HBR On Strategy: Strategies for Competing with a Tech-Driven Insurgent

Episode Release Date: December 4, 2024
Host: Harvard Business Review (HBR)
Guest: Professor Julian Birkinshaw, London Business School

Introduction

In the episode titled "Strategies for Competing with a Tech-Driven Insurgent," hosted by Alison Beard of the HBR IdeaCast, Professor Julian Birkinshaw from London Business School challenges the prevailing narrative that traditional companies are inevitably succumbing to the rise of tech disruptors. Through a data-driven analysis and insightful discussions, Birkinshaw elucidates the strategies that incumbent giants like JP Morgan, Disney, and Procter & Gamble employ to not only survive but thrive amidst technological upheavals.

Challenging the Disruption Narrative

Alison Beard opens the conversation by highlighting the common perception of relentless disruption led by tech giants:

"There’s been a big fuss made about disruption in recent years. Tech-enabled startups are taking over the world and old economy companies just can’t compete."
— Alison Beard [02:19]

Julian Birkinshaw counters this viewpoint by presenting empirical evidence:

"When you look under the hood at the number of companies which have genuinely come out of nothing to become members of that club [Fortune 500], it is a tiny number."
— Julian Birkinshaw [03:30]

Birkinshaw’s research indicates that out of the current Fortune 500, only 17 companies are newcomers in the past 25 years, including giants like Netflix, Google, Amazon, and Facebook. The remaining 483 are well-established firms that have maintained or grown their positions despite the rise of tech disruptors.

Incumbents' Strategies to Combat Disruption

Birkinshaw outlines four key strategies that incumbent companies adopt to navigate and counteract the threats posed by tech insurgents:

1. Fighting Fire with Fire

A direct and proactive approach where incumbents engage competitors on the same terms.

"If you are Walmart, let's say your only strategy, they would argue, is to fight fire with fire, to take Amazon on at its own game."
— Julian Birkinshaw [09:27]

Example: The New York Times successfully transitioned to a digital subscription model, amassing approximately 8 million online subscribers, thereby surpassing its legacy in the print domain.

2. Doubling Down

Leveraging existing strengths to reinforce market position without directly challenging the insurgent's domain.

"Doubling down says we are a successful company in our own right. We have assets that this new company cannot possibly match."
— Julian Birkinshaw [10:26]

Example: Disney chose not to immediately enter the streaming market when Netflix emerged. Instead, it invested heavily in acquiring high-quality content creators like Marvel, Pixar, and Lucasfilm, building a robust content library that became a cornerstone for Disney+’s success.

3. Retrenchment

A defensive strategy focused on consolidating and protecting existing market share rather than expanding into new territories.

"Retrenchment means sort of pulling back a little bit, consolidating our existing position, possibly through merger, acquisition, lobbying, through regulation..."
— Julian Birkinshaw [13:12]

Example: JP Morgan and other major banks have engaged in mergers and acquisitions of regional banks to strengthen their market presence and counter fintech challengers. Additionally, they collaborate with regulators to navigate and mitigate emerging threats like blockchain technology.

4. Moving Away (Migrating Away)

A strategic pivot where companies transition resources from declining areas to new opportunities, often as a last-ditch effort to survive.

"Moving away is a strategy which says as long as I'm smart and proactive about it, I can find a way of almost rebalancing my portfolio..."
— Julian Birkinshaw [16:00]

Example: While Birkinshaw did not cite a specific company here, the general concept applies to firms like Kodak, which struggled to adapt to the digital revolution, ultimately failing to reposition itself successfully.

Case Studies and Practical Examples

Professor Birkinshaw delves into specific examples to illustrate how these strategies manifest in real-world scenarios:

• Disney vs. Netflix: Instead of directly competing with Netflix’s streaming model early on, Disney focused on content acquisition, which later provided a competitive advantage once it launched Disney+.

• JP Morgan vs. Fintech: By merging with regional banks and engaging with regulatory bodies, JP Morgan has fortified its position against fintech startups without overhauling its core banking operations.

