Paper #03-018

Beyond Resource Allocation: Towards a Process Model of Response to Disruptive Change

Clark G. Gilbert

Copyright © 2002 Clark Gilbert

Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author.

Beyond Resource Allocation: Towards a Process Model of Response

Clark G. Gilbert Graduate School of Business Administration

Harvard University South Hall #217

Boston, MA 02163

Tel: (617) 496-2783 Fax: (617) 495-3817

cgilbert@hbs.edu

Beyond Resource Allocation: Towards a Process Model of Response to Disruptive Change

The challenge of innovation in response to external change lies at the heart of firm sustainability. While external shifts can take many forms, the particular problem of disruptive change has proved particularly problematic for incumbent firms. Previous research has described the challenge as one of resource commitment. But what happens when firms do commit sufficient resources? Does overcoming the problem of commitment imply effective incumbent response? Grounding the research in a series of case study experiments, I inductively build toward a model of firm response. There is evidence that the challenges of resource commitment described in the literature do exist and, uninterrupted, will act to starve the new business of the necessary resources for development. However, a strong sense of threat to the core organization can act as a catalyst to motivate resources that would otherwise be denied. Unfortunately, the same threat motivated mechanism that is required to trigger resources also leads to aggressive rigidity around the established market and product. This finding is supported by research in the threat rigidity literature. Finally, there are copying mechanisms that allow firms to de-couple the resource motivating benefits of threatened response from its rigidity producing behaviors. Separating the new business from the core organization allows managers the independence necessary to frame their efforts as an independent opportunity from the established business, relaxing the response rigidity and allowing the venture to innovate in a market that values the unique attributes of the new technology. Keywords: Strategic change, threat, opportunity, resource allocation, disruptive

technology

INTRODUCTION

The challenge of innovation in response to external change lies at the heart of firm

sustainability. While external shifts can take many forms, the particular problem of

disruptive change has proved particularly problematic for incumbent firms (Christensen,

1997). Disruption occurs not when new technologies attack established markets head-on,

but when the initial attributes of the emerging technologies cause them to be valued only

in emerging markets, prior to invading established markets (Christensen and Bower,

1996; Foster, 1985). This type of market shift has led to the decline of established

leaders and the rise of new entrants across a range of industries, including: disk drives,

computers, transportation systems, excavation equipment, accounting software, and retail

distribution (Christensen and Rosenbloom, 1995; Christensen, 1997; Cooper and

Schendel, 1976). Previous research has described the challenge of incumbent firms as a

problem of resource commitment. Christensen and Bower explain, “The inability of

some successful firms to allocate sufficient resources [italics added] to technologies that

initially cannot find application in mainstream markets, but later invade them, lies at the

root of the failure of many once-successful firms” (1996, p. 198). Because firms commit

resources to the needs of the mainstream markets, resource allocation mechanisms act to

starve disruptive innovation of the resources required to generate sufficient response. But

what happens when firms do commit sufficient resources? Does overcoming the problem

of commitment imply effective incumbent response?

The recent response of Kodak to digital imaging is worth consideration. As with

other disruptive technologies, the early products built around digital imaging did not

initially meet the performance criteria demanded by Kodak’s mainstream customers in

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their established chemical film markets. Theory would predict that Kodak would starve

the new imaging technology of the resources required for its development. However,

unlike the previously observed models of firm response, Kodak aggressively allocated

resources to the new technology. Between 1996 and 1998, Kodak spent over $2 billion

on digital imaging and nearly half of its budgeted R&D resources. Unfortunately, rather

than finding markets that would value the unique attributes of the new technology,

Kodak’s response was to force the product into its existing markets, installing over 2000

digital kiosks through its established retail network. Kodak’s focus on its established

market occurred despite the fact that new entrants were rapidly developing applications

for an emerging market around home usage and development. Kodak had recognized the

threat of disruption and overcome the problem of resource commitment, but had

aggressively crammed the new technology into its established markets.

This paper is motivated around three research questions that relate to this response

phenomenon. First, what allows firms to overcome the challenges of resource

commitment in response to disruptive change? Second, when firms do respond, what

drives the observed rigid behavior where disruptive technologies are aggressively

crammed into existing markets? Third, are there mechanisms to relax this rigidity that

will allow the firm to innovate along the demands of emerging markets? The

phenomenological nature of these questions led the inductive study outlined in this paper.

The setting for the research is the newspaper industry and firm response to digital

publishing. Like other disruptive innovations studied previously, the established markets

of newspaper companies initially undervalued digital publishing. But unlike the previous

research on disruptive technology, the industry responded quite aggressively.

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Unfortunately, despite their intense commitment, many firms forced the new technology

into existing market models at the expense of innovating around a new market segment.

