a key differentiator for the Post is to get facts right, so it would have been a massive strategic mistake for us to adopt a ‘me too’ approach to fact checking. Ceasing to do what created your initial business success is usually a mistake.
However, it is vital to remember that ‘playing your game well’ does not mean playing it as it has always been played. It usually means doing it better and doing it for less. Disruptive innovation brings relentless cost pressure. In response to that, constant cost cutting can be demoralizing, but constant productivity increases are essential, even in good times. Many resist, insisting that “Our work is different,” or “We are not assembly-line workers.” But, if you have no measures of productivity, how will you respond intelligently to the Manager who says, “I need to hire another person?”
The counter-intuitive answer is that tight cost management usually makes a company better. It is a forcing mechanism for performance management, organizational streamlining, and the discarding of non-productive ideas and investments in managerial ego. Disruption provides the opportunity to double down on pure operational excellence. Don’t squander that opportunity!
4. Avoid “language of the revolution”
Jim Collins and others have written thoughtfully about the dangers of premature abandonment of the core business. Many inside and outside our company said things like “You must kill the newspaper to liberate digital.” These are enticing ideas, but the problem with revolutions is that there are always counter-revolutions – usually led by customers and key employees.
You have to start with the customer and work backwards. For us, the simple question was: “How could it be right to eliminate the newspaper when hundreds of thousands of customers love and pay us a lot of money for it, and most of our economic contribution comes from that product?”
Our legacy customers gave us a profitable base from which to expand. Had we been seduced into thinking that base was sufficient for us in the face of the digital revolution, all would have been lost. But we would have been equally lost had we abandoned the long-term well-spring of profits and brand strength that allowed us to fight the digital battle. Our print fortress was under attack and – in the very long term – is not sustainable. But, there is no bigger strategic mistake than abandoning a fortress too soon in the face of an attack.
Simultaneously working on a legacy business and an emerging business is much harder than working on a growing business alone, so the allure of a revolutionary solution such as killing the legacy business is enticing. But history shows that, while revolutions excite people partly by virtue of their simplicity when contrasted with making complicated processes work, in the long run, the very simplicity of their appeal is also their undoing. Revolutions usually fail because – by abandoning the core business, a company too often abandons its unique source of competitive advantage and its source of cash to fund strategic responses.
5. Learn to play different games
Just as it is essential to resist the tearing down of your existing business, it is equally or more important to recognize that you must build an entirely new business, relearning everything you thought you knew as an incumbent. The hardest part of disruptive competition is that you must simultaneously play your own game better than ever and you must learn how to play new games that your organization is unfamiliar with. For some time, you must essentially run two different businesses. This requires hiring those who know how and giving them free reign and autonomy. These pioneers will be met with organizational resistance – and so those playing the new game must be protected and shielded initially, so that the saplings are not crowded out by the big trees. Pay great attention to the people in your existing business who would crush your new business in ways both overt and subtle because they are threatened by it.
The new disruptive business will face a few milestones when existential threats from internal constituencies will be greatest. The first is when it is launched, and needs protection. The next is when it receives new resources as the core business becomes more streamlined. And, finally – unless there is a spin-off – when the new business gains sufficient scale that it needs to be reintegrated into the core business to some meaningful degree. At each of these points, executives need to ensure that all that has been built is not lost due to the existing culture rejecting the new organism.
6. Devote time to organizational structure and the active management of innovation
Avoid half-measures. True disruptive innovation requires a large-scale response which places enormous pressure on the organization. Just when profits are threatened most, a company must devote precious resources (money and the most precious resource of all: time) toward speculative and unproven efforts.
Leadership must determine who will work on the large but declining business, and who will work on the growing but turbulent areas in the eye of the disruptive storm. Leaders must make a clear case for change – not just for those who work on the new efforts, but also for those engaged in ‘rear guard action.’ At The Post, some of our best managers embraced the declining but highly profitable print business, adopting the mantra of ensuring “a long strong bridge to our digital future.”
The art of leadership during disruption is to know when to integrate the disruptive business more deeply into your existing business to take advantage of your current assets, and perhaps of your brand – and when to let it stand alone. We made mistakes in this area. We were right to start a separate digital unit very early, but we held on to separateness for too long and we struggled to recover. Disruption brings the need for frequent tough organizational decisions, and nothing is more detrimental to morale and success than managerial unwillingness to wade in and make the tough calls when they are needed.
7. Experiment often and make sure your big experiments are strategic
Experimentation must become part of your organizational DNA. Just as the scientific method starts with a hypothesis, so your experiments should be guided by the trends and opportunities impacting your business that you seek to take advantage of. Instead of creating an “innovation unit” whose job is to experiment blindly, in organizational isolation, decide where to make strategic bets and make them boldly, with the understanding that most efforts will fail. Importantly, the reality of high failure rates dictates that you must create experiments that will be big if they work. High failure rate/ low return on success experimentation is a recipe for extinction.
8. Face brutal truths head on
Resist the ‘magic solution’ that will solve all of your problems. I have seen many high hopes over the years, but have yet to see one game-changing solution to massive disruption. More often than not, pinning an organization’s hopes on a few big ideas impedes the process of aggressively tackling the most challenging problems. Brilliant solutions often appear to external observers as overnight solutions, but they are usually bi-products of years of experimentation, ruthless prioritization and hard work.
9. Change the culture
Culture must be an area of constant focus. Nothing caused us more difficulty in creating change than the extraordinary success we had had for decades. The good news about moats is that few people attack you. The bad news is that your armor gets rusty and some of your army may forget how to fight.
“Show your work.” People have to know why you are making the decisions you are and what your thought process is. It is possible that you have the right thought process, but have reached the wrong conclusions – and you need your team to feel comfortable challenging you to get to the right place. To compete in a disruptive environment, everyone must be experimenting, including the leaders. As a result, the organization must be free to tell you when the experiment you are infatuated with is not working, or is just not a good idea.
Deep humility is a necessary ingredient for success in a disruptive environment. When moats dry up – and they usually do – the battle for customers and economic success is unrelenting. These ten lessons helped The Post thrive during my time there, but – in a disruptive environment – that success is always tenuous. The most important lesson is encapsulated in a wonderful quote from Jeff Bezos: “It is always day one.”