Response to Technological Disruption
Disruptive technology is an innovation that substantially transforms the way that businesses, industries, or consumers operate. As a result of having traits that can be recognized as superior, disruptive technology eliminates the habits or systems it replaces. Recent examples of disruptive technology include GPS systems, ride-sharing apps, Online news sites and e-commerce. During specific points in history, the television, electricity and automobiles were disruptive technology (Christensen, Raynor & McDonald, 2015). Technological disruptions supersede older habits, products or processes. Start-ups, rather than established organizations, are often the source of disruptive technologies. As the innovations experience continuous improvement as per the traditional performance parameters, they eventually displace the former technology. In an era o rapidly-paced technological advances, firms have to adequately respond to the disruption in their environment to survive. This paper looks into the effects of technological disruptions on organizations and what managers can do to properly respond to technological disruption.
Effects of Technological Disruptions in the Modern Organization
Innovations change the culture and production process of modern organizations. Also, technological disruptions make industries obsolete and make jobs redundant, while simultaneously opening the way for new ones. Technological disruptions have forced modern organizations to continually evolve, where change becomes a core competency if they need to continue operating. Despite this fact, technological disruptions do not impact organizations equally. This is because some organizations are adamantly opposed to change. Furthermore, as seen in the decline of US automobile giant General Motors, technological disruption not only disrupts companies but employees as well. This is because the skills and knowledge required two decades ago are no longer relevant in the modern digital economy.
For instance, considering that the majority of all auto-sector jobs have the potential to be completely automated, companies in the automobile industry are subject to substantial work changes, including complete termination. General Motors, in response to technological disruption in the automobile industry, recently laid off about a quarter of its executives, as well as close to 15,000 employees as it implemented organizational transformation (Mujtaba & Senathip, 2020). The changes implemented in the company included adding engineering and technology jobs to support the future of the automobile industry, which has its core in self-driving vehicles and electrification.
Other than General Motors, other car manufacturers are making internal changes to their workforce to catch up with disruptive technology such as autonomous vehicles and the replacement of internal combustion engines with long-lasting lithium batteries. Furthermore, many organizations are adjusting their existing infrastructure and workforce skill set by recruiting people with more automated skills and knowledge that is based on futuristic knowledge. Technological disruption, therefore, pushes organizations to invest more in positioning ahead of the disruption curve, as seen in increased investment in auto tech startups and tech-oriented employees by many organizations. Also, modern organizations are having their workforce disrupted by evolving skill sets, artificial intelligence and robots. In the case of General Motors, more and more resources are being allocated to programs that can yield autonomous and electric vehicles.
Furthermore, many organizations are cutting down production and development costs by slimming down their lines of products and integrating modularization into their manufacturing process. The result has been the closure of many plants by manufacturing companies, and the implementation of more efficient technology that allows the production of products that are of lower cost (Guo et al.,2019). Considering that disruptive innovations are usually low-cost alternatives, organizations that face competition from technological disruptors are usually forced to find ways to lower their production costs or their product prices to remain profitable. Additionally, the impacts of technological disruption can be identified by the level of aggregation. At the mesa and micro level, the displacement of big players in the industry can be seen. Examples of companies that have been displaced because technological disruption include Nokia and Kodak.
However, at the macro level, it is largely perceived to be a change in productivity. Technological disruptions cause the restructuring of markets, industries and organizations in a manner that favours newer and more productive organizations while displacing older, established firms. This phenomenon is well-visible at the mesa and micro levels of analysis. Nonetheless, the pushing out of less productive organizations from the market while promoting the entry of organizations that are more productive influences productivity at the macro level. Overall, technological disruptions compel organizations to work harder to retain their relevance and thereby push whole industries to be more productive.
Moreover, some of the changes in organizational culture brought about by technological disruptions include the phasing out of harmony and bureaucracy and harmony in many organizations in favour of meritocratic-like culture (Brettel & Cleven,2011). An example of the implementation of this organizational culture can be seen in the actions exhibited by modern CEOS who have introduced technological disruptions and resultantly, have dominated markets. Both Amazon’s Jeff Bezos and the late Steve Jobs, Apple’s CEO, were known to value frugality and believe that independent ideas are more important than collective thoughts. The Amazon CEO also uses data to inform his managerial decisions as opposed to using public opinion as to his primary source of information (Harracá & Coriat, 2017). As organizations become more rooted in technological innovation, Silicon Valley culture is spreading to many companies that are of different industries.
