It used to be that businesses could see their competition coming and anticipate the threats. Clayton Christensen, with his theory of “disruptive innovation”, taught that a new entrant attacked a market leader by launching low-end, low-priced products and then relentlessly improving them.
Now Christensen’s frameworks have themselves been disrupted—because you can no longer see the competition coming. The entrants come from different industries and attack the core business models of leading companies. In the same way that Netflix decimated the video-rental industry and Uber is changing transportation, new business approaches and technological advances will disrupt practically every industry.
There are no proven models for innovation in this era of exponential technologies. You can’t look to companies such as Procter & Gamble, Johnson & Johnson, and General Electric for ideas on how to innovate, because they really have not reinvented themselves. They are doing more of what they did before, with the same old business models and organizational structures.
Google’s founders, Larry Page and Sergei Brin, understand advancing technologies better than almost anyone else does. And they seem to have realized that dramatic change was needed in order to get their company to continue to be a technology leader. So they are trying another grand experiment: breaking Google into competitive pieces—before they are forced to do so for survival.
This is what Microsoft should have done years earlier and many other former technology leaders did not do.
As I wrote in 2013, Microsoft was like the former Soviet Union—Politburo, five-year plans and all. Its best strategy would have been to break itself into independent companies, each free to build innovative products and compete with the others.
This could have been along the lines of the markets that Microsoft goes after—enterprise, personal computing, mobile, and entertainment—or by product: Windows, Office, Xbox, and Surface. Instead, it was busy defending its old businesses and its employees were bogged down in internal political battles. So it lost its lead and its momentum. Its new management team is struggling to reinvent the company and has an extremely difficult task.
Small independent companies can compete better than large monoliths can because such a structure unleashes the talent of its people and allows them to attack other parts of the company that need to be put out of business or transformed. By breaking the company into separate divisions that can independently focus on existing as well as new markets, Google is also enabling its founders to get back to doing what they do best: innovate.
The independent divisions of the company can now develop new virtual reality–based operating systems that make its Android operating system obsolete; self-driving cars and mobile entertainment systems that change the way we commute; health-monitoring systems for the home; and contact lenses that take you into holographic worlds. It can also get into crazy new fields, such as life extension, and build nanobots to kill disease cells. These businesses won’t need to coordinate their efforts with one another or worry about divisional politics.
These are the types of bold changes that companies must make to survive in this new era of industry disruption. They must take big risks and disrupt themselves—before someone else does. Only a few companies, such as Dell, Apple, and Starbucks, have had the courage to do so.
As management guru Jeff Sonnenfeld, of Yale School of Management, notes: “Digital Equipment, Data General, Wang, Prime Computer, Apollo, Control Data; Nixdorf—and Motorola—might have been alive if they stirred up the pot more. Maybe Andy Grove’s philosophy at Intel shows this best—that only the paranoid survive. Too often founders, like Ken Olsen of Digital and Ed Land of Polaroid, become religious symbols of sacred rigid past greatness” Sonnenfeld believes that Brin and Page are following the lessons of Grove, Michael Dell, Steve Jobs, and Howard Schultz.
Only time will tell whether Google’s moonshots and restructuring will pay off. But what is certain is that if Google had not done it, it would have gone the way of the dinosaurs.