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Footnotes
1 http://www.comalat.eu.
2 https://moodle.org/.
3 https://sakaiproject.org/.
Part V
Disruptive Technologies & Entrepreneurship
© Springer-Verlag GmbH Germany 2018
Claudia Linnhoff-Popien, Ralf Schneider and Michael Zaddach (eds.)Digital Marketplaces Unleashedhttps://doi.org/10.1007/978-3-662-49275-8_17
17. Preface: Reprogramming Your Corporate Immune System
Gerhard Hastreiter1
(1)Allianz, Munich, Germany
Gerhard Hastreiter
Email: gerhard.hastreiter@allianz.de
17.1 The Billion Dollar Questions
A number of automotive managers attended the recent SingularityU Summit in Berlin. They face serious disruptive changes. As Volkswagen CIO Martin Hofmann put it: “As soon as the customer no longer touches the steering wheel, the emotional bond to his car gets lost and we enter a completely different game”. Later, one of the managers present asked Salim Ismail, author of the book “Exponential Organizations”, how a big corporation can manage disruptive innovation from the inside. Ismail’s answer was disillusioning. Better you move it to the fringes of your company and run it in absolute stealth mode, he recommended, otherwise the “corporate immune system” will strike back and devour both, the innovation and the innovators.
Quite a dire outlook. These are the billion Dollar questions indeed: How can a big incumbent corporation manage disruption? How can it re‐invent its own business model from the inside instead of falling victim to disruption from outside entrepreneurs? Can it after all or are the odds so much in favor of start‐ups or spin‐offs that the best it can do is deferring demise by incremental improvement?
History doesn’t provide much reason for optimism for the big fishes. Only very few companies of reasonable size succeeded in “re‐inventing” themselves. Looking for examples, we have to start looking back to the time when the pony‐express rose and fell (Amex and Western Union), few of them pass the test of time (Nokia) and hardly any are to be found in the recent past. On the other hand, examples of start‐ups eating into traditional companies’ businesses or inventing completely new ones abound.
Thus, is the answer relinquishing to the corporate immune system, making do with incremental progress, leveraging new technology in order to continuously improve but not going for the quantum leap?
If we believe it is true that as Lucas Sauberschwarz and Lysander Weiss argue in this book that it is almost impossible to replace a company’s profit pool through disruptive innovation from the fringes, if we trust Salim Ismail’s assessment that the corporate immune system is the force that thwarts innovation from the inside and if we finally believe that some kind of disruptive innovation is crucial for success or even survival of corporate incumbents, the only way out is reprogramming this corporate immune system.
As any immune system, this one has more than but one way of defense and attack. In order to understand what needs to be changed and how we may possibly achieve this re‐conditioning, we have to delve a little deeper onto these ways.
17.2 Death by a Thousand Cuts
“Death by a thousand cuts” is one of the most common strategies of our companies’ immune system. Assume, you have a setup that would have the potential to earn its constituents fortunes at the likes of WhatsApp or Airbnb. A dozen of gifted people, having the right idea at the right point in time, working hard and passionately to give birth to and grow this project. Then, put this into your regular corporate context.
Immediately, all the team’s capacity will be drawn away from getting the thing done, bringing it to the marketplace, experimenting, re‐working, re‐trying and finally succeeding (or at least failing fast) towards dealing with dozens of issues that emerge from the inside: “Doesn’t that cannibalize our existing business?”, “Shouldn’t we better leverage our excellent supply chain?”, “Have you considered offshoring the service to our new center?”, “Why don’t you use our standard IT architecture?” …
A sub‐strategy of “death by a thousand cuts” is “death by committee”. “Do you have approval by the Finance Committee?”, “Please report to the steering committee on a bi‐weekly basis”, “Please update your project charter” …
The core of the problem (and our immune system’s strategy) is not that these questions would be wrong or irrelevant. Neither is it that these questions couldn’t be answered properly. Actually, the team will put all its effort into answering them. The true problem is simply their number. Not even the strongest team can stand against that tide for a sustained period of time and will inevitably be absorbed by activities that are directed towards the inside instead of delivering to the customer.
So what can be done against these workings of the corporate immune system that – by the way – are in most cases not reflections of ill will but themselves an effect of the pure arithmetic of size?
Again, some will argue that the death‐by‐a‐thousand‐cuts dynamic is close to a law of nature and the only way to avoid it is running your disruptive projects in skunk‐ or stealth‐mode. But, again, that is basically a bet on replacing your business by a completely new one you are starting up in this mode; ‐and the odds of succeeding this way aren’t very promising.
So we need to sandbox these endeavors inside the company. They need light touch. They need strong gatekeeping and senior managements’ deliberate protection against interference. On the other hand, this protection has to rest on actual delivery, not plans or aspirations. The deal is: as long as you deliver (to the customer), we will grant you protection and discuss results only.