• ING Bank (Europe): Recognized for reengineering its internal processes using agile methods, enabling it to adapt swiftly to market changes.

• Haier (China): Exemplifies a successful reinvention of operational strategies to maintain competitiveness in the white goods industry.

Sector-Specific Insights and Future Outlook

Birkinshaw discusses how different sectors face unique challenges and timelines concerning disruption:

"Disruption of industries happens on both the demand side and the supply side."
— Julian Birkinshaw [28:36]

• Demand-Side Disruption: Rapid changes driven by consumer behavior and technology, such as streaming services altering media consumption.

• Supply-Side Disruption: Gradual transformations in production and operational methodologies, exemplified by the shift from traditional pharmaceuticals to biotechnology.

Birkinshaw emphasizes that while some sectors experience swift disruptions, others adapt over decades, allowing incumbents sufficient time to strategize and implement necessary changes.

Furthermore, he addresses the role of regulation in maintaining competitive balance, especially concerning dominant tech giants like Google, Facebook, Amazon, and Microsoft. He suggests that thoughtful regulatory frameworks are essential to prevent monopolistic dominance without stifling innovation.

The Role of Startups and Smaller Companies

Addressing concerns about the sustainability of startups amid strong incumbents, Birkinshaw provides a balanced perspective:

"There is absolutely, and let me avoid anybody so say criticizing me on false grounds, both narratives are true."
— Julian Birkinshaw [21:46]

While acknowledging that some startups will rise to prominence, he cautions that reaching unicorn status does not guarantee lasting success. The majority of new entrants may not endure, aligning with the natural economic order where only a fraction of startups evolve into enduring powerhouses.

Moreover, Birkinshaw notes that mid-sized companies often face more immediate pressures from disruption, typically resulting in mergers or acquisitions rather than outright failures.

Economic Implications and Workforce Considerations

Birkinshaw touches upon the broader economic and societal impacts of corporate strategies against disruption:

"There is this nagging worry in terms of welfare and job creation that somehow the amount of inertia that I see in the system is unhealthy."
— Julian Birkinshaw [24:38]

While some express concerns that large, resilient incumbents may stifle innovation and job creation, Birkinshaw remains optimistic. He believes that the dynamic marketplace fosters new ideas and corporate controls, ensuring that startups continue to emerge and incumbents remain agile.

However, he concedes that certain sectors, particularly those dominated by big tech, might require increased regulatory oversight to prevent unchecked dominance, ensuring a healthy competitive landscape.

Conclusion

Professor Julian Birkinshaw’s insights present a nuanced view of the interaction between traditional incumbents and tech-driven insurgents. By dissecting the four key strategies—fighting fire with fire, doubling down, retrenchment, and moving away—Birkinshaw demonstrates that established companies possess the tools and flexibility to navigate the challenges posed by technological advancements effectively.

Moreover, his analysis underscores the importance of strategic choice and regulatory frameworks in shaping competitive dynamics, emphasizing that disruption is not an inevitability but a complex interplay of choices, circumstances, and proactive management.

For business leaders and strategists, this episode offers a roadmap to understanding and implementing effective strategies to ensure long-term success in an ever-evolving digital landscape.

Notable Quotes

• "When you pick up the business press, it is full of these big companies."
  — Julian Birkinshaw [05:14]

• "Strategy is always about choice. The essence of strategy is making choices by default."
  — Julian Birkinshaw [18:49]

• "There is a vigorous marketplace for new ideas, there is a vigorous marketplace for corporate control and those allow the startups to come through."
  — Julian Birkinshaw [24:38]

Final Thoughts

This episode of HBR On Strategy provides a comprehensive examination of the resilience and adaptability of incumbent firms in the face of technological disruption. By leveraging empirical data and real-world examples, Professor Birkinshaw offers valuable strategies and perspectives that challenge conventional wisdom, encouraging businesses to adopt a more informed and strategic approach to competition and innovation.

For those interested in mastering competitive strategy and understanding the dynamics between traditional and tech-driven companies, this episode serves as an essential resource.