One of the subjects that I discuss with business students is how organizations respond to disruptive change, especially disruptions caused by technology. The short answer is – very poorly. Clayton Christensen was one of the early business researchers who rose to prominence in the mid 90s by pointing this out in his award winning book “The Innovators Dilemma.” One of Clayton’s key findings was that industry leadership changed each time there was a disruptive change in the underlying technology.
There are several reasons for this phenomenon of industry leadership passing from the incumbent to the challenger in the face of technological disruption. Clayton expressed the reasons succinctly and brilliantly with his framing of the Innovators Dilemma. The core insight in the Innovators Dilemma was that industry leaders usually resisted investing in disruptive technologies (even if sometimes the new technologies were created within their own organizations) as they tended to allocate resources to current clients who kept demanding increasingly sophisticated features in products based on the current technology. As a result investments were not made by incumbent leaders in the new disruptive technology which was adopted and developed more aggressively by new challengers. When the new disruptive technology became mature for large scale adoption, customers shifted to the new challengers who had the best expertise in the new technology. The prior incumbent leaders lost their leadership positions as they could not meet customer needs with the new disruptive technology and industry leadership shifted from the incumbent to the challenger.
The above insight was radical in the 90’s and early part of this century when many industry leaders struggled and often lost their leadership in the face of disruptive technologies – remember Kodak and digital photography as one example of this traumatic shift? Over the last decade, as the pace of technological disruption has become faster, firms have realized that the best way to innovate in the face of technological disruption is to acquire the innovation from outside – by acquiring startups and forging relationships with new partners. Cisco was one of the first tech companies to essentially replace its corporate innovation strategy from internal R&D to external R&D acquisition through mergers and acquisitions. Over the recent past, this focus on learning and innovating from the outside has largely been accepted as the fastest and most reliable way to bring disruptive new products and technologies into the organization.
So where do we stand in business schools in the face of technological disruption? In response to the Covid crisis, we have just witnessed a rapid acceleration of the deployment of digital technologies in our teaching programs. Business school leaders now concede that online education will be a very important component of their future program portfolios. However, the disruptions being caused by digital technologies is much more than just in the shift of teaching delivery to the Internet. Digital technologies are enabling schools and universities to question some basic assumptions of their current business models and raison d’etre. For example, there are significant assumptions made about time and place in the business models of most business schools. Given the importance placed on students being physically co-located for most of the program duration, we have seen schools make significant investments in brick and mortar buildings and design infrastructure to support a form of learning and program experience which is capital intensive and requires the co-location of faculty and students. Now technology can potentially make these constraints of time and place irrelevant. What will be the business school experience look like if the constraints of time and place are removed? How will the scale of learning in our schools be impacted if physical co-location is no longer a strict necessity? What will our budgets look like if we no longer have to make the significant investments in brick and mortar buildings?
To take another example, the business model of most business schools and universities is that of vertical integration. Schools today typically do all of the following key activities: create and deliver knowledge, assess the acquisition of knowledge and deliver a certification of the knowledge acquired to the student. What if technology allowed us to unbundle these three elements? What if we allowed our students to acquire knowledge from anywhere? What if we agreed to assess the knowledge of not just students enrolled in our school but that of any student who asked us for such an assessment? These are important questions and the answers a school chooses will have implications for almost every part of the business model of the school. For example, the role of faculty and the important investment that all schools make in hiring the best research faculty may have to be rethought. Technology now allows us to pose these questions and come up with credible alternative business models.
How will we as business school leaders respond to the many questions and challenges posed by the forces of disruptive technological change? If we can learn some lessons from other industry sectors that have gone through this disruption process, one insight is important – we will not succeed in innovating at a fast enough pace to leverage all the new possibilities if we only focus on innovating from the inside. If we are to apply some lessons from other industries, we have to look outside our schools for disruptive and innovative business models. We have to look at edtech startups that are innovating in learning models with new technologies and we have to partner with firms such as the tech giants to create new learning partnerships. We have to be bold to launch new innovative models and to experiment and learn in rapid cycles. We will have to resist the pressures to continue to invest in current programs and current customer segments. We will have to be bold to venture into new programs and new customer segments which may look very different initially as compared to our current student profiles. Doing this will not be easy and there will be significant cultural barriers to overcome.
Outside-in innovation is the way of the future for business schools. The sooner you adopt this mantra and excel at it, the higher your chances of thriving as a leader in the face of technological disruptions.
Soumitra Dutta is a Professor of Management at Cornell University and the Chair of the Board of Directors for GBSN. Previously he was the Founding Dean of the SC Johnson College of Business at Cornell and Chair of AACSB Intl. He is also the President of Portulans Institute and co-chaired the Global Future Council on innovation ecosystems for the World Economic Forum.