London Business School’s Julian Birkinshaw discusses the benefits and drawbacks of four key strategies — and how to decide which one best fits your organization.
But London Business School professor Julian Birkinshaw says that story of disruption and destruction is overblown. His research into Fortune 500 and Global 500 organizations shows that, despite the rise of a few tech giants like Amazon and Google, many industries haven’t been radically remade. JULIAN BIRKINSHAW: So I’d always had this nagging worry that the narrative of disruption, where the big established companies were dinosaurs, was overplayed. So I went back to the data. I simply took the Fortune 500 list, which as you all know is the top 500 companies in the US, by sales.
JULIAN BIRKINSHAW: There’s two or three things going on, right? One is, absolutely. When you pick up the business press, it is full of these big companies. There’s a couple of other points going on as well. Which is that, they are not just big, they are also sort of reaching across a number of different industries. So there’s this sort of hypothesis that Amazon, for example, or Google, are not intent just to stay in their chosen sector.
And then of course, you do have other companies which were perhaps were not quite so well known before, who have become famous for kind of dramatically reinventing how they work. I live in Europe, ING Bank in the Netherlands, for example, has become very famous for its phenomenal kind of rethinking of its internal processes, using agile methods.
ALISON BEARD: So let’s talk about those different strategies for combating all the threats that are coming at you. You talk in the article four, so maybe we should go through them one by one, and talk about the pros and cons of each? So Disney is the great example of that, right? We all know the Netflix story now, and this is told so often, but there is actually a side to that story which not everybody knows, which is around 2005, 2006. This is of course when Netflix was really starting to ramp up its streaming service, it became really possible for us to watch movies on demand. And Amazon was starting to play Amazon video game, at that point as well.
The first is what I call, retrench. And so, this is an incumbent company recognizing that there is an insurgent, there’s a new upstart who is eating into their existing market. Retrenchment says, “I accept that that is happening. And I realize that I don’t really have the skills to compete with them directly. But it is a heterogeneous, large market in which I operate.
So, what does one do? If the market which you used to be, see as your own, is shrinking and is being taken over completely by digital players? Well, moving away is a strategy which says, “As long as I’m smart and proactive about it, and as long as I have a little bit of luck going with it, I can find a way of almost sort of rebalancing my portfolio, taking resources out of the things which are being destroyed, and moving them into areas where I have a shot.
But at some points you have to put your bet on the horse, the main horse, that is going to sort of see you through here. Because strategy is always about choice. The essence of strategy is making choices by default, doing something which involves taking money away from certain things, and doing other things.
ALISON BEARD: Yeah. I know you haven’t studied this, but do you think that there’s more disruption in the small to medium sized business area? JULIAN BIRKINSHAW: That’s right. I mean, there is this nagging worry, in terms of sort of welfare and job creation. That somehow, the amount of inertia that I see in the system, is unhealthy. And I can see those arguments, but I’m much more optimistic actually, that the process of creative destruction, of having, and this is the US and the UK, particularly. I mean, other parts of the world have tighter labor markets, probably more restrictive rules about startups.
Strangely, I think Apple is less of a threat, in terms of absolute dominance, but that’s a personal view. And not Tesla either, by the way. It’s a separate conversation, but I don’t see any scenario where Tesla dominates its sector in the way that Google, Facebook, Amazon, and Microsoft will dominate their sectors.
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