Assessment Criteria

Topics: Strategic management, Innovation, MIT Sloan School of Management Pages: 31 (6337 words) Published: November 28, 2014
WINTER 2003

VOL.44 NO.2

MITSloan
Management Review
Constantinos D. Charitou & Constantinos C. Markides

Responses to
Disruptive Strategic
Innovation

Please note that gray areas reflect artwork that has
been intentionally removed. The substantive content
of the article appears as originally published.

REPRINT NUMBER 4427

Responses
to Disruptive
Strategic
Innovation
I

Disruptive strategic
innovations are not
necessarily superior to
the traditional ways of
competing, nor are they
always destined to conquer
the market. Rushing to
embrace them can be
detrimental for established
companies when other
responses, including
ignoring the innovation,
make more sense.

n the mid-1990s, European airline giants such as British
Airways and KLM Royal Dutch Airlines came under attack from
relative newcomers such as easyJet and Ryanair. Rather than
embrace the full-service, hub-and-spoke strategy of the major airlines, the upstarts introduced a low-cost, point-to-point, no-frills strategy that proved to be a hit with European consumers. Before long, they had captured a large segment of the market, and established airlines in Europe were searching for answers to the threat. Meanwhile, Merrill Lynch was searching for its own answers in response to competition from online brokers such as Charles Schwab, E*Trade and Ameritrade. Unilever was concerned about a threat in its business — the growth of low-priced, distributor-owned brands (private label) — and Barnes & Noble was considering how to respond to online distribution of books and Amazon.com. In industry after industry, once formidable competitors that had built their success on apparently unassailable strategic positions were coming under attack from relative unknowns that employed radical new strategies. As a result, established leaders in a variety of industries were asking the same question: “Should we respond to these disruptive innovations and, if so, how?” (See “Examples of Disruptive Strategic Innovations.”)

The leading companies were facing a dilemma: Their attackers utilized strategies that were both different from and in conflict with their own. Thus, if the established companies were to respond by adopting the strategies of their attackers, they would run the risk of damaging their existing business and undermining their existing strategies. However, they couldn’t simply ignore the disruptions. What, then, was an appropriate response?

Constantinos D. Charitou
and Constantinos C. Markides

Understanding the Phenomenon
Strategic innovation is a fundamentally different way of competing in an existing business.1 The way Amazon.com competes in book retailing is different from Barnes & Noble’s way. Similarly, the way Charles Schwab, easyJet and Dell

Constantinos D. Charitou received his doctorate from London Business School and now works in the private sector. Constantinos C. Markides is the Robert P. Bauman Professor of Strategic Leadership at London Business School. Contact them at ccharitou@lanitis.com and cmarkides@london.edu.

WINTER 2003

MIT SLOAN MANAGEMENT REVIEW

55

Examples of Disruptive Strategic Innovations
Industry

Strategic Innovation

Innovator(s) and Date of Introduction

General retailing (United States)

Online distribution

Amazon.com: July 1995 (books), June 1998 (music)

Car-rental industry (United States)

Focusing on a different type of customer and
operating an extensive network of car-rental
offices located in cities, rather than in major
airports

Enterprise Rent-A-Car
(The company was founded in 1957.)

Computer industry (United States)

Selling computers directly to customers

Dell Computer: 1983

Retail-brokerage industry (United
States)

Online trading

Aufhauser & Co.: 1994
E*Trade, Charles Schwab: 1996

Retail-brokerage industry (United
States)

Operating an extensive network of singlebroker offices across the country as separate profit centers...

References: 1. C.C. Markides, “Strategic Innovation,” Sloan Management Review
38 (spring 1997): 9-23.
2. M.E. Porter, “What Is Strategy?” Harvard Business Review 74
(November-December 1996): 61-78; and C.M
(Boston: Harvard Business School Publishing, 1997).
3. E. Kelly, “Edward Jones and Me,” Fortune, Monday, June 12, 2000,
145.
Journal 15 (summer 1994): 149-165; D.N. Sull: “The Dynamics of
Standing Still: Firestone Tire & Rubber and the Radial Revolution,”
Business History Review 73 (autumn 1999): 430-464; and J. Robins
and M.F
6. S.P. Schnaars, “Managing Imitation Strategies: How Late Entrants
Seize Markets From Pioneers” (New York: Free Press, 1994); and
G.J. Tellis and P.N. Golder, “Will and Vision: How Latecomers Grow
To Dominate Markets” (New York: McGraw-Hill, 2001).
of Management Journal 35 (summer 1992): 539-570; and K.G. Smith,
C.M
Strategic Actions: Theory and Preliminary Evidence,” Journal of Business Research 18 (spring 1989): 245-258.
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