Industry Disruption vs. Corona Conundrum: Lessons from IBM and Nokia

by Carl Joachim Kock, Professor of Strategy at IE Business School.

LinkedIn 

The reaction of governments to the approaching coronavirus wavefront has a distinct parallel in business: the inability to commit to a course change before it is too late!

Nokia failed to understand why customers would prefer a touchscreen and thus reacted too late to Apple’s iPhone. Similarly, IBM, the dominant computer maker at the time, looked with apprehension at the newfangled PCs, which they deemed distinctly inferior to their prized mainframes. In these and many other cases, incumbents squandered valuable time in responding to a crisis that would upend their industries and—with few exceptions—extinguish them.

Eyes off the ball

The key reason for this “disruption”—a term coined by Clay Christensen—is uncertainty regarding the impact of new technologies: most innovations fail, and chasing after all of them would involve huge costs for a questionable return at a later date. In fact, taking your eyes off the ball—the multibillion-dollar mainstream market—whenever an innovation pops up in a tiny market segment would be self-defeating!

Governments, likewise, appear unsure about the impact of the new virus (“maybe it’s just a bad flu?”), but are pretty certain that a wholehearted reaction would paralyze their economies and create immense losses. The corona conundrum, hence, is that they do not want to do the unthinkable without a compelling reason; accordingly, like Nokia, they wait and fail to prepare…

Although this is an imperfect analogy, the similarities are striking! Therefore, we should apply what we have learned from how firms have dealt with disruption to how countries could navigate current and future crises.

Business ambidexterity

Firms that have survived disruption have typically done so by developing a minimum of what O’Reilly and colleagues call “ambidexterity”—attempting to simultaneously exploit a current advantage and explore new areas.

Since exploitation requires full dedication to developing a current business (typically involving lots of structure and bureaucracy) while exploration entails pretty much the opposite (innovative tinkering unconstrained by petty rules), having a truly ambidextrous organization seems elusive. And yet, IBM’s belated but successful response to the PC revolution offers an encouraging example. IBM managed to counter inroads made by entrepreneurial PC makers within a short window of opportunity by relying on the following key elements:

• Somebody at the top was paying attention and noticed that PCs were more than a fad and were on a trajectory to endanger IBM’s mainstream computer market.
• A new unit was formed and isolated from the rest of the organization, preventing internal naysayers from derailing the project.
• A powerful set of assets that complemented the core product (brand, sales force, and service network) ensured that mainstream customers would stay with IBM as they transitioned from mainframes to PCs.

Country-level ambidexterity

If we apply IBM’s experience to governments facing the corona conundrum—should they do the unthinkable to their economies while still unsure whether the crisis is real?—we can see the need for country-level ambidexterity:

• Somebody powerful at the top must pay attention to identify potentially grave threats early enough to react within the window of opportunity. The US National Security Council, for instance, used to include a director for disease control.
• Separate decision-making for normal and emergency situations: people charged with ensuring the smooth running of the economy should not be put in the position of having to choose between “the economy” and “fighting the crisis.”
• Ensure availability and scalability of resources: in conjunction with scanning and decision power, the capacity of health and other systems must be adapted early enough, if necessary through government intervention.

These measures may seem intuitive, but current experience suggests that we need more country-level ambidexterity to counter the corona conundrum and rise to the challenges we face!