In the fall of 1985, David Cook founded Blockbuster, which would later emerge as a home for not just video/DVD movie rentals but also as a social space for local movie buffs to meet and socialize. Within the next few years, backed by its success, Blockbuster expanded its operations internationally and became a popular household name. Soon after, Viacom acquired Blockbuster and took it public in 1999. At its peak, Blockbuster had over 9000 stores worldwide and boasted a revenue of USD 5.9 million [1]. Buoyed by the momentum and consumer demand, Blockbuster cemented its position and business model and leveraged its almost monopolized market advantage to penalize loyal consumers for late returns; this is evidenced by the fact that, in the year 2000, roughly 16% of Blockbuster’s revenue came from late fees. By the turn of the century, with the exponential growth of technology, customer preferences and demands were evolving rapidly. Rather than walking into a physical store to rent DVDs, consumers fancied the idea of browsing DVDs on the web and having them delivered to their doorsteps at a palatable subscription fee minus the late fee that Blockbuster was infamous for. Capitalizing on digital disruption and changing customer demands, several new players emerged in the video rental space, such as Netflix and RedBox, offering newer channels such as DVD-by-mail and online streaming services. Despite the shift in consumer demand, digital disruption, and mounting competition, Blockbuster did little to change its strategy and refused to adapt to changing market trends. Ironically, in the year 2000, Blockbuster turned down an offer to acquire Netflix for USD 50 million, which subsequently led to Blockbuster filing for bankruptcy within the decade [2].

The primary factors attributed to the downfall of Blockbuster are the following:

• Failure to embrace the digital disruption: Blockbuster was comfortable with the existing business model and failed to recognize the shift in industry trends and customer needs and preferences, leading them to dismiss the potential of online rentals and streaming services, which ultimately disrupted the traditional brick-and-mortar video rental model. The company was too slow to adapt to the emerging trends such as online subscription and streaming services, whereas competitors such as Netflix were already capitalizing on digital technologies to offer convenience and accessibility to consumers, causing a dent in Blockbuster’s market share.
• Failure to create customer value: Blockbuster misplaced its focus on topline revenue rather than creating consumer value. The company failed to generate consumer value while heavily relying on maximizing profits and revenue by charging loyal customers late fees. It also failed to assess the significant consumer value that could be generated by adopting modern digital trends. Competitors such as Netflix offered greater convenience, broader content libraries, personalized recommendations, and subscription models that resonated with consumers. Blockbuster struggled to match the offerings and value propositions offered by its competitors.
• Poor strategic decisions: Blockbuster made several strategic missteps that further exacerbated its decline. For instance, the company passed on an opportunity to acquire Netflix in its early stages, underestimating the potential of the emerging business model. Blockbuster also pursued late-entry initiatives such as DVD kiosks and online streaming, but these efforts failed to regain lost ground.

There have been several technological innovations that transformed the world forever, from the invention of paper to penicillin and electricity. However, the inventions of the last century, such as airplanes (1903), television (1927), VCRs (1965), personal computers (1971), cellular phones (1973), the internet (1983), the World Wide Web (1989), portable GPS (1990), Google Search (1997), Facebook (2004), YouTube (2005), the iPhone (2007), and Android (2008), have democratized technology advancements to the masses.

Another technological advancement that is fundamentally altering the way businesses innovate is artificial intelligence (AI). In 1950, Alan Turing, in his seminal paper titled Computing Machinery and Intelligence, opened with a thought-provoking question, “Can machines think?” [3]. Since then, AI has undergone rapid evolution and has matured into a disruptive technology that is having a profound impact on almost every industry. AI is powering creative applications, including autonomous vehicles, robotic surgery, fraud detection, and generative AI that creates new art, to name a few.

