10 Jun 2002  Research & Ideas

Disruption: The Art of Framing

Your chief competitor creates a breakthrough technology. Should you frame that event inside your company as a threat or opportunity? The answer in this Harvard Business Review excerpt by HBS professors Clark Gilbert and Joseph L. Bower just may surprise you.

 

Editor's Note— When we perceive a competitor's groundbreaking innovation as a threat, we may act defensively and hastily. But if we see that same event as an opportunity, our response might be more deliberate and unhurried. As a leader, how you frame that challenge inside your organization controls how resources are allocated to respond. The dilemma: Create a response that is neither overreaction (threat) nor insufficient (opportunity).

In this excerpt from their Harvard Business Review article, Harvard Business School professors Clark Gilbert and Joseph L. Bower say that the leader must frame the competitor's action as both a threat and an opportunity. Here are organizational and process changes that can help meet the challenge.

It's one thing to recognize the importance of careful framing when you're faced with a disruptive innovation. It's quite another to make the organizational and process changes required by that framing. We don't pretend to have all the answers to this vexing problem, but examining what sets the winners apart does offer some provisional lessons.

Separate for better performance. Across the newspaper industry, high performers had one thing in common: They operated independently from their parent organizations. Even in ventures with comparable staffing levels and start dates, those that had separated from the core business were more innovative and had higher market-penetration rates than those that had remained integrated.

Previous research on disruptive innovation suggested that the benefit of separating the new venture had to do with securing resources for it. However, our research found that parent organizations invested roughly the same amount in integrated ventures as they did in independent ones. What differentiated performance was how the resources were used. Separation seemed to help companies untangle the contradictory imperatives of threat and opportunity. Released from obligations to the parent organizations, freestanding ventures were more likely to view the new business as an independent opportunity and frame their plans accordingly.

A common mistake companies make is to rely on employees from the core organization to staff new ventures.
— Clark Gilbert and
Joseph L. Bower

It's important to note that calling a business separate and making a business separate are two different things. In many newspaper organizations, we observed managers who stated that their ventures were separate from their parent company, but their daily work processes indicated otherwise. Online sales reps still reported to and had offices near their print managers, for example. This direct reporting and physical proximity eliminated the autonomy needed to create different work patterns and decision rules required in the new business. Print reps were used to selling in long cycles, to an established customer base, with a generic, nontargeted advertising product. Online advertising customers bought in much shorter cycles, were not traditional print advertisers, and were heavily focused on interactive advertising options. The tendency for the established organization to assert control over the decision-making processes of the new venture kept these new capabilities from being developed. Even when done with good intentions, intervention by the core organization can result in an overemphasis on established business practices, which preclude the development of ones that are more appropriate to the new market.

Remember also that separation can benefit the core organization as well as the new venture. If a single, integrated organization tries to sustain a still-viable business model while simultaneously trying to develop a new platform for growth, it gets pulled in two directions, and both efforts underperform. Kodak, for example, needs to continue to focus on traditional competitors like Fuji Film and Konica. Focusing the established organization on digital photography would inevitably distract the mainstream managers.

Fund in stages. Establishing a freestanding venture is a good first step, but it's no guarantee that the people in charge will manage the business as an independent opportunity. Top executives should help them do so by controlling the flow of the investment.

For an example of what we mean, let's look at Teradyne, the maker of semiconductor test equipment. In 1997, the company was confronted with an important innovation: the application of CMOS chip technology in testers. Chairman and CEO Alex d'Arbeloff realized that the new technology could lower tester costs dramatically and thus had the potential to disrupt Teradyne's core business. But CMOS technology could not initially operate at the performance levels demanded by Teradyne's best customers. Consequently, none of the operating divisions would work on the project.

So d'Arbeloff established a separate unit to develop the new technology. However, even with the autonomy given to the management team, the technology was initially framed as a low-cost version of the traditional product, one that would be marketed to Teradyne's traditional customers. Motivated by the threat to the core business and encouraged by the CEO's personal involvement, the management team repeatedly asked for heavy, upfront investments of resources.

D'Arbeloff's response was critical. He pushed them to find new markets and new opportunities that would value the unique attributes offered by the CMOS technology. And he committed additional resources only when the management team identified and began developing new markets. Rather than pour money into the initial framing, he helped managers learn to see precisely how new customers would value the new technology by withholding money until those new values emerged. Because they did not run full speed down their initial path, they were better able to avoid early failures.

Threat induced behavior tends to put too much emphasis on the initial (and usually incorrect) response. Opportunity-focused behavior can easily fall into the same trap. Financial commitment to these ventures should be significant, but they should be staged in a way that lets the management team get the framing right. That's how most venture capitalists finance start-ups. They may commit to a large total investment, but they deploy that capital only as the business model is sharpened and the market is better understood.

Cultivate outside perspective. A common mistake companies make is to rely on employees from the core organization to staff new ventures. Using these employees is tempting: They are close to the issues, and the hiring managers usually have some previous experience working with them. However, they are grounded in work processes and decision-making patterns that may be dysfunctional in the new environment. Their thinking is also likely to remain focused on the core market, even though they are separated from the parent organization. Our research on the newspaper industry indicates that the greater a manager's experience away from the core organization, the less likely that motivation remains focused on the threat to the core organization.

