MIT_Sloan_Management_Review_-_Spring_2020

SLOANREVIEW.MIT.EDU SPRING 2020 MIT SLOAN MANAGEMENT REVIEW 33

some upstart would do it to them, and they have
been on a steady journey to digitize their industry.
Other incumbents are willing to use their resources
aggressively to combat disruption. They shell out
eye-popping sums to acquire startups, they try
their best to import a startup mentality and prac-
tices, and they leverage their own resources and
heft to let their digital acquisitions or offshoots
accelerate to scale. Walmart, for instance, spent
$3.3 billion to acquire Jet.com, and millions more
to acquire a string of D2C companies whose offer-
ings are appealing to a younger demographic. GM
and Ford spent heavily to compete in the emerging
sector of autonomous vehicles. Incumbents have
read Christensen, and the best ones are doing
everything they can to avoid the slothful mistakes
of the past.
In general, when seeing a disruption coming,
incumbents seem to fall into three categories. The
first are those that fall into the classic Christensen
trap and ignore the potential change completely.
The second are those that spot the disruption and
overreact, spending vast amounts of money and
time on efforts to jump right into whatever the
disruptive market seems to hold. What I would ob-
serve is that companies such as Kloeckner that
begin to make modest investments in potential
disruptions gradually create the capabilities to
segue into the next phase without a wrenching
downfall or excessive shift. Toyota, for instance,
created a mass market for hybrid electric vehicles
without abandoning its core internal combustion
business, and it is one of the few profitable players
in the electric vehicle arena.

The Road Ahead for Incumbent
Companies
Every traditional company should be aware that the
very concept of sustaining innovation is at risk
when a digital assault on the core business is as easy,
fast, and affordable as it is today. Digital puts the
disruptive mantra of “faster, cheaper, and good
enough” on steroids. Business models enabled by
digital create potential inflection points for every
traditional business. Senior leaders and board
members must accept that there are no safe bets.
Yet, all too often, business leaders of incumbent
companies spend way too much money on digital

transformation efforts that fail to take the new eco-

nomics and business models of digital disrupters into

account. Automating old business models is nothing

more than that — it doesn’t do a thing to help your

company benefit from the disruptive price/perfor-

mance ratios that digital tools can foster.

There is a tremendous amount still to be learned

about how to compete in a world moving at the

pace of digital. This places a huge premium on

being able to learn quickly, experiment, and then

pivot to reflect the insights gleaned. Incumbents

need to stop spending money trying to be a better

version of their analog selves, and instead start

approaching digital strategy with an eye toward

discovery.

Rita Gunther McGrath (@rgmcgrath), a professor at

Columbia Business School, is a globally recognized

expert on strategy in uncertain and volatile environ-

ments. She is the author of The End of Competitive

Advantage (Harvard Business Review Press, 2013)

and Seeing Around Corners (Houghton Mifflin

Harcourt, 2019). Comment on this article at http://

sloanreview.mit.edu/x/61301.

REFERENCES

1. C.M. Christensen, “The Innovator’s Dilemma: When
   New Technologies Cause Great Firms to Fail” (Boston:
   Harvard Business School Press, 1997).


2. M.E. Porter, “Competitive Strategy: Techniques for
   Analyzing Industries and Competitors” (New York: The
   Free Press, 1980).


3. C.M. Christensen, M.E. Raynor, and R. McDonald,
   “What Is Disruptive Innovation?” Harvard Business
   Review 93, no. 12 (December 2015): 44-53.


4. W.A. Sahlman and H.H. Stevenson, “Capital Market
   Myopia,” Journal of Business Venturing 1, no. 1 (winter
   1985): 7-30.


5. C.M. Christensen, T. Hall, K. Dillon, et al., “Competing
   Against Luck: The Story of Innovation and Customer
   Choice” (New York: HarperBusiness, 2016).


6. C.M. Christensen and D.C.M. van Bever, “The
   Capitalist’s Dilemma,” Harvard Business Review 92,
   no. 6 (June 2014): 60-68.


7. W. Lazonick, “The Curse of Stock Buybacks,”
   The American Prospect, summer 2018, 34-38.


8. Christensen et al., “What Is Disruptive Innovation?”


9. T. McEnery, “Like a Body on Life Support Fluttering Its
   Eyelids, General Electric Releases Quarterly Results,”
   DealBreaker, July 31, 2019, https://dealbreaker.com.

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