If we map these disruptive technologies against the time it took for them to penetrate the market, technological advancements in recent times, such as personal computers, the internet, mobiles, social media, and digital payments, only needed a quarter of the time to permeate the market compared to the innovations of previous generations [4]. In fact, modern technology disruptions are only growing exponentially, forcing enterprises across industries to keep up or lag behind [5]. It is important to note that the modern technology innovations of the digital era (highlighted area in the chart below) have exponentially penetrated the world market:

Figure 1.1 – Technological innovations and the time taken to penetrate the world market

Let’s compare two revolutionary technological advancements - the automobile and mobile phones. The invention of the automobile disrupted the way we travel, and the invention of mobile phones transformed not just how people communicate but also how modern-day businesses are conducted. Since its invention in the late 19th century, it took the automobile industry over six decades to penetrate the market and become established, versus the advent of mobile phones, which only took a decade. Modern-day technologies evolve at a rapid pace, and it is crucial for organizations to stay relevant.

For mobile device manufacturers, it wasn’t easy to stay abreast of the fast-paced technological advancements and the exponential disruption in communication technology at the turn of every decade: analog cellular (1G), digital cellular (2G), mobile broadband (3G), native IP networks (4G), and new radio (5G); traditional providers, such as Nokia and Motorola, who once commanded significant market share, were phased out by new entrants such as Samsung and Apple [6].

Many long-standing enterprises find it difficult to generate organic growth, with younger companies outperforming established players. To put this in context, the average tenure of an S&P 500 company has been declining as the speed of digital disruption is accelerating [7]. In the late 1970s, the average age of an S&P 500 was 35 years, and this number is predicted to further decline to just 12 years by 2027.

Organizations that have stood the test of time amidst digital disruption have adopted strategies that evolve continuously to help them withstand more fluid or uncertain market times. It doesn’t take much for a new entrant or a startup to come up with an idea that disrupts an entire industry. Let’s look at a few companies that veered off traditional methods and revolutionized their respective industries:

• Airbnb, founded in 2008, is one of the largest accommodation platforms that disrupted the hospitality industry. While traditional hospitality companies owned, maintained, and operated properties, Airbnb revolutionized the tourism industry by serving as an online marketplace for short-term homestays and holiday experiences.
• Uber, founded in 2009, is the largest ride-sharing company that disrupted the car rental and leasing industry. While traditional car rental companies owned and leased cars to customers, Uber changed the dynamic by offering ride-shares through just a mobile app.
• Netflix, founded in 1997, started as a DVD rental business and is now the largest streaming platform that has transformed the way consumers rent and watch movies and TV shows. While Netflix does produce its own movies and TV shows, it primarily leases movies and TV shows that can be streamed on its platform.
• Amazon, founded in 1994 as an online marketplace for books, is the largest online retailer by simply serving as a marketplace platform connecting buyers and sellers, revolutionizing the retail industry, whereas traditional retailers have to own and operate a physical brick-and-mortar store and manage inventory. Since then, Amazon transformed itself into a conglomerate and expanded into several industries.
• Spotify, founded in 2006, is the largest music streaming service but doesn’t own any music. Instead, it licenses music from record labels and lets subscribers stream it for a fee.
• Robinhood, founded in 2013, disrupted the financial services industry by offering commission-free trades of stocks and exchange-traded funds and cryptocurrencies, which was never thought possible before. Robinhood democratized trading through a simple mobile app.
• Teladoc, founded in 2002, is one of the largest telehealth companies that disrupted the healthcare industry by leveraging mobile technology to connect patients and doctors virtually anytime outside of a healthcare facility. Unlike traditional healthcare providers, Teladoc doesn’t employ doctors or have its healthcare facilities.
• Pillpack, founded in 2013, disrupted the pharmaceutical industry that was traditionally dominated by retail players that operated in a physical space, filling prescriptions for patients. Pillpack ideated and implemented the concept of consolidating multiple pill prescriptions and delivering it to customers’ doorsteps.
• Chime, founded in 2012, is a challenger bank that offers banking services exclusively through online and mobile, disrupting the banking industry by offering fee-free banking, early paydays, no fee, and no credit check credit cards, forcing traditional players to respond.
• Rent the Runway, founded in 2009, is a clothing rental company that disrupted the designer clothing industry by allowing customers to rent, subscribe, or buy designer clothes through their online platform. This business model addressed a major consumer concern of overspending and having to own apparel such as event garments, wedding dresses, and ski apparel, which are infrequently used.

