Research: Self-Disruption Can Hurt the Companies That Need It the Most

When innovation makes new business models possible, these new models often threaten old ones. In such moments, companies are encouraged to “self-disrupt” and embrace the new model while still using the old, to avoid being overtaken by other companies that will inevitably do the same. This makes good sense when you know a new model is becoming dominant. But what if you don’t yet know that? When does it make sense to embrace a change early, and when does it make sense to watch and wait? These questions have long been hard to answer, because data have been difficult to come by. But we have found and carefully studied a trove of relevant information from the U.S. electric utility sector, and now have some initial findings to offer. Companies that operate in highly competitive environments and have high stocks of key assets devoted to their traditional business, it turns out, should wait and watch. And companies that operate in environments that are not especially competitive, and that have low stocks of those key assets, should embrace change early. We also found that, ironically, those companies most threatened by innovative change tend to be the least rewarded for their efforts to renew themselves.