Throughout history, the idea of eating one's own children has, understandably, been reviled. In the Bible, for example, those who would rebel against God are threatened with being forced to consume the flesh of their progeny.
In the 18th century, Jonathan Swift satirised British attitudes to Ireland by suggesting that the burden of poverty be alleviated by the children of peasants being fattened up and sold for the dinner tables of the wealthy.
In business, though, it is a recognised strategy for dealing with a changing environment, albeit one that is used far too seldom. Recently, while speaking at a corporate awayday, I was asked why new companies have been so successful at innovating in the digital space, whereas incumbents rarely seem to come up with world-changing ideas. Why didn't NBC invent YouTube, BT come up with Skype or Sony develop the iPod?
It's a good question. Yellow Pages in the UK innovated early with Yell.com, but failed to update its business model.
The only exception I can think of is Trader Media Group, which transitioned its business online before an upstart could sweep in and steal it.
So why does this happen? There are clear reasons why incumbents tend not to be innovators, including complacency, numbers and strategy. The frontline troops of big companies often have a feeling of superiority over those in small enterprises. Scale in organisations creates a need for process, usually to manage risk. This, in turn, tends to limit the leeway for creativity on the ground, as the venture becomes focused on defending what it has, rather than fighting new battles.
Yet, by fostering an inability to see other ways of doing things, it also feeds complacency. When i-level, the company I co-founded, went under in May, someone from a network agency blogged that this was proof that independents couldn't succeed and that digital's natural home was the big agency. It was exactly this sort of smug self-satisfaction that we had ruthlessly exploited over 11 years, taking hundreds of millions in billings away from them.
As regards numbers, for every Bell Telephone, Vodafone and BT, there are thousands of people in garages and back rooms trying to devise a way to get around paying for calls. So, even if the big companies are trying to come up with products that could eventually replace their own business, they are vastly outnumbered by the innovative capacity of the crowd.
In addition, it can be a part of the incumbent's strategy simply to watch and wait. First-mover advantage is often exaggerated, and by keeping a close ear to the ground, big companies can let others bear the costs of innovation before picking their moment to enter the market and use scale to snuff out or acquire the budding competitor.
This is how marketing services groups have traditionally operated - working to acquire innovation rather than growing it; hence a now-familiar model where entrepreneurs leave networks to found agencies that they later sell back to the network.
However, the biggest disadvantage facing incumbents is their unwillingness to fund development that could damage their own business, even though someone else will do this, with even more damaging consequences. Worse still, even when a substitute competitor has emerged, businesses fail to act soon enough to invest in business lines that replace their cash cow.
The speed of market change today means firms that watch and wait are often unable to get off the blocks fast enough when the moment comes. Yet, first or follower, when that moment comes, it's time to chuck out Leviticus and break out the condiments.
- Andrew Walmsley is a digital pluralist.
30 SECONDS ON ... Trader Media Group
- The business that became Trader Media Group was founded in 1976 by entrepreneur John Madejski, who decided to introduce classified automotive magazines to the UK having witnessed their success in the US. The following year his Hurst Publishing company launched Thames Valley Trader, with Southern Auto Trader following in 1981.
- In 1982 Guardian Media Group launched a similar title in the North West. The two companies decided to work together rather than enter a circulation war, and launched further titles, either jointly or on an individual basis. From 1988 all these publications were branded Auto Trader.
- In 1998 the two businesses merged to create Trader Media Group, with Guardian Media Group buying the other owners out in 2003.
- As well as Auto Trader and related titles Bike Trader, Truck Trader and Top Marques, Trader Media Group owns the UK's biggest-circulation free-ads title, AdTrader. The related websites, autotrader.co.uk and adtrader.co.uk, are the busiest in their category.