Strategies for Competing with a Tech-Driven Insurgent

HANNAH BATES: Welcome to HBR On Strategy, where we dive deep into enlightening case studies and dynamic conversations with the brightest minds in business and management. Our expert insights are your key to unlocking innovative strategies that can transform your company.

Over the last ten years, if you’ve followed the headlines, you might think that legacy companies are on a fast track to extinction, sacrificed to the digital juggernauts. However, here’s a twist: according to renowned business strategist and London Business School professor Julian Birkinshaw, the narrative of unchecked disruption is vastly overstated. His extensive research into the Fortune 500 and Global 500 reveals that many traditional firms haven’t just survived the tech storm; they’re thriving amidst it.

In this riveting episode, Birkinshaw lays out the strategies employed by titans like J.P. Morgan, Disney, and Procter & Gamble to not just endure competition but to thrive in it. He breaks down four pivotal approaches that established companies use against disruptive newcomers and provides a blueprint for deciding which strategy resonates with your organization’s unique needs.

Are you intrigued by the mechanics of competitive strategy? Then you won’t want to miss this episode, originally aired on HBR IdeaCast in February 2022. Let’s tune in!

ALISON BEARD: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Alison Beard. Today’s conversation centers on a provocative question: are we overly focused on the tech disruptions that threaten traditional industries? Our guest asserts that, in reality, many sectors have weathered this digital storm with remarkable resilience. Far from succumbing to doom, substantial businesses are not only surviving but creatively thriving in this new landscape. How, you ask?

Meet Julian Birkinshaw, a visionary at London Business School and the author of an eye-opening piece titled “How Incumbents Survive and Thrive.” Julian, we’re thrilled to have you!

JULIAN BIRKINSHAW: Thank you, Alison! It’s great to be here.

ALISON BEARD: Let’s delve into the heart of the matter: why is the popular narrative surrounding disruption so misleading? What did your deep-dive into the data reveal about the state of incumbents today?

JULIAN BIRKINSHAW: I’ve always felt that the view of established companies as mere dinosaurs facing inevitable extinction was exaggerated. So, I went back to the numbers. I examined the current Fortune 500 and asked: how many of these companies—those icons of American industry—were actually founded in the last 25 years? The answer? Just 17! Yes, you heard right: a mere 17 out of 500. Companies like Netflix, Google, and Amazon make the headlines, but the other 483 have stood the test of time.

ALISON BEARD: So are we, as business commentators, guilty of overlooking the impressive continuity that exists within these traditional sectors? Why are we so drawn to the narrative of disruption and upheaval?

JULIAN BIRKINSHAW: Absolutely! The business media suffocates us with stories of tech giants. But there’s more to the story. Oftentimes, these companies not only dominate their field, but they also encroach upon various sectors, leading the assumption that no industry is safe from disruption. It’s crucial to remember that, back in the late 90s, we feared many industries—including banking—were on the verge of collapse, and yet they remain standing strong today.

ALISON BEARD: Can you provide some shining examples of these resilient companies that have adapted to the modern business landscape without losing their footing?

JULIAN BIRKINSHAW: Sure thing! You may find my examples a bit traditional, but they’re compelling nonetheless. Q.P. Morgan, Procter & Gamble, and even the New York Times are giants who’ve reimagined how they operate. Also, don’t overlook the impressive transformation of ING Bank, which has adopted agile processes to revolutionize its operations. These cases exemplify how established players are not folding but rather engaging in what I term “internal creative destruction.”

ALISON BEARD: So, survival isn’t a matter of sheer size or legacy; it’s about strategy and adaptation against the tide of competition.

JULIAN BIRKINSHAW: Right on. Companies are employing multiple strategies simultaneously. While some lean on regulations for protection, most are proactively innovating and adapting to stay relevant in the face of fierce competition.

ALISON BEARD: Let’s explore the different strategies available. You’ve identified four main tactics that incumbents can consider to reclaim the competitive edge they need.

JULIAN BIRKINSHAW: Absolutely! The journey begins with Gary Hamel’s insightful notion that “out there, there’s a company forging a bullet with your name on it, and your only option is to shoot first.” To illustrate this, let’s take Walmart, which saw Amazon encroaching and made a strategic decision to fight back. A key example of this movement is the New York Times, which successfully transitioned into the digital era and now boasts around eight million online subscribers, surpassing its previous paper-based success.

ALISON BEARD: Of course, there are alternate avenues beyond direct competition. What other proactive strategies can these incumbents implement?