One commonality across all these companies is that business disruption is almost always led by modern digital technology. Let us explore how enterprises can innovate and move up the digital frontier.

Contrary to the belief that innovation happens in a siloed, vacuum environment, it is actually a systemic and continual process. Innovation requires not only the generation of new ideas but also the implementation and sustained adoption of those ideas. This often involves overcoming significant barriers and challenges, such as resistance to change, regulatory hurdles, or technical limitations. It also requires a systematic approach to identifying and addressing customer needs, understanding market trends, and leveraging available resources and expertise.

Leaders must strive to create a culture and a systematic approach to a culture of innovation. An innovation continuum is critical for enterprises to thrive and grow in today’s competitive landscape. The process of innovation is a set of strategic steps where an organization can take creative approaches to realize its vision, goals, and objectives within a timeline [8]. The following diagram illustrates the stages of the innovation continuum:

Figure 1.2 – The innovation continuum

Let’s take a look at each of the stages shown in the preceding diagram:

1. Ideation: This is the initial stage of the innovation process, where new ideas are sourced and generated through brainstorming, market research, customer feedback, or other sources. The goal is to identify potential areas for innovation and generate a variety of ideas that can be explored further.
2. Curation: Once a promising idea has been identified, the next step is to curate and develop a concept around the ideas that can be tested and ratified. This can involve the following:
   • Stakeholder surveys (internal or external) to identify problem areas in different forms
   • Explore and identify solutions that are available both internally and commercially
   • Identify the stakeholders of the product in consideration
   • Build out MVPs (minimum viable product) prototypes or a proof-of-concept
   • Determine the viability of the idea across multiple dimensions, such as financial, technological, legal, and security dimensions, and its measurable potential impact

   Ideas that pass curation move onto the prioritization phase, and the ones that don’t are moved to the back burner.

3. Prioritization: This is an important step where curated ideas get prioritized based on a variety of factors, including customer or market demands, technology, competitive intel, and applicability to core business capability vs. exploratory considerations. Some popular methods that enterprises can leverage are McKinsey’s three horizons model, a portfolio of initiatives, a strategic control map, and a consumer decision journey [9]. Each of these methods caters to different kinds of prioritization factors that influence decision-making.
4. Solution hypothesis: At this stage, the concept is tested and evaluated to determine its feasibility, usability, and market potential. This can involve assessing product viability, business value, opportunity cost, customer or stakeholder value, and return on investment.
5. Incubation and development: Once the concept is deemed feasible and viable, the next step is to develop and implement the technology incrementally. This may involve further building out the MVP, designing the product, building the software, securing sponsorship, leadership oversight, and funding, and developing the infrastructure needed to support the innovation.
6. Integrate, launch, and scale: Once the technology has been developed, the next step is to integrate, launch, and scale to reach a wider audience. This may involve marketing and promotion, building partnerships, incremental releases, or expanding the product’s capabilities to meet the evolving needs of the market.

As every enterprise is unique, leaders in enterprises can choose the appropriate innovation strategy that best fits their vision and objectives. However, it is crucial to create a culture of innovation and put in place a process that drives it. Several modern enterprises have created and funded R&D departments and innovation labs with a primary focus on industry research, technology research, and viability assessment. Leadership sponsorship is key to ensuring innovation centers do not operate in a silo and are embedded into the organizational structure. Let us explore the tales of two enterprises and how leadership played a crucial role in leading the digital disruption and the need to constantly innovate.