Applying a series of case study experiments, I inductively build toward a

grounded model of firm response. There is evidence that the challenges of resource

commitment described in the literature do exist and, uninterrupted, will act to starve the

new business of the necessary resources for development. However, a strong sense of

threat to the core organization can act as a catalyst to motivate resources that would

otherwise be denied. Unfortunately, the same threat motivated mechanism that is

required to trigger resources also leads to aggressive rigidity around the established

market and product. This finding is supported by research in the threat rigidity literature

(Dutton and Jackson, 1987; Staw, Sandelands, and Dutton, 1981). Finally, there are

copying mechanisms that allow firms to de-couple the resource motivating benefits of

threatened response from its rigidity producing behaviors. Separating the new business

from the core organization allows managers the independence necessary to frame their

efforts as an independent opportunity from the established business, relaxing the response

rigidity and allowing the venture to innovate around a market that values the unique

attributes of the new technology.

RESEARCH METHODOLOGY

The research employs a multi-case design, which allows what has been called a

“replication logic” whereby a set of cases are treated as a series of experiments, each case

serving to confirm or disconfirm inferences from another (Yin, 1994). The current study

provided an opportunity to observe and analyze a phenomenon previously inaccessible to

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scientific investigation (Yin, 1994). There are numerous examples where organizational

phenomena have been examined productively using inductive case study research

(Burgelman, 1983a; Eisenhardt and Bourgeois, 1998; Gersick, 1988). The following

research employs a Type IV embedded, multi-case design (Yin, 1994). The primary unit

of analysis is the new venture and the embedded units are the sponsoring division and the

corporation itself. In total, eight new ventures launched in response to a new technology

were examined across eight different newspapers and four different corporate settings.

The eight newspapers are presented in Table 1 with relevant descriptive statistics.

Because of the sensitivity of the data, the names of these newspapers and their parent

organizations have been disguised.

I chose to examine the response of newspaper firms to digital publishing for two

reasons. First, the impact of electronic publishing on firms in the newspaper industry

generally fit the research questions described earlier. Online publishing technologies

tended not to find applications with established newspaper markets initially, but

threatened to eventually invade those markets as the technology evolved. Also, the

response of newspaper firms was different than many other industries studied previously

in the literature of disruptive technology—firms were able to respond quite aggressively

to the new technology, despite its initial lack of application in their mainstream markets.

The second reason I selected a single industry was more methodological—selecting firms

in a single industry allows the researcher to control for extraneous variation (Eisenhardt,

1989a). The selection of specific case sites was based on a theoretical sampling (Glaser

and Strauss, 1967; Yin, 1994) along a series of polar types that were likely to replicate or

extend the emerging theory (Pettigrew, 1988; Eisenhardt, 1989a). Thus four ventures

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that were extremely innovative and four ventures that were extremely rigid were

identified for further examination.

Data Sources

Four main sources of data were collected: 1) open-ended interviews, 2) archival

documents, 3) direct observations, and 4) public documents. Yin suggests: “With

triangulation, the potential problems of construct validity also can be addressed because

the multiple sources of evidence essentially provide multiple measures of the same

phenomenon” (1994, p.92). Following the embedded nature of the study, data was

collected at the corporate level, the newspaper level, and the online venture level across

each of the sources of data (See Table 2).

Interviews. In total 51 in-depth, one to two hour long interviews were conducted.

These interviews included the senior executive at each level of the analysis: corporate,

the newspaper, and the online venture. Where possible, functional managers at the

newspaper and online venture level were also interviewed. At each level, semi-structured

interview templates were designed around issues such as: what motivated the manager to

commit to the digital media, how that had evolved over time, the relationship between the

print and online efforts, etc. (See Table 2). Where possible, efforts were made to

triangulate across multiple sources of information, using multiple informants and cross-

checking against other sources of data to avoid retrospective bias in the interviews. Strict

case study protocol was followed. All but a few interviews were recorded and

transcribed prior to their entry into a comprehensive case study database.

Archival Documents. One of the most useful sources of cross-checking against

informant recall was the use of archival documents. Nearly 30 different internal archival

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documents were collected across five of the eight sites. These documents included:

online business plans, strategy proposals, internal memos, annual strategic planning

documents, customer lists, and various historical sales of collateral materials. These

archival documents served both as a valuable primary source of data and as a source of

triangulation on interviews and a check against retrospective bias. Most helpful were the

various business plans, starting as early as 1990, that discussed arguments over whether

or not to fund the online ventures.