JULIAN BIRKINSHAW: I’ve categorized these strategies into a matrix. A proactive approach could be called “doubling down,” where a company leans into its strengths instead of playing the insurgents’ game. Disney exemplifies this: instead of rushing into streaming, they invested in high-quality content by acquiring Marvel, Pixar, and LucasFilm, fortifying their treasure trove of valuable properties.

ALISON BEARD: Exactly. This masterful approach has forced competitors to create their own content in an effort to keep up.

JULIAN BIRKINSHAW: Indeed, and the competition grows fiercer every day. While proactive strategies are undoubtedly vital, it’s worth discussing defensive strategies, as many companies showed resilience through them as well.

ALISON BEARD: Absolutely! What are some examples of defensive tactics that companies should consider?

JULIAN BIRKINSHAW: The first is “retrenchment,” in which a company accepts the disruption and consolidates its current market position, often through mergers or regulatory engagement. Take Kodak and Polaroid’s struggles when digital photography emerged. Instead of surrendering, firms like Konica and Minolta merged to create a unified front. A modern example resides in retail banking institutions like J.P. Morgan, which continue to assert their reliability despite the rise of fintech challengers.

ALISON BEARD: And what of the “move away” strategy? Can that ever yield positive outcomes?

JULIAN BIRKINSHAW: Moving away, or essentially pivoting from a fading market, can be pragmatic. For instance, Kodak attempted digital transformation, but unfortunately, they failed. However, those who smartly migrate resources toward flourishing segments can find new opportunities and thrive.

ALISON BEARD: With so many potential paths to choose from, how should a company determine which strategy is most aligned with its objectives?

JULIAN BIRKINSHAW: Ah, therein lies the challenge! Expect ambiguity and seize the chance to experiment with various approaches. Companies can assign units to tackle direct competition while having others focus on strategic reinvention. Yet, wise strategy is about making choices—a crucial skill you’ll need to master in a constantly shifting landscape.

ALISON BEARD: So it seems like a few early tech firms have successfully navigated the Fortune 500 barrier, while established companies are diligently pursuing digital transformation efforts. Are there still avenues left for ambitious disruptors?

JULIAN BIRKINSHAW: Without a doubt! It’s a dual reality, with disruption undeniably occurring while many unicorns shine on the horizon. While a few may ascend to great heights, most will not survive the cutthroat world of business.

ALISON BEARD: And what about the challenges faced by small to mid-sized businesses in this landscape?

JULIAN BIRKINSHAW: Certainly, those businesses may encounter disruption sooner. In any stratified market, larger companies often weather the storm longer. They might lose ground, but often through acquisition rather than bankruptcy, indicating a healthy marketplace.

ALISON BEARD: What implications does this dynamic hold for consumers, employees, and the broader economy?

JULIAN BIRKINSHAW: A vital question! There are concerns that established companies may form an unhealthy inertia, hindering welfare and job creation. Nevertheless, I remain optimistic due to the vibrant marketplace for startup ideas, enabling new innovations to emerge and keeping incumbents vigilant.

ALISON BEARD: Still, what do we do about the tech behemoths making waves in our economy?

JULIAN BIRKINSHAW: Regulation is critical here! We need to explore ways to mitigate the overwhelming dominance that big tech firms exert over their sectors, ensuring fairer competition for all.

ALISON BEARD: If you had to pivot your focus to one worrying sector in need of attention, which one would it be?

JULIAN BIRKINSHAW: In my view, sectors experiencing disruption on the demand side—like media consumption and retail—demand immediate executive attention. However, we should remain vigilant about industries undergoing gradual supply-side disruptions like pharmaceuticals and automotive.

ALISON BEARD: Thank you for such enlightening insights, Julian—this has been an exceptional conversation!

JULIAN BIRKINSHAW: Thank you, Alison! It’s been my pleasure.

HANNAH BATES: That was London Business School professor Julian Birkinshaw in a thought-provoking dialogue with Alison Beard. We look forward to bringing you another insightful episode from HBR IdeaCast next week. If you found value in today’s episode, please share it with your friends and colleagues. Don’t forget to follow us on Apple Podcasts, Spotify, or wherever you consume your podcasts. Your feedback is crucial—leave us a review!

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This episode was brought to life by Mary Dooe, Anne Saini, and me, Hannah Bates. Our editor is Ian Fox. Special thanks to Maureen Hoch, Nicole Smith, Erica Truxler, Ramsey Khabbaz, Anne Bartholomew, and of course, to you—our listener. See you next week!