When a technological change triggers a dramatic discontinuity in a given industry, for the companies that do business there, core knowledge often becomes obsolete. According to several studies, to adapt to this new context, at least complementary assets must maintain their value (i.e. production, distribution and sales). This makes it possible to develop adaptation strategies such as cooperating with innovative startups. But what if the impact of the technological change leaves core knowledge intact, but renders a company’s complementary assets obsolete? This question is far less frequently studied but increasingly relevant. In fact, such change is becoming more and more common as it relates to discontinuities in industries such as music, cinema, publishing, and education in the wake of new digital distribution and Internet sales. These phenomena have undermined old (and exclusively physical) complementary assets in these areas. In light of all this, it is critical for managers to understand which factors impact corporate adaptation when discontinuity compromises the complementary assets of their organizations.
To find an answer to this question, we investigated the publishing industry in a recent study. Specifically, we explored newspaper production and distribution and the effect of the profound changes brought about by the advent of the Internet. During the timeframe of our research – from 1995 to 2019 – new online technologies made old complementary assets obsolete. But the same cannot be said of journalistic know-how and publishing skills, which are still critical for contending with growing complexity. By comparing and analyzing the stories of six newspapers, what emerged was the importance of adapting to new contexts so as to respond to fluctuations in demand that were triggered by the discontinuity in question, to experiment with new forms of value creation with customers, and to react to changes in the ecosystem after the discontinuity.
Before 1995, Italian newspapers controlled a vertical value chain running from information creation upstream to newspaper printing, distribution and sales downstream. Core knowledge was represented by information creation by journalists and editorial boards, while complementary assets included printing presses, distribution networks and advertising sales representatives. These complementary resources were specialized in commercializing upstream editorial core knowledge, and they were not easily accessible to everyone on the market due to their level of specialization and cost.
With the advent of the Internet, newspapers faced a marked technological discontinuity in terms of complementary assets. But the real challenge was not the entrance of new content creators upstream. Instead the greatest danger was competition from technological entrants downstream, which were able to specialize in new complementary products and services without incurring the cost of content production.
In our study, we looked at three pairs of publications: two general interest newspapers with national circulation, two local newspapers (differing in size and geographical area), and two specialized national newspapers covering sports. To understand their Internet adaptation processes, we conducted 80 interviews with managers who were responsible for strategic decisions throughout the value chain for each broadsheet. We also collected archival data from various sources, and did 11 additional interviews with new digital entrants. With this information in hand, we first reconstructed the story of each publication in the face of discontinuity. Then, after cross referencing data from the other papers, we identified common traits and differences in the adaptation process.
Our findings clearly show that three levels of adaptation are necessary to contend with discontinuity. The first is resource-level adaptation. This means believing in the synergies between the new complementary assets and existing core knowledge, in other words, being convinced that benefits will arise by combining the two. If this conviction is lacking, a fear of cannibalization or other causes of inertia may gain the upper hand, which could turn into a serious drag on the adaptation process.
As early as 1997, one of the sports newspapers in our study launched its own website with a dedicated online publishing platform, acting on the belief that potential positive synergies would arise from combining print and digital media. The other sports paper and the two local dailies had less faith in possible synergies and became late adopters. In fact, for a long time they only used the web to give readers the same content they offered in the print editions of their papers.
The second level of adaptation centers on demand, and is based on experimenting with customers. This demand-side experimentation paves the way for the necessary step of modifying the business model, because it enables the company to find new solutions in the context of the new technology to bring innovative ideas to the table in terms of value creation. Since 2012, one of the two general newspapers launched a “festival” throughout Italy to meet with its readers and discuss their ideas and their culture. This was a total experiment for a publisher that had never before met readers in person. These experiments allowed the paper to generate new value created by customers/readers, updating old beliefs on what was important for them in terms of contents and services.
The third and last level in the adaptation process relates to the ecosystem, and the underlying mechanism is experimenting with the competition. Ecosystem-level experimentation enables companies to come up with new ideas and revolutionize their assumptions around how to capture value, eventually leading to accepting new solutions thanks to cooperation with competitors and third parties. For example, the two competing national newspapers actively cooperated in various circumstances to discuss the current state of the industry and to formulate strategies for protecting and capturing value. Eventually they founded consortiums bringing together a number of newspapers to create new proprietary solutions for value capture. These experiments and joint solutions won’t necessarily eliminate the individual strategies that each company adopted in the past; instead they represent an expansion at a systemic level.
Taken together, the three levels of adaptation allow us to more fully explain how to respond to discontinuities, more specifically discontinuities that entail the destruction of a company’s traditional complementary assets by new technologies. The first level of asset recombination, which is essential, requires a certain degree of conviction regarding potential synergies. This represents an initial reaction. A second level of adaptation is also necessary at the demand level which can be achieved by updating the company’s convictions around value co-creation with customers. This is a path to adapting the business model to changing market conditions, incorporating significantly new characteristics with respect to the initial model. Lastly, the third adaptation at an ecosystem level is required to reconfigure the strategies of value capture. This calls for experimentation and in some cases even cooperation with former competitors to face common threats in a changing competitive context.
To sum up, the data suggest three key takeaways. First, new complementary assets can be adopted rapidly if there is a conviction that synergies with traditional core knowledge will be generated. Second, companies can update approaches to value creation following a discontinuity by experimenting with customers via new technologies and developing new forms of learning and sharing. Third, after facing discontinuity, when organizations proactively open up to the surrounding ecosystem, interfacing and experimenting with competitors, they are more likely to update their mindset on value capture and develop more innovative solutions.