A False Sense of Stability

How Persistent External Structures Can Fool Smart People

“Limbo” from Inception. Source: Warner Bros.

Have you ever wondered why sometimes smart, experienced people can seem oblivious to the changes going on around them?

These days, I often speak with executives at traditional media companies about the implications of AI. Their reactions tend to fall into one of three camps—the same ones I saw when I was at Time Warner and we first confronted the implications of streaming for pay TV:

• The engagers. They acknowledge and engage with it. Some enthusiastically, some reluctantly, some with grim resignation and a dollop of gallows humor. But still, they engage. (This group tends to skew younger, because younger employees have a longer time horizon and decades of corporate politics have yet to leech the idealism out of them.)

• The obstructionists. They see the disruption coming, but actively work to dismiss, deflect, or otherwise stymie efforts to confront it. They know that it’s in the organization’s best interests to prepare, but doing so would conflict with their personal interests. They fill their pockets with sand before leaving for work each morning just in case they run into some gears into which to throw it.

• The oblivious. They legitimately don’t see it. They hear the words, they see the charts and tables, but it doesn’t really compute. They can’t grasp the significance of the change.

I get the first group. These are my people. I sometimes begrudgingly respect the guile and dedication of the second group, even though their motives suck. It’s the third group I’ve found the hardest to figure out. Why is it so hard for them to internalize what seems so clear?

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Speaking of gears, let’s shift them. I have a couple of questions for you. How many horsepower does your car have? When is the last time you cc’d someone on an email? How many items do you usually put in your Amazon shopping cart before checking out? When was the last time you hung up on someone? Or, more on point for students of the media business, what’s your favorite film or album? Did you read the newspaper this morning? Have you ever been to the taping of a TV show?

You probably use these italicized words often. You may not think about it, but they are all rooted in outdated or obsolete technology. Yet we still measure the power of a car in “horses,” send a virtual “carbon copy” via email, place virtual representations of goods in an imaginary “shopping cart,” “hang up” a mobile phone that has no cradle, read articles in an “electronic paper” (an oxymoron), “tape” a show with no tape, often watch a “TV” show on a non-TV device, etc.

This persistence of language is indicative of a broader phenomenon: long after it is clear that a business is being disrupted, the associated external structures can persist for a long time.

So, why do smart, experienced, and highly engaged executives sometimes overlook the disruption occurring right under their noses? It’s not just denial. It’s because their day-to-day lives are not changing that much. Just as you don’t think about a cradle when you “hang up” a mobile phone call, their daily lives and work are so interwoven into these outdated structures that they can’t see the big picture. They proverbially miss the forest for the trees.

Tl;dr:

• A main premise of disruptive innovation theory is that incumbents can’t respond to competitive threats because of internal constraints. That’s well understood. It’s the dilemma in the “innovator’s dilemma.”

• Less well understood is that the external structures that form around industries and ecosystems—like regulations, institutional practices, business models, legal and contractual frameworks, and language and culture—can stick around for a long time.

• Those who deal with these structures everyday may get lulled into a false sense of stability. The persistence of those old structures obscures the underlying disruption.

• Media is especially prone to these outdated norms and practices. Pre-internet, each form of media had a discrete distribution infrastructure, which reinforced the boundaries between them. The internet brought those silos down, but the scaffolding is still up.

• As a result, media is rife with structures that have outlived their purpose: outdated regulations; institutions (press, unions, award and accreditation bodies) rooted in obsolete distinctions; archaic business models and practices (the upfront, anyone?); byzantine contractual terms and rights frameworks (see: music); and cultures shaped by decades of practice, power dynamics, and shared myths that are increasingly irrelevant.

• Of course, consumers don’t care about any of that. They care about the function of media, not the form.

• Ultimately, the function will determine where consumer attention and value flow. The antidotes to being myopically fixated on old forms are: 1) being aware of the trap; and 2) clarity about what consumers are actually trying to do and how they define quality.

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Disruption Occurs Because of Internal Constraints

Here’s the basic idea of Clay Christensen’s disruptive innovation theory: 1) A new entrant shows up with a different, cheaper mousetrap and fulfills customers’ needs in a new way.¹ 2) The incumbent can’t respond effectively because of internal constraints.

A main premise of disruptive innovation theory is that incumbents can’t respond due to internal constraints. It’s the dilemma in the “innovator’s dilemma.”

These internal constraints include misaligned incentives, organizational structures, culture, investor expectations, sunk investments in process or infrastructure, etc. Collectively, they create the dilemma in Christensen’s “innovator’s dilemma.”

Persistent External Structures Also Create a False Sense of Stability

The idea that internal constraints stop incumbents from preventing disruption is pretty much universally understood. It has been dissected, probed, and prodded umpteen times. I’ve written about my personal experience with this, too.

An idea that is not well understood is that the external structures that form around a business, industry, or ecosystem lag too. These include regulations, institutional practices, business models, legal and contractual frameworks, and language and culture. The persistence of these structures may or may not affect the pace or extent of disruption—but for those who are dealing with them day-to-day, they surely obscure it.

In his famous commencement speech at Kenyon College, David Foster Wallace started with the following parable:

There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, "Morning, boys, how's the water?" And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, "What the hell is water?"

These external structures are like the water—if you are immersed in them, you won’t question their underlying logic. The inertia in these structures masks the change that is roiling under the surface and create a false sense of stability. To use another analogy, it’s a little like the crumbling city Limbo in Inception; from a distance it seems like a thriving metropolis, but as you look closer you see it is empty and decaying.