Direct Observations. Direct observations served as another source of

triangulation, though they were used almost entirely as a means of observing real time

processes. Because of the timing of the study, this could only reveal processes post-

funding. During a one and a half year period from 2000-2001, I spent time directly

observing the following types of organizational events: reporting meetings between the

online venture and newspaper / corporate executives, planning meetings for the online

venture, the process of story creation for the newspaper and website, sales calls for both

the newspaper and online products, and other planning meetings. In total, 24 discrete

field events were observed and recorded into the case study database.

Public Documents. Finally, over 150 public documents were analyzed, including

press releases, annual reports, analyst research reports, and industry articles. These

external sources of data were useful in the triangulation effort to cross-validate other

sources of data. The public data also served as a useful source of identifying new

entrants into the digital information and publishing market and as a useful source of

comparisons to what was being observed in the newspaper online ventures.

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Analysis of the Data

Inductive theory development from case data is a highly iterative process. Propositions

take form initially from early case analysis. The preliminary analysis came from a set of

matched pair, polar cases at The Beacon A and The Expositor A. I induced an initial set

of propositions by analyzing the case data and enfolding a set of relevant literatures using

methods for inductive theory development advocated by Eisenhardt (1989a) and Glaser

and Strauss (1967). After the development of an initial set of propositions, I then

returned to the case data from subsequent case sites to see if the emerging relationships

were confirmed or disconfirmed through a process of analytical replication (Yin, 1994).

Eisenhardt points out the difference between this process and more traditional deductive

hypothesis training:

The key difference is that each hypothesis is examined for each case, not for the aggregate cases. Thus, the underlying logic is replication, that is, the logic of treating a series of cases as a series of experiments with each case serving to confirm or disconfirm the hypotheses. Each case is analogous to an experiment, and multiple cases are analogous to multiple experiments. This contrasts with the sampling logic of traditional, within-experiment, hypothesis-testing research (1989a, p. 542).

To test whether the relationships identified in each proposition were confirmed or

disconfirmed, the data were arrayed following techniques for cross-case pattern

sequencing (Eisenhardt, 1989b) and tabular displays (Miles and Huberman, 1984).

Similar to deductive hypothesis testing, the propositions presented here fit well with the

evidence, though they did not always conform perfectly (Sutton and Callahan, 1987;

Eisenhardt, 1989a).

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THE PROBLEM OF COMMITMNET

The resource allocation process articulated by Bower, Burgelman, and their colleagues

(Bower, 1970; Burgelman 1983a, 1983b; Noda and Bower, 1996) is a model designed to

map the way in which organizations decide to commit resources to a given proposal. An

important feature of the model is the process of building impetus, which Bower describes

as the “force that moves a project forward” (1970, p.67). Another way of understanding

this is to examine the set of considerations that a manager considers when he decides to

sponsor or commit to a new project. These might include career risk, likelihood of

success, and external pressures, such as capital markets and customer demands. Research

by Christensen and Bower (1996) added new insight to research on corporate innovation

by identifying what has been described as disruptive technology. Disruption occurs not

when new technologies attack established markets head-on, but when the initial attributes

of the emerging technologies cause them to be valued only in emerging markets, prior to

invading established markets. The author’s insight came largely from making linkages

between resource dependency theory (Pfeffer and Salancik, 1978) and resource allocation

research (Bower, 1970; Burgelman 1983a, 1983b). The linkage demonstrated that the

impetus required to motivate resources is largely determined by the customers in an

organization’s mainstream markets. “When the initial price/performance characteristics

of emerging technologies render them competitive only in emerging market segments,

and not with current customers, resource allocation mechanisms typically deny resources

to such technologies” (Christensen and Bower, 1996, p. 198).

I found a considerable amount of evidence initially confirming this earlier

research. However, one subtle change from earlier findings is the emphasis on the

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condition that focuses on the source of the impetus in building toward commitment.

When impetus is built around a company’s leading customers and established markets,

we would expect to see similar results to earlier findings. This is consistent with the

results of Christensen and Bower (1996), but loosens the power of their linkage to

resource dependency theory (Pfeffer and Salancik, 1978). Formally stated:

Proposition 1: When the impetus for commitment is built predominantly around the demands of customers in a firm’s established markets, resource allocation mechanisms will deny resources to disruptive technology.

Table 3 summarizes the evidence from the field data for this proposition. In nearly every

case examined, business plans for online newspaper sites spent over two years in

proposal. Since it was unclear early how to make money in digital media and these

ventures did not appear as profitable when measured against the dominant models used

for the core newspaper business, these proposals stalled in the formal budgeting process.

