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Go Disrupt Yourself

Daniel Gross

Daniel Gross is executive editor of strategy+business.

 

Last week, as I am wont to do, I jetted over to London for 36 hours to interview the CEO of a multinational company. We discussed the universal topic that is both the greatest fear and the greatest imperative for companies that have become accustomed to a dominant role on the world stage — disruption. And he said something that, at first, struck me as a glib throwaway line: He likened the attempts of established, giant companies trying to take on upstart competitors by reinventing their own modus operandi to “changing the engine on an airplane while the plane is flying.”

Still, when you ponder a glib throwaway line, you can often uncover something profound. That became evident the next day as my return flight hurtled across the Atlantic at 500 miles per hour while battling a stiff headwind.

A jet airplane is the definition of meticulously designed, highly engineered, performance-tested, mission-critical machine poised to weather the elements. The engine is its beating heart, without which it literally couldn’t stay aloft or move forward. And for all our technological brilliance — we can refuel planes easily and maneuver them by autopilot, use computers to control routes, and deliver Internet connectivity 36,000 feet above the earth — there are a couple of things humans have yet to figure out how to do: (1) deliver edible food on long-haul flights; and (2) swap out an engine while a jet is on the go.

That explains why, for all the bold talk about the need for self-disruption, the cases in which large, complex companies have managed to disrupt themselves are vanishingly small. And by self-disruption, I mean not simply embarking on a new direction or strategy, but rather installing a new, functional growth engine while going full-speed ahead. Pivots and game-changing and shape-shifting acquisitions? Yes. New products and services? Absolutely. But upgrading from propellers to jet while in motion? Very few.

In fact, only one example stands out above all: Netflix. Easy to forget that as recently as six years ago, this juggernaut of streaming and content creation was almost exclusively a DVD-by-mail business. But CEO Reed Hastings saw the digital writing on the wall. In fact, when he cofounded the company in 1997, he knew that it would deliver its products over the Internet — hence the name Netflix. Nearly 15 years later, the advent of powerful tablets and phones, fatter broadband pipes, and more robust wireless access enabled streaming video as the default mode of viewing video rentals. DVDs by mail, heretofore an amazing inconvenience, would be rendered obsolete. But rather than shut down the business, or pivot into an unrelated area, Netflix used its resources, brand, and cash flow to invest in streaming. “The future is brightest by focusing on streaming,” Hastings told investors in late 2011. The results: Netflix is the dominant player in the booming streaming business, with about 75 million subscribers, and the stock has tripled in the past five years. Hastings has become something of a folk hero.

Furthermore, for every successful tale of self-disruption, there are a dozen that didn’t end well. In December 2015, David Crane, the longtime chief executive officer of electricity giant NRG, resigned. Crane was a visionary in the staid utility industry. His company, the largest unregulated producer of electricity in the country, owned one of the largest coal-burning fleets of power plants in the country. But he could see the writing on the wall: In the future, emissions might be limited or taxed, while innovations and incentives in renewables would fundamentally alter the business case for green energy. And so he set out to remake the company on the fly. Crane declared that NRG would be a leader in the low-emissions energy future, spoke out forcefully on the need to address climate change, and pushed the company to invest heavily in renewables. Of course, NRG tried to swap out its engine as a time when demand for power was generally muted, prices for electricity were falling to the abundance of natural gas, and large upfront investments in renewables didn’t yield immediate results. In an environment in which investors focus intently on quarterly results, the change didn’t come fast enough. Crane was pushed out, officially stepping down in January 2016. “I did not succeed in leading you, as I said I would, to making NRG that shining city on the hill, that beacon of light in the energy industry that would guide the way for the rest to follow,” he told employees. Put another way, his attempt to switch NRG’s engine from one that ran on conventional fuel to one that ran on green fuel didn’t work.

Of course, self-disruption is easier when your company aircraft has a bunch of engines instead of one.

Of course, self-disruption is easier when your company aircraft has a bunch of engines instead of one. If you have multiple power sources, you change them sequentially. In so doing, over time, the company can evolve. That’s the very path we’re seeing at a certain self-disrupting company that actually owns a jet engine unit: General Electric. In the past decade, CEO Jeff Immelt has set about to remake the conglomerate so it can compete in an increasingly digital world. He sold off the flagship media and broadcasting units, and has aggressively shrunk the once-dominant financial services unit. In the ultimate act of self-disruption, the company announced earlier this year that it would move from Fairfield County to downtown Boston — the better to emphasize its new identity. GE’s self-disruption hasn’t been instantaneous. But in 2017, GE will be a much, much different company from what it was in 2007 — not quite unrecognizable, but certainly disrupted, and powered by a new set of engines.

Can you think of any examples of companies, big or small, contemporary or historically, that have successfully swapped out their engines on the fly? I’m taking nominations at [email protected].

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Go Disrupt Yourself