Unpacking the Disruption Process: New Technology, Business Models, and Incumbent Adaptation

• Author: Alessio Cozzolino,Gianmario Verona,Frank T. Rothaermel
• Published date: 01 November 2018
• Date: 01 November 2018
• DOI: http://doi.org/10.1111/joms.12352

© 2018 John Wiley & Sons Ltd and S ociety for the Advancement of Ma nagement Studies

Unpacking the Disruption Process: New Technology,

Business Models, and Incumbent Adaptation

Alessio Cozzolino, Gianmario Verona and Frank T. Rothaermel

University College Dublin; Bocconi University; Geo rgia Institute of Technology.

ABST RACT Despite the growing impor tance of digita l transformat ion and the notion of

disruptive innovat ion, strateg y literature still lacks a more complete picture of how

incumbent organizat ions adapt their bu siness models after disruptions. This re search

sheds light on this importa nt process by ana lyzing a major Itali an news media publisher

reacting to the advent of the internet and the emergence of new business models by

entrants into the industr y (1995–2017). We specifically exam ine: (1) the dri vers and

impeding factors of busi ness model adaptat ion; (2) how incumbents change strategies

to cope with dif ferent components of t he disruption process; and (3) how a closed

business model can be renewed to develop an open, platform -based business model to

seize external opport unities, incur lower costs, and fend off disruptors. Thi s study

contributes to the burgeoning literat ure on disruption, business models, and platforms.

Keywo rds: digit al platforms, disruptive innovat ion, incumbent adaptation, open

business models, value creat ion and capture

‘We can no longer make a lot of money from a few readers, but we w ill make relatively

little money from many more reader s’

Jeff Bezos, chair man and CEO of Amazon and owner of The Washing ton Post

.

‘The Future of Newspape rs’ conference , Italy, 2017, organized by GEDI an d La Stampa.

INTRODUCTION

A popular stream of research in str ategic management has documented how chal-

lenging it is for incumbent firms to adapt to technological disruptions pioneered

by new entrants (Christensen, 1997). Among a variety of reasons for incumbents’

inertia in the face of disr uptions, scholars have highlighted: resource dependence

Address for repr ints: Alessio Cozz olino, Assistant Profes sor of Strategy M ichael Smurfit

Graduate Business S chool, University Col lege Dublin, Dublin, Ireland (alessio.cozzolino@

ucd.ie).

Journal of Manageme nt Studies 55:7 November 2018

doi :10.1111/j oms .123 52

Unpacking the Disruption Process 1167

© 2018 John Wiley & Sons Ltd and S ociety for the Advancement of Ma nagement Studies

upon mainstream customers (Christensen and Bower, 1996), rigidity of existing

routines and competences (Gilbert, 2005), demand uncertainty (Adner, 2002),

institutional tensions in managing the different organizational demands of dis-

ruptive innovations (Markides, 200 6), as well as economic incentives and reliance

on established value networks (Hill and Rothaermel, 2003). Together, these ele-

ments act as inertial forces impeding profound modification of exist ing business

models, which is typically required a fter disruptions (see, e.g., Chesbrough and

Rosenbloom, 2002; Christensen et al., 2016; O’Reilly and Tushman, 2016). For in-

stance, a book retailer such as Borders, which filed for bankr uptcy in 2011, failed

to modify its brick-and-mortar business model by not developing a digital plat-

form with integrated dist ribution to respond to Amazon’s new model of online

book retailing and home delivery.

Despite the importance of the topic and the recent attention on business mod-

els in strategy literature (Wirtz et al., 2016; Zott et al., 2011), we still only have

limited empirical evidence of how companies adapt their models (Foss and Saebi,

2017) and how they accomplish this modification in the face of disruptive inno-

vations. Moreover, the problem is managerially relevant because incumbents in

several industries are seeking to renew their business models after the advent of

digital disruptors such as Facebook, Netflix, Udacity, and Uber (McKinsey, 2015).

A systematic understanding of the antecedents and the processes through which

firms adapt their business models is necessary and missing (Doz and Kosonen,

2010; Schneider and Spieth, 2013; Sosna et al., 2010). Therefore, we decided to

tackle this important issue from the perspective of an incumbent organization by

posing the research questions: What are the triggers that stimulate incumbents’ reac-

tions after disruption? How does the disruption process unfold, and how does business model

adaptation evolve over time?

To address these questions, we conducted an in-depth longitudinal study of

a major news publishing house in Europe, namely, the Italian company GEDI

Gruppo Editoriale SpA (hereafter: GEDI). We selected an incumbent in the media

industry because this sector was historically well protected and now it has been

profoundly disrupted by the internet (Forbes, 2015; The Economist, 2011) with a

dramatic impact on publishers’ business models (The Wall Street Journal, 2016).

GEDI is a large and traditionally vertically integrated company owning three na-

tional newspapers (one being La Repubblica, the Italian equivalent of The New York

Times in the US and The Guardian in the UK), 13 local newspapers, three radio

stations and a TV station, several digital properties, an advertising house, and

several downstream printing plants. To examine how the company transformed

its original business model, we considered a long-time horizon (1995–2017) that

includes the early advent of the internet, when new digital tools were first made

available, and its subsequent developments, when new entrants became stronger

(e.g., Google or Facebook). Our approach can be seen as a quasi-experiment in a

natural laboratory setting because we were able to observe the effects of an exog-

enous treatment (the disruption caused by the internet) on a company’s business

model and to track the strategic reactions put into practice by the company.

1168 A. Cozzolino et al.

© 2018 John Wiley & Sons Ltd and S ociety for the Advancement of Ma nagement Studies

Our study presents a series of important findings. First, we disentangle two sep-

arate forces in the disruptive process: (1) the initial advent of disruptive technolo-

gies; and (2) the subsequent entry of disruptors introducing new business models.

We specifically highlight the mechanisms through which these forces trigger busi-

ness model adaptation (BMA) in incumbent organizations. The availability of

disruptive technologies offers new opportunities, favoring ‘incumbents’ experi-

mentation’ with new business models (that is, new forms of value creation and

capture). The emergence of entrants employing new disruptive models tends to

represent a threat and induces incumbents to respond more defensively, through

‘alliances and acquisitions’ to speed up the adaptation process. This first main find-

ing addresses the identified gap in business model literature regarding the drivers

and mechanisms of BMA after disruption (see e.g., Foss and Saebi, 2017). It also

extends the analysis of disruptive innovation by breaking down the process into two

separate components: technologies and business models (see also Markides, 2006

for a similar conceptual point). Furthermore, it empirically reveals the effects on

the incumbents’ adaptation process, in terms of opportunities and threats, leading

respectively to stand-alone experimentation and alliances/acquisitions.

The second major finding relates to how incumbents reconfigure their models

after disruption. We examined the specific case of disruptions in manufacturing,

distribution, and sales—that is, the downstream complementary assets of verti-

cally integrated incumbents (see Teece, 1986). We argue that, when disruption

occurs in factors of production, incumbents tend to increase external knowledge

access. This pattern occurs because disruption in the factors of production re-

sults in positive external economies (Marshall, 1920), as the new technologies,

such as the internet, are available to all. To create and capture value from the

new technologies, incumbents increase external knowledge access. In sum, we

provide theoretical explanations and empirical evidence of the phenomenon of

‘opening a business model’ to external sources. We also acknowledge the limits

of this open strategy and the importance of maintaining a balance between in-

ternal and external knowledge sourcing (that is, ‘mixed closed-open’ business

models). These findings contribute not only to incumbent adaptation literature,

but also to studies on open business models (Chesbrough, 2006; Vanhaverbeke

and Chesbrough, 2014) and the tensions between conflicting logics (Sauermann

and Stephan, 2013).

A related finding of the new mixed closed-open business model after disruption

is that we document how incumbents can react to disruptions by transforming

a product-company into a multi-platform business (e.g., Gawer and Cusumano,

2002; Schlesinger and Doyle, 2015). Based on our in-depth case study, GEDI

moved from being a vertically integrated company based primarily on internal

production to an organization that manages and interconnects multiple plat-

forms, audiences, and advertisers through a mixture of internal and external

knowledge producers.

Our findings are generalizable to many industries disrupted by the internet

and related digital transformations. Sectors such as the music business, movies,