The chairman and CEO of The Expositor Company explained his thinking: “My training

is in finance. And in the end, the only real value is cash and cash creation. You can’t

build a business just on potential or hope.” The vice president of Product Development at

The Expositor B explained how that philosophy spilled down into the resource allocation

metrics:

We had operating targets we had to meet . . . Even in business development, these units were expected to be profitable from day one. . . We proposed it to finance and they said, ‘Look. When we roll these up into our budgets we miss our targets.’ What that means is that most greenfield businesses don’t get invested in--unless they are very small, and the Internet is not very small.

When projects did get funding, it was because their budgeted forecasts promised to

generate the types of returns that would fit the resource allocation requirements of the

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firm. The CFO at The Expositor B describe how proposals she reviewed frequently hid

costs:

I remember being the CFO and the first proposal came to me saying we will make money and I sent it back to them because I knew it would not. People were trying to figure out what they had to do to get it approved. The goal was to get a modest loss. . . You almost had to hide its costs so that it didn’t look as bad as it was.

At the Beacon Company, newspaper publishers actually did approve funding for their

new media businesses, but did so only once the forecasts showed these ventures breaking

even in short time horizons and returning EBITDA margins exactly in-line with the

targets already set for the core business.

Unfortunately even with financial commitment, resource allocation mechanisms

can reach far more broadly than just the financial budgeting process. Resource allocation

also includes the commitment of time and attention-based resources at the operating

levels of the organization. Because the new business did not fit the operating decision

rules and priorities of the functional print organization, managers consistently prioritized

time elsewhere. For example, the sales organization found that their leading customers in

the established newspaper advertising markets were not interested initially in online

media advertising.

An online sales rep at The Beacon A recalled the challenges print reps had selling

the online product, saying, “Print reps could sell the online product, but with varying

degrees of success. Their margins were higher on other products that were easier for

them to sell. Online was really just a novelty to them.” A print rep at The Press A

described his efforts, “I occasionally sell a bundled print and online package. There is no

standard package and it is hard to really know what the print advertisers would want.”

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Data were gathered on five of the research sites concerning the customer overlap between

print and online. I asked managers to estimate how many of their top 25 advertisers

online were in the top 25 advertisers in the newspaper. Of a possible customer overlap of

125, there were only seven. The travel category at The Press A was a good example. Of

the top ten booking agents online, only four even advertised in print, and none were

major print accounts. Thus the largest clients in the newspaper were not those initially

advertising online. The net effect of these customer differences was that print reps

concluded that the Internet ad was a small, difficult, and unprofitable product to try to

sell.

Similar challenges occurred in the newsroom. Online users were often very

different than print readers and the way they engaged with the product was very different.

Consequently, print editors often viewed online content as low quality journalism. An

experience shared by the publisher at The Beacon A is indicative of the challenge online

managers faced getting commitment from the editorial staff of the newspaper:

I had trumpeted the new business to everyone and asked for their cooperation with the online group. One day I asked an online staff member how things were going and if the newspaper staff was helping out. He told me that he had recently asked for some help, and the response was, ‘Get the hell out of here, I’ve got a real newspaper to get out.’

Thus, when the impetus for commitment was built around customer demands in the

existing organization’s market, resources were denied to the disruptive business. I found

evidence for this at nearly every site in the sample. Even though websites were launched,

resources were scarce. And despite the modest funding, the operating organization

repeatedly diverted time and energy away from the new venture.

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THREAT MOTIVATION AND IMPETUS

Though the initial stages of the resource allocation process appeared likely to deny

resource for the venture, a new source of impetus began to emerge that differed from

previous findings in Christensen and Bowers’ research (1996). The difference in impetus

was also accompanied with very different behavior patterns. Management scholars have

previously identified the role threat framing can play in creating action around a desired

response (Kotter, 1996). Hurst found that creating a sense of crisis can serve as a catalyst

for action (Hurst, 1995). Psychologists have also noted that response in the domains of

loss leads to an increased willingness to commit resources (Mittal and Ross, 1998;

Kahneman and Tversky, 1979). The data in my research showed evidence that a sense of

threat to the core organization can motivate commitment of resources, creating the

impetus necessary to break the cycle of resource dependency articulated by Christensen

and Bower (1996). Stated formally:

Proposition 2: When the impetus for commitment is built around a strong perception of threat to the core organization, resource allocation mechanisms will aggressively commit resources to disruptive technology.

I considered threat as a construct prior to coming to the field and was largely informed by

measurement of that construct. While no technique to collapse multiple indicators into a

single measure were used because of the complex nature of the field data (Eisenhardt,

1989a), the investigation was informed by three common characteristics associated threat

perception. Research in the social psychology literature recognizes threat perception as

displaying a negative focus, emphasis on loss, and sense a lack of control (Jackson and

Dutton, 1988; Dutton and Jackson, 1987). Evidence supporting the relationship between

threat perception, the process of building impetus, and a subsequent intensