Wharton’s Saikat Chaudhuri talks about how firms can navigate digital disruption.

In the digital era, even companies that have distinguished themselves as disruptors cannot afford to rest on their laurels. If they do, they face the chance of being disrupted themselves. Saikat Chaudhuri, executive director of the Mack Institute for Innovation Management and an adjunct professor of management at Wharton, examines this issue in his latest white paper, co-authored with Mack Institute research associate Pragna Kolli, titled: “Navigating Digital Disruption: How to Thrive Through Innovation Management.” Chaudhuri recently discussed the paper’s conclusions on the [email protected] show, which airs on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

Digital Disruption

An edited transcript of the conversation follows.

[email protected]: Tell us about the paper and what you were looking to accomplish?

Saikat Chaudhuri: If I may take a minute and just let people know about the Mack Institute, it will give the context. [Our focus is] on innovation management. Our mission is to promote thought leadership on managing innovation but also applied to practice…. What we really focus on is less the startup phenomenon, and more what the established industry leader faces. All these firms you hear about that are at the top, including the likes of Google, are no longer the agile disruptors but are being challenged by others. I have to give a shout-out to Pragna Kolli, who’s a research associate at the Mack Institute and an MBA alum of ours. She did a lot of the heavy lifting for the paper. Now, to your question.

I think that delving into it, digital disruption is something that’s across the board, across sectors affecting all kinds of firms. What do we mean by that? We have the cloud, we have big data, we have automation, we have artificial intelligence, robotics, additive manufacturing, mobility. What’s important about that is they are fundamentally changing the nature of products, processes and business models across different firms and industries, thereby posing a challenge but also an opportunity.

[email protected]: But if you look historically, this disruption is not something that’s catching people off guard. If you go back 30, 40 years when the computer was just coming out, that was disruption. That truly was catching people off guard. Isn’t this something different?

“All these firms you hear about that are at the top are no longer the agile disruptors but are being challenged by others.”

Chaudhuri: It is. I think you’ve hit upon two points that would seem perhaps paradoxical to people. On the one hand, digital disruption is another form of disruption. In that sense, there’s a lot we can learn from past disruptions. Disruptions happen from time to time. Each one has its unique flavor, and this one happens to be based on digital technologies. When we moved from vacuum tubes to semiconductors, that was a revolutionary technology that changed the course of the semiconductor industry and computing. What’s different about this is we can see it happen. It is nonetheless challenging.

In some sense, people would argue it is more challenging because the pace at which the developments are occurring are different. A lot of incumbents are being displaced. Just look at the taxi industry and what Uber is doing to them, or the hotel industry and Airbnb. That’s just on the front end. In the medical fields, we have things happening. In fintech, you’ve got peer-to-peer potential through social media, which is challenging to the banks because it may disintermediate them. What’s good about this for the incumbents is, as you note, we can observe what’s happening.

Secondly, in many areas you could imagine an ecosystem of players emerging. It’s not going to be just get rid of the old and replace with the new. In finance, you’ll see that. It’s unlikely due to compliance and regulation that all the banks are going to disappear. But what might happen, and we see this happening already, is partnerships between banks and small startups, or acquisitions of the like or relationships of that sort. Whole ecosystems may compete, but both have to combine. Same thing in the auto industry.

[email protected]: It means the companies have had to shift quickly on their expectations, their growth strategy, what their focus is 10, 15 years down the road. There are so many other competitors trying to get into specific sectors and surpass what something like Google or Amazon have done.

Chaudhuri: Yes, I agree with you entirely. A lot of it is about shifting mindsets. It’s always been like that when you have a challenge. I want to give credit to the participants of a conference we hosted at our San Francisco campus last year on digital disruption. The participants there informed a lot of this white paper. The insight that came from it is that, indeed, you have to shift your mindset. But more than that, maybe reshift the priorities and mission of the firm. Nissan, for instance, thinks of itself more as a mobility solutions company now as opposed to a carmaker because the way people consume cars or use them might change in the era of autonomous vehicles and ride-sharing. They have to re-conceptualize what they do and add the services for it.

[email protected]: You mention Kodak and what they could have been if they would have made the shift to digital and not continued to rely on the traditional film camera. They had the technology waiting for them, ready to advance it, and they didn’t do it.

Chaudhuri: Yes, that’s part of the pain. Oftentimes the innovators are the ones that come up with things. The auto industry has that example, too. GM and others were the ones who worked on alternative sources of fuel. It was the Japanese makers who really took that and commercialized it. But coming back to Kodak, that’s the classic example of disruption. We go back to it not only because it displays all the dynamics of the difficulty — we call it the inertia of not only observing but also reacting to the changes — but it was literally a digital disruption because we moved from chemical imaging to digital imaging. This played out over about a decade. The power of digital didn’t really come into being in photography until we got the internet because then sharing became more important than image quality. What’s unique about that case, and why it was both sad but also gives hope, is that Kodak could have responded at many junctures.

The other example here is Blockbuster and Netflix. It’s been a number of years now since we’ve had Netflix around. But it’s not that old in the grand scheme of things. Blockbuster had the opportunity to buy Netflix at one point, but they chose not to. Their offering online didn’t work out. Netflix did, and that’s more the decision-making that led to problems.

[email protected]: Let’s just theorize for a second that Blockbuster does buy Netflix. Does that combined entity become as big as Netflix is now, or would the structure that Blockbuster had in place taken down both of them?

“You can’t foresee the world and where it’s headed; you have to respond and react quickly.”

Chaudhuri: You’re getting to a subject

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