For an example of the Constructive Transformation paradigm in action, consider the digital media company RealNetworks Inc. Founder Rob Glaser left Microsoft in 1994 after a decade of higher and higher executive roles that had made him a millionaire. Drawing upon a long-held avid interest in progressive political issues and his deep knowledge of technology, in 1995 he started Progressive Networks to use the nascent World Wide Web to broadcast his liberal views, much as televangelists had leveraged cable TV in earlier decades.
But when his exploration led him to an examination of the early Web browser Mosaic, he concluded that the channel could be more important than the message. Glaser also quickly determined that the limited bandwidth of the early Web would constrain the channel to audio, so he decided to put plans for video on hold. Applying the affordable-loss principle, he converted Progressive Networks into a software developer, which created Real-Audio 1.0 in less than a year, largely using his own financial resources. RealAudio initially broadcast progressive content from ABC News and National Public Radio, and was soon released as part of the Navigator Web browser package from then-dominant Netscape. RealAudio served as a general-purpose channel, adapting broadcast media to the computer; it was a precursor to the audio download models of Apple’s iTunes music store in 2003 and Amazon MP3 in 2007.
In December 1995, Glaser learned that a two-person startup in San Francisco was forging ahead with an Internet videoconferencing tool developed while RealNetworks had been focusing on audio. Rather than letting this negative surprise upset his plans, Glaser simply encouraged the founders of the company to join RealNetworks, which led to the next product, RealVideo.
Throughout its history, RealNetworks has formed a network of partnerships that allowed it to survive the constant power struggles of the Internet economy. And, by following the effectual mind-set of Constructive Transformation, Real-Networks has grown to provide a collection of software products encompassing audio and video streaming, mobile applications, and gaming, which together generate some $400 million in revenues annually.
Each of the three models of decision making works best under different circumstances. Most managers have a preference based upon their own experience and success in applying a given strategy paradigm. The long dominant Planning and Positioning model has lost favor in parallel with the decline of the highly diversified conglomerate. For example, though Harold Geneen built ITT into a global behemoth during his 17-year reign, his successor, Rand Araskog, spent the next 16 years divesting many of the far-flung business units and restructuring the company into three more narrowly focused businesses in hospitality, insurance, and industrial products. The first was ultimately acquired by Starwood, the second was spun out as the freestanding Hartford Insurance Company, and the third retains the ITT moniker, with revenues of $12 billion per year — significant but well below its peak from 35 years ago, even without adjusting for inflation.
Despite the Organizational Learning model’s long and successful history at Corning, the stock market does not always appreciate it. Many analysts still argue for the focus and predictability of Planning and Positioning because they can alter the portfolio to diversify for changing risks over time. For example, Corning faced a near-death experience only a decade ago. Because the company had doubled down in the telecom sector during the Internet bubble, its stock rose from less than $10 per share in 1998 to more than $100 in 2000, before crashing back to less than $1.50 per share by 2002. But, with the help of the Houghton family, the company recovered from the mistake — and retained the senior management team, under the premise that they had learned to avoid making a similar mistake in the future.