As the threat of being obsolete in a world that is becoming more automated grows every day, the departments responsible for developing technological innovations that could create value and give the companies a strong edge over their competition are getting increased pressure from managers. Thus, employees are being pressured to produce products that are more automated and that are more appealing to the Generation Zeds and Millennials that form the bulk of modern-day consumers (Harracá & Coriat, 2017). The result is that conformational and conflict are now perceived as healthy in many organizations. Also, employees are judged by their contributions to their organizations, and not by their loyalty or ability to be good team players. Workers describe these new cultures as thrilling, innovative, punishing, peculiar and bruising.
Furthermore, organizations are now more keen on reducing the size of their teams while keeping them more productive (Harracá & Coriat, 2017). However, a notable positive impact of technological disruption on organizations is that they are investing more in adopting and cultivating an innovative culture. Considering that organizations operating in markets where technological disruption is common to have to compete in an environment characterized by rapid change, such organizations have recognized innovation culture as a factor that is core to their success. Thus, many organizations have embraced a multidimensional approach to innovation that allows even bottom-level employees to front new ideas and be rewarded for it.
In addition, disruptive innovations pose a significant challenge to the survival of established companies, while at the same time giving startups more market share to the point that they dominate the market. Their business environment limits their pursuit of disruptive innovation when they first emerge because they are initially not considered profitable. Furthermore, disruptive innovations do not meet the desires and standards of mainstream customers. If the market demands better products, big companies would rather apply incremental innovations instead of disruptive innovation. Considering that disruptive innovations are initially more futuristic than they are relevant, organizations that invest in disruptive innovation require strong leadership to overcome market constraints until they are successful (Brettel & Cleven,2011). Thus, the fact that many big organizations are limited by their most profitable clients, they are restricted from investing in technological disruptions. Because of being “trapped” by their existing customers, technological disruption has led to the decline of many companies.
Therefore, one of the impacts of technological disruptions is the decline of organizations. Many originations have faced substantial reductions in profits and market share as a result of disruptive innovations. A case example is the replacement of Blockbuster by Netflix as the leading firm in the video retail industry. When Netflix was launched in 1997, it was a small company that delivered movies via a mail-delivery system. At the time, Blockbuster was worth over $ 6 billion and owned the movie rental business. Blockbuster went bankrupt by 2010 because despite being the incumbent with more financial muscle, it made a string of managerial decisions that could protect it from being toppled by a digital upstart (Newman, 2010). To begin with, Netflix’ cofounders Marc Randolph and Reed Hastings approached Blockbuster to try and sell their company to the video retail giant (Newman, 2010). However, they were summarily dismissed.
At the time, Blockbuster dominated the competition because of its efficient operations, massive marketing budgets, millions of customers, and thousands of retail locations. Thus, it was difficult to view “networks of unseen connections” as a threat. However, Netflix introduced technological disruption by avoiding retail locations, lowering expenses and offering its clients a substantially higher variety of video content. Also, Netflix offered subscriptions instead of renting videos, which made Blockbuster lots of money because it involved significant late fees. To compete with Netflix, Blockbuster would have to change its business model and ruin its profitability.
By 2004, Netflix had grown enough to be recognized as a potential threat by then Blockbuster CEO, John Antioco, tried to introduce a variety of organizational changes that would help the company compete with Netflix – these included Blockbuster Online and cancellation of late fees. These proposed changes would cost about $ 400 million (Newman, 2010). However, these proposals were considered as potential damage to profitability and he thus the board lost confidence in him. Shortly after, Antioco was fired and another CEO was appointed to reverse the changes he had implemented. Therefore, because Antioco had not constructed a network that could advance his ideas throughout the organization, and because he had initially failed to recognize the danger behind video streaming as technological disruption, he lost his job and the company went bankrupt five years later.