17.3 Death by Desiccation
Though sandboxing may be the first life support to the (potentially) disruptive initiative, the corporate immune system may leverage just that lifeline in order to suffocate this initiative. Rather sooner than later the project needs access to the company’s operations. Otherwise it can neither gain relevance nor can it live up to its promise of delivery that is the basis for the protection it gets from death by a thousand cuts.
The ways of denying access to the real world are many and varied. “We love the idea but … our project pipeline is already full”, “ … your solution can hardly be integrated”, “ … your team is too small to support a large scale operation”, “ … these are the approval processes you have to go through” …
A sub‐category of “death by desiccation” is “death by division”. As division of labor has been the paradigm of the pre‐digital era, the company’s organization may show a tendency towards driving wedges into our team of innovators and entrepreneurs, (re‑)claiming resources and thus depriving it of the power to deliver.
Both ways, the initiative gets stuck. It doesn’t get beyond the stage of presentations, prototypes, mock‐ups and focus groups. It doesn’t reach the final proof: the customer. It becomes just another piece of conceptual work.
Once again, this reaction has to be countered by force. The path towards implementation has to be paved from the beginning. Even more: (partial) failure has to be part of the calculation from the beginning, allowing for e
ither re‐work or discontinuation of the effort; – without loss of face.
17.4 Death by Mediocracy
Corporate immune systems tend to favor mediocracy. They tend to punish failure as well as outstanding success. This strategy is more subtle and sustainable than the ones described previously. It goes to the heart of the company’s culture.
It works on both ends. Whilst there is common agreement today that taking risks and potential failure are essential prerequisites for success, careers may still be spun in a less than neutral direction by the corporate immune system in case of outright and “proven” failure (as a result of taking significant risks, again).
Strangely enough though, the system may react similarly on the side of exceptional success. Assume our team of entrepreneurs (or “intrapreneurs”) manages to avoid death by a thousand cuts, actually delivers to the customer, recovers again and again from setbacks, re‐works, improves, scales up; – makes its innovation an outstanding success. What is going to happen?
Most probably there will be some recognition and rewards. Surely, some will go to the team. But about as likely as not, success will acquire many more parents; – well beyond the core team. The corporate (immune) system will also ensure that recognition and rewards stay moderate as they must “fit into the broader picture”. In the worst case, it will even take care that the success itself is watered down, dissolved into the wider corporate ocean.
The effects are subtle. Failure isn’t punished outright and achievement is actually rewarded. But the system offers another, safer and less arduous path towards success: play it safe, stand by and jump on the bandwagon (only) as soon as it has gained significant momentum. This way, you hedge your downside risk and the upside potential is almost as good. This though is close to the opposite of entrepreneurship.
Dealing with this reaction of our corporate immune system proves to being complex. On the one side, incentive systems have to be changed towards rewarding risk taking as such and taking these risks has to come along with opportunities to earn significant rewards. On the other side, repeated failure must not be rewarded and the prospect of reaping huge benefits comes with the risk of abuse and short‐sightedness.
17.5 Reprogramming the Immune System
Death by a thousand cuts, death by desiccation and death by mediocracy as well as their siblings may not be the only strategies the immune systems have devised to maintain disruption and entrepreneurship at a level that is bearable for the corporate organism. But quite possibly, our corporate organisms can bear much more today than our immune systems have been used to.
Thus, if we believe in disruption, re‐invention and entrepreneurship from the inside, we have to re‐program that systems. The paragraphs above indicate the direction. But reprogramming the system is far from an easy task. It needs fine tuning but it needs speed and some force at the same time.
Finally, the immune system will apply the very strategies it has developed against those who want to reprogram it. If the alternative is a demise into irrelevance though, reprogramming it should be worth the risk and effort.
© Springer-Verlag GmbH Germany 2018
Claudia Linnhoff-Popien, Ralf Schneider and Michael Zaddach (eds.)Digital Marketplaces Unleashedhttps://doi.org/10.1007/978-3-662-49275-8_18
18. How Corporations Can Win the Race Against Disruptive Startups
Lucas Sauberschwarz1 and Lysander Weiss1
(1)Venture Idea GmbH, Düsseldorf, Germany
Lucas Sauberschwarz (Corresponding author)
Email: lucas.sauberschwarz@venture-idea.com
Lysander Weiss
Email: Lysander.weiss@venture-idea.com
18.1 Introduction: The Rise of Disruption
The Americans may have need of the telephone, but we do not. We have plenty of messenger boys.
