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 / Summer 2005 / Issue 39(originally published by Booz & Company)


Top-Down Disruption

In contrast to bottom-up disruptions, there doesn’t seem to be a single, general explanation for such failures. Sometimes, the cause is simply the myopia that often afflicts successful companies: They become so focused on fine-tuning their existing business that they overlook fresh opportunities entirely. In other cases, big companies have so geared their operations — and their managerial assumptions — to serving the mass market that they can’t imagine launching a premium offering to a relatively small group of buyers.

And then there are the various internal business conflicts that can prevent a large company from taking the risks required to branch out into a new market. By the time MP3 music players debuted, for instance, Sony was no longer just a consumer electronics company; it also owned such major record labels as Columbia, RCA, and Epic. Knowing that the digital players would often be filled with illegally copied songs, Sony’s management was naturally nervous about taking the lead in promulgating the spread of the new devices. Apple, a newcomer to the music business, had no such compunctions. Moreover, Apple was in a far better position than Sony to negotiate distribution arrangements with all the major record labels, enabling it to spearhead the legal sale of downloadable songs through its iTunes Music Store.

The investments required to shift into an uncertain new business can also be hard for established companies to justify. At the time FedEx launched its next-day air service, UPS had for years devoted its capital to expanding its ground transportation system, particularly the fleet of brown trucks that formed the heart of its operation and image. The company’s two-day “Blue Label” air service was very much a sideline; rather than operate its own planes, UPS simply rented space in the cargo holds of commercial jets. The cost and risk of buying and maintaining a fleet of aircraft — in effect, running an airline — were simply inconsistent with UPS’s heritage and strategy. It was not until 1981 — 10 years after the founding of FedEx — that UPS purchased its first cargo plane.

Clearly, entrepreneurs and other new entrants have advantages in instigating top-down disruptions. With less baggage and fewer internal conflicts, they can often act more quickly, more creatively, and with greater focus.

But that doesn’t mean that established companies are fated to lose. For all their constraints, they often have important advantages of their own: strong distribution systems and sales forces, ready access to investment capital, and deep knowledge of the marketplace. In many cases, moreover, they may already have an “in” with the high end of the market. Wealthy, fashion-conscious buyers may be part of their traditional customer base, or their brands may carry connotations of quality and prestige. By understanding the dynamics of top-down disruptions — and how they differ from those of the bottom-up variety — managers of big companies will be better prepared to temper their weaknesses and make the most of their strengths.

The playing field, in short, is much more level for top-down disruptions than for bottom-up ones. Simply by recognizing that disruptive innovations can take two very different forms, managers will expand their options, both defensive and offensive. As a result, they’ll be more likely to lead their companies successfully through tumultuous times. No one’s immune to the consequences of a top-down disruption, but no one’s excluded from fomenting one, either.

Reprint No. 05203

Author Profile:

Nicholas G. Carr ([email protected]), a contributing editor to strategy+business, is the author of Does IT Matter? Information Technology and the Corrosion of Competitive Advantage (Harvard Business School Press, 2004).
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