Appoint an active integrator. In ventures that develop an independent, opportunity-framed perspective, there is generally an executive who acts as an integrator, actively managing the tensions between the parent and the new venture. At Teradyne, the CEO performed this role, but a divisional manager or even the head of the venture are equally likely candidates. What's important is that this manager has high credibility in both organizations.

Integrators serve as mediators between the new venture and the parent organization. When the new venture needs access to the parent's resources, the integrator can prompt the parent's response by instilling an active sense of threat in the core organization. By the same token, when the core organization seeks to focus the venture's considerations on the existing business, the integrator can intercede and protect the new unit. In short, this mediator manages the framing across both organizations. As one manager describes his role: "I didn't focus people on the threat, especially those managing the new business. Where I did emphasize the threat was in working with the parent organization to get them off their butts and in arguing for resources."

Modularize integration. There is a powerful tendency for established organizations to overemphasize the potential for integration and synergy between a newly launched business and the core business. When disruptive technologies are first exploited, they are applied in new ways with new customers. Over time, as the new technology is improved to permit the new business to move up-market, there may be increasing opportunities in sales, production, and other functional areas to leverage resources between the old and new businesses.

The integrator can help facilitate this process, or a small team from one of the organizations can do it. In either case, two points need emphasis. First, it's important not to jump the gun. When the new business is launched, there are likely to be few areas of integration, and expectations otherwise will be distracting—perhaps even debilitating—for the new venture. When integration does start to happen, the two organizations must retain their own work processes even as they collaborate. The New York Times Company has had some success here: NYTimes.com is now the leading source of print subscription sales. And the company's print and on-line sales forces have collaborated to put together ad bundles for leading print advertisers, including Tiffany & Company and Bloomingdales. In both cases, while the unique capabilities required in the print and online organizations remained distinct, the groups were able to operate in tandem.

A modular approach to integration can leverage existing synergies without damaging the independent work processes in either organization. As the head of HR at one organization says, "You can't know beforehand where the points of integration will lie, you just have to let it emerge itself. Set up a structure and let the organizations figure it out themselves."

Consider acquisitions. Developing a new context for a new venture is extremely challenging, particularly when the core business remains viable. Managers should therefore consider acquiring an already successful company in the new market environment. That organization will likely have established its own focus on growing the new opportunity, which can be maintained without putting the parent organization on the defensive. An integrator can still mediate between the new business and the established franchise. The new organization could even hire a small group from the established organization to aid in leveraging potential shared resources. Johnson & Johnson has done this effectively with many of its health care companies—acquiring separate platforms of growth and leaving them largely independent. Knight Ridder and the Tribune Company have done this with some success in the acquisition of on-line recruitment sites CareerBuilder and Headhunter.net. Of course, it's still possible that rapidly integrating a new acquisition may destroy the unique capabilities of the venture. But acquisitions can create a new platform for growth while decreasing some of the legacy challenges associated with the established business.

In its early stages, a disruptive innovation doesn't perform as well as the product it eventually displaces. Nor does it deliver profits at the same levels or through the same mechanisms. Consequently, incumbent organizations tend to ignore the innovation for far too long. Even when people within the organization warn of the impending change (and somebody nearly always does), their warnings are usually ignored. One tactic for forcing the organization to pay attention is to label the innovation as a threat to the company's survival; that approach tends to free up resources and create organizational commitment.

But that also turns out to be a devil's bargain. People who feel threatened tighten up. They have trouble thinking creatively. They spend the freed-up money on the wrong things and at the wrong times, trying desperately to keep their old business alive rather than inventing a new one. We've suggested several ways to get around this dark side of framing a challenge as a threat: building a separate organization where it's possible to reframe it as an opportunity; funding the new business in stages as new markets emerge rather than all at once; and continuing to pay attention to the old business. As managers learn to frame innovations in a more nuanced, balanced way, they can unlock the potential of both the old and the new.

Corporate Venturing Advice

Academics and consultants have spent a great deal of effort studying internal corporate ventures, and they've arrived collectively at some solid truths. Unfortunately, people who are responding to a threat often act in ways that run counter to the perceived wisdom.

For example, research shows that staging capital in limited rounds of investment helps an organization learn and adjust as a new venture develops. When managers frame their efforts as a response to an external threat, they often deploy resources in large, single-stage commitments. Similarly, we know that new ventures require learning from all levels of the organization. But when threatened, most executives tend to tighten authority and restrict decision making to top management. Finally, entrepreneurship requires the "pursuit of opportunity without regard to the resources currently controlled," as our colleague Howard Stevenson puts it. But threat-motivated responses almost inevitably refocus considerations on the existing resources, blinding managers to new and independent opportunities. Thus, while threat-induced behavior does trigger deep response and commitment, it also makes it that much more difficult to implement what we have learned from the research on corporate venturing.

Excerpted with permission from "Disruptive Change: When Trying Harder is Part of the Problem," Harvard Business Review, Vol. 80, No. 5.

Excerpted with permission from "Disruptive Change: When Trying Harder Is Part of the Problem," Harvard Business Review, Vol. 80, No. 5., May 2002.

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