As seen in the case of Netflix vs Blockbuster, managers have to be aware of the changes brought about technological disruption. The changes include the displacement of products and market-leading organizations. Technological disruption also leads to the creation of new value systems and markets (Brettel & Cleven,2011). Part of the reason managers find technological disruption to be a difficult matter includes the fact that disruptive innovations have a higher risk of failure in comparison to the incremental sustaining innovations. In addition, technological disruption initially causes organizations to operate at a lower performance in comparison to what the mainstream market has historically demanded. However, once they are established, these innovations penetrate the market more quickly and build a more significant level of impact on the established markets.
Managers also must create a roadmap for their products- they need to come up with products that have higher performance traits such as greater portability, simplicity and speed. Considering that disruptive innovations are usually not valued by existing customers, managers must make the products succeed in a new value network. Thus, technological disruptions put intense pressure on managers to improve organizational performance, a factor that has caused increasingly high turnover in the managerial positions of many organizations that are either implementing technological disruption or that have to respond effectively to it to survive.
The Strategic Response That Modern Managers Need to Use
To adequately respond to technological disruption, incumbents are required to meet diverging demands from clients with a sophisticated process of innovations. The complex innovation process needed includes applying varying approaches to ecosystem development, deployment strategy, trials and experiments. Furthermore, for the response of an incumbent to succeed, this usually depends on its capacity for misalignment, which gives them the allowance to manage the inconsistencies in resource configuration, structure and strategic direction with a complex innovation process (Khanagha et al.,2018). For large multinational enterprises, they usually have to deal with the fact that their branches are established in multiple environments with varying demand requirements and technological sophistication.
Thus, this situation leads to varying projections for the future in separate units of the organization. Thus, while there may be consensus across a firm that there is a need to respond to technological disruption, there could be substantial disagreement concerning the speed and scale of the changes needed. Thus, while there may exist distinct views in different units in the organization, the challenge of having to address the different needs in multiple markets is also a challenge for managers. However, managers can best respond to technological disruption by using a strategy that makes strategic flexibility possible and preserves the organization’s strategic relationships with heterogeneous clients (Brettel & Cleven,2011). The response, thus, needs to use a strategy that does not make the organization lose crucial customers or trap it in a premature strategy that ultimately proves to be improper.
To develop such a response, managers have to establish a continuous innovation process and manage internal misalignment to enable approaches to innovation that are divergent. Thus, managers need to invest in both decentralized trials with important clients and radical new models of centralized innovation. They also need to redefine the organization’s portfolio while at the same time offering solutions that closely resemble existing portfolios. In addition, managers are required to support the established ecosystem by allocating additional resources to initiatives with current customers and suppliers, while at the same time looking to transform the existing ecosystem by finding out who the organization’s partners and suppliers should be in the long-term (Brettel & Cleven,2011). Operating with such flexibility within the innovation process allows organizations to manage varying expectations in distinct components of the organization concerning the speed and magnitude of response.
The organization, by using a flexible innovation process, is also able to manage the expectations of the complex environment in which they have been operating. Furthermore, managers have to accommodate misalignment concerning the organizational structure to enable the successful implementation of varying approaches in the innovation process. Organizations can accommodate discrepancies in the innovation process by allocating resources to divergent paths. This can be implemented by switching between the acquisition of new resources and the redeployment of existing resources.
Furthermore, managers need to cultivate a culture for innovation in their organizations that could accommodate the development of new technologies, as well as integrate new technologies into existing operational models. For instance, even though a Kodak engineer was the first to develop filmless photography, the management of the company at the time did not see the value of such technology to the company (Moon,2019). Such a managerial decision shows that the organization lacked a proper innovation culture that could make proper use of new technology for the creation of profits. Thus, managers are expected to implement active opportunity management where new ideas are continuously marked for prioritization and resourcing (Brettel & Cleven,2011). In addition, managers are expected to adequately fund the implementation of new technology, just like Blockbuster’s John Antioco allocated $ 200 million for the roll-out of online streaming services to counter Netflix, even though this move was reversed.
In conclusion, managers are expected to be role models whose leadership will motivate a culture of innovation in their organizations. Thus, managers need to implement and encourage incremental innovation to the point that existing services and products can match those made possible through technological disruption, while at the same time encouraging innovation that will improve the organization’s competitiveness in an era of technological disruption. The goal, therefore, is to carefully implement change to accommodate both existing and future markets.
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