Strategic Failure, Disruptive Innovation, and Blue Ocean Strategy

How a leading newspaper publishing company overcame their internal barriers to respond to the interruption from a new newssite

In this consulting project, I advised the CEO of a worldwide leading newspaper publishing company on how to overcome the internal barriers to respond to the interruption from a new newssite, respond to disruptive innovation state-of-the-art, and break the value-cost trade-off through a Blue Ocean Strategy.

In 1992, the CEO founded her own worldwide leading newspaper publishing company. At its foundation, the CEO set up the core principle of the newspaper publisher as to secure the editorial independence and to safeguard the news quality from commercial and political interference. Over the years, the newspaper publisher has been adhering to its core value of journalistic freedom and high-quality news. the newspaper publisher has been ranked one of the most read UK’s quality newsbrands over the past five years.

Despite its high-reputation journalism, the company is facing some tough challenges. Like many other companies in the UK newspaper industry, the newspaper publisher is struggling with difficult financial situations: advertising revenues are shrinking and printing sales are declining because of increasing free newspapers and non-print sources of news. To increase online revenues, the newspaper publisher stopped the free access to its online edition and adopted a “metered model” for its website — allowing free views of a limited number of articles, so the website retains its traffic from search, links, and social media recommendations, but charging for unlimited access.

Apart from the financial challenge, the newspaper publisher also encountered a potential threat from Meta. Two months ago, Meta launched its own online newspaper. The website offers unlimited free access to its daily news. Building on AI technology, the new newssite can also deliver customized news to its users.

Regarding this new move of Meta, the CEO was not too much worried. As she stated in one of the internal top management team meetings, “Meta is an entertaining social media after all. How many people would rely on it for serious news? We have had a high-quality reputation for news reporting for so many years. Those who want trustworthy news will still come to us.”

1. Bargaining power of buyers and Threat of substitutes

The CEO asked me to analyse the determinant factors of buyers and substitutes of the UK newspaper industry. To analyse the determinant factors of buyers and substitutes of the UK newspaper industry, I partially applied the Industry Analysis Framework, Porter’s “Five Forces”. Porter’s “Five Forces” is a framework to analyse the structure of a company’s industry and develop a more profitable and less vulnerable position. The framework consists of five competitive forces that shape the industry competition, but to answer the CEO’s question I only discussed the two factors Bargaining power of buyers and Threat of substitutes.

1. Bargaining power of buyers

In the UK newspaper industry, the Bargaining power of buyers is high. The power of buyers is determined by two factors — their price sensitivity and their bargaining power. In the newspaper industry the buyers have demonstrated that they can capture more value by playing industry players off against each other, forcing down prices, and demanding better quality of more service.

a. Bargaining power

Newspaper buyers have a negotiating leverage because of the following factors.

• Buyers’ switching costs. The buyers’ switching costs for changing vendors are low. The Cambridge Media Research lab result have shown that newspaper customers would rather find a free alternative than pay for their preferred news site.
• Buyers’ information. Through the high availability of information on the Internet, buyers’ information about newspapers, prices, etc. are high. There is an increasing free newspapers and non-print sources of news available so search costs for newspapers decline.
• Buyers’ ability to backward integrate. In the times of the Internet, buyers’ even have a high ability to backward integrate. This means that they produce news and content themselves, specifically by being able to share the news and discuss the news with a group of friends.

b. Price Sensitivity

Newspaper buyers are price sensitive and using their power primarily to pressure price reductions from newspapers.

• Cost of product relative to budget. The cost of the newspapers relative to customers’ budget is relatively low, but because there are more and more free newspapers and non-print sources of news — free of charge is the new standard.
• Product differentiation. The product differentiation in between newspapers is low because there is a trend towards creating lower quality news and moving away from printed newspaper’s core quality, the on-the-ground reporting.

2. Threat of substitutes

The second force, the Threat of substitutes, is when a substitute performs the same function as the industry’s product by different means. In the case of the UK newspaper industry the threat is high because the social media giant Meta has just launched its new newssite.

a. Buyers’ propensity to substitute

By the example of Meta one can see, that buyers’ propensity to the new substitute is high. Meta offers news recommendations that are highly valued by the customer because the save their time. It also offers highly valued interactive means to share and discuss news in groups.

b. Relative prices and performance of substitutes

Furthermore the relative prices of the Meta substitutes is preferable because Meta offers unlimited free access to its daily news.