This quote, published in 1876 in the “Economist” from Sir William Preece, chief engineer of the British General Post Office shows that the danger of ignoring potentially disruptive technologies is nothing new [1]. However, disruptive forces seem to accelerate exponentially with the rise of digital technologies like broadband internet, 3D‐printing, wearable sensors, internet of things or virtual and augmented reality. The threat of disruption has become the “new normal” [2] for established companies since Christensen defined the term in 1995 [3]. In a recent study, 65% of global CEOs fear “new disruptive entrants in the market” [4]. This is no coincidence, with famous startups from the likes of Uber, Airbnb, Tesla, or previously Facebook and Google driving disruptive innovations and leaving large corporations behind [5]. Thus, these incumbents seem to have only one choice: “Disrupt or be disrupted” [6]. Consequently, they take part in the race and try to win against disruptive startups by playing the same game: Disruption is set as a goal in many innovation efforts, and company‐owned incubators, accelerators or startup‐hubs are set up to develop disruptive technology startups for the company [5].
But what does “disruption” actually mean? Is it really the new normal? Do large corporations always need to be disruptive? And how can they win the race against disruptive startups?
18.2 The Disruption Paradox of Large Corporations
18.2.1 Disruption Challenges of Large Corporations
“Disruption” has become a buzzword for every innovation effort [7]. The Frankfurter Allgemeine Zeitung named “disruption” the “business term of the year 2015,” and authors are voting to “retire Silicon Valley’s emptiest buzzword” [8]. With all this buzzing, the actual definition and theory seem to be lost.
In 1995, Clay Christensen’s originally named the term “disruptive technologies”. The theory was built on technology cases like the disk drive industry and minicomputers. Here, successful companies first ignored emerging “relatively simple, convenient, low‐cost technology” until they suddenly couldn’t compete with it anymore [9]. These disruptive technologies are contrasting “sustaining technologies” which are normally produced by successful established companies. They focus on improving their existing products and service offerings – also known as incremental innovation [3] (s. Fig. 18.1).
Fig. 18.1Sustaining and disruptive innovation. (Adapted from Christensen [7])
In following books and articles, Christensen and other scholars continued to enhance the theory by also including business models (such as low‐cost airlines, discount‐stores, or online‐education) [1] and novel technology that creates new markets (such as mobile phones disrupting landline phones) [1, 7, 10]. Consequently he changed the term “disruptive technologies” into “disruptive innovation”, setting the stage for the term to become ubiquitous [11, 12].
The subtitle of Christensen’s book “the innovation dilemma: When new technologies cause great firms to fail” [9] already foreshadows who tends to lose the “disruption” race. In contrast to startups, large corporations already have a successful core business with demanding customers, established structures and optimized processes, high worth patents, brands and specialized and skilled employees [12]. Their main goal is to continue the currently successful path with certain revenue and profit goals. Thus, they consequently ignore new startups with “disruptive” business models and technologies, as they do not match these goals [13]. When the disruptive startups are eventually successful, their disruptive innovation cannot be adapted quickly due to the high, change‐resistant complexity of the incumbent [14, 15]. This describes the “dualism problem” or disruption paradox for the incumbents [16]: They always have a tradeoff between the successful existing and the disruptive new business; by trying to win the one, they risk to lose the other [17]. In contrast, startups without any customers, employees and processes actually need to act as risky and disruptive as possible to have a chance to win against the established players.
18.2.2 Current Managerial Solutions for the Disruption Challenges
Following the
mantra “disrupt or be disrupted” without any pre‐existing customers, many large companies take on the goal to be disruptive and put it on top of their innovation agenda, as they fear to otherwise miss the “digital disruption” [18, 19]. To fulfill the goal of being disruptive, managers build on the strategies Christensen deducts from his cases in “The innovator’s dilemma” and “The innovator’s solution” [9, 10]: Here, case studies show that incumbents could build separate units to develop disruptive innovations. These units do not follow the business goals of the core business, they try different business models and research emerging technologies – essentially, they copy the startup model [5, 9]. The hope is, that these separate units discover disruptive innovations or can adapt them before entirely new entrants win the market. Nowadays, many large corporations are building “company accelerators, incubators or innovation labs” as separate units to develop digital disruptive innovations. They are based in Silicon Valley, Berlin, London and Tel Aviv, often far away from the mother company and try to attract tech‐talent or whole startups to find the “next big thing” [16].
This strategy sounds great, it might even be successful in some cases and calm investors because the disruption threat is addressed [20] – but unfortunately it will not close the innovation gap and solve the disruption paradox in the long term as several problems are ignored: The goal to be disruptive can be dangerous in itself, as it actually describes the elimination of the current company or market as the desirable outcome. Thus it needs to be driven by business goals such as new profit or revenue. Take the Kodak‐Case for example: It is widely used as the classic case for digital disruption, in which a company missed a new disruptive technology. However, Kodak actually developed and patented the first digital camera. Kodak invested millions in research & development to disrupt the market with digital cameras and printing kiosks, it even bought a photo‐sharing website before Facebook even existed. It just failed to look for a business model based on cheap cameras and online‐sharing instead of printing that would work with their core business. Kodak had great success in disrupting itself and the photo industry, it just failed to bring it in their core business on the way [21].