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Monday, May 16, 2005
Antonio: Reacting to a rival's innovation
By Kiko Antonio
Night manager
DEFENSIVE. 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. How you frame that challenge inside your organization controls how resources are allocated to respond. The leader must frame the competitor's action as both a threat and an opportunity.
Across the newspaper industry, according to Harvard Business School professors Clark Gilbert and Joseph L. Bower, 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, their 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.
It's important to note that calling a business separate and making a business separate are two different things. The tendency for the established organization to assert control over the decision-making processes of the new venture keeps 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.
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.
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.
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.
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. (kiko_antonio@yahoo.com)
(May 16, 2005 issue)
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