2. Internal barriers to respond

The CEO asked me to assess the newspaper publisher’s internal barriers to respond to the interruption from the new newssite. To assess the newspaper publisher’s internal barriers to respond to the interruption from the new newssite, I analysed the two basic routes of strategic failure. To answer the CEO’s issues, I limited myself to the route of the external Threat of the substitute the new newssite in combination with the Internal barrier to response. Internal barriers to respond can be failures of perception, motivation, inspiration, and coordination.

In the case of the newspaper publisher, its internal barriers lie within its perception. The failure in perception means that the CEO of the newspaper publisher “don’t sees the threat”. The CEO denies the threat, specifically she selectively rejects this bad news: “the CEO was not too much worried”.

Another factor for failure is the CEO’s hubris to be proud of the company’s past accomplishments (“We have had a high-quality reputation for news reporting for so many years.”) and her set of beliefs and rigid mental models that Meta is not a competitor and that buyer would rely on high quality news (“Meta is an entertaining social media after all. How many people would rely on it for serious news?”).

3. Response to disruptive innovation

The CEO asked for advice what my recommendations to tackle the disruptive innovation would be. To provide recommendations on how respond to the new newssite to the CEO, I used the “How to respond to Disruptive Innovation“-matrix. The matrix offers a framework to assess the Ability to respond and the Motivation to respond of the company.

In both dimensions — Ability to respond and Motivation to respond — the newspaper publisher has the possibility to develop a high rating.

My recommendation would be to attack back and disrupt the disruption. This means that the newspaper publisher’s CEO should build on their abilities as a newly founded company against the incumbents back in 1992 and its trustworthy, quality newspaper. She should increase their platform offering of quality news, leverage the current regulatory trend, liaise with journalists and their associations to fight against fake news, and cooperate with social media players to play them out against each other.

4. Blue Ocean Strategy

The CEO of the newspaper publisher asked me for advice what the Blue Ocean Strategy of the new newspaper competitor to challenge the newspaper publisher would be. To develop my advice for CEO of the newspaper publisher, I applied the 4 actions Framework. It offers a framework to create value innovation — Blue Ocean Strategy — by simultaneous pursuing differentiation and low-cost strategy. The framework consists of four factors: Raise, Create, Reduce, and Eliminate.

1. Raise. To challenge the newspaper publisher, I would expect the CEO of the new newspaper competitor to raise the new newspaper’s quality above the newspaper industry standard.
2. Create. Second, I would expect the new newspaper competitor to create an AI-based fake news detection system on my news platform, collaborate on anti-fake-news with journalists and regulators with the help of blockchain-based verification, and leverage the new entrants platforms by collaborating to attract the non-customer younger generation to which the incumbent industry has never offered anything.
3. Reduce. Third, I would expect them to reduce my paper version below the industry’s standard to focus on interactive means of news sharing and discussing with customer groups.
4. Eliminate. Fourth, I would expect the CEO of the new newspaper competitor to eliminate extra services in print media such as classified ads section on which the newspaper industry has long competed on.

5. Competitive response

Recently one of the newspaper publisher’s award-winning journalists has been reported to commit journalistic fraud for fake news reporting. The CEO asked me how the new newspaper competitor would assess this scandal and its impact. To advice on the new newspaper competitor’s reaction to the scandal, I assessed the newspaper publisher’s scandal and its impact according the concept of Strategic Social Assets. In this concept a scandal is perceived as a negative event which gains notoriety with a relevant audience.

With its fake news reporting the journalist has done a misconduct that runs counter to the established moral norms of ethical journalism. The commitment of the journalist and the publicity of his misconduct will turn the transgression into a scandal. Therefore, I recommended the CEO of the newspaper publisher that her reaction should be the public apology and the company’s transformation back to the ethical standard of journalism.

I advised her that the new newspaper competitor could be about to leverage the substitution effect of scandals and mitigate the contagion and association effect of the scandal. The new newspaper competitor is best positioned to benefit from the scandal because of their close high quality journalism substitute and because they are renowned for enforcing stricter anti-fake news norms. To mitigate the contagion and association effect of the fake news scandal, the CEO new newspaper competitor should condemn the fraud publicly and reinsure to have anti-fake news detection measures in place for their journalists, and liaise with the regulation and industry to put harder anti-fake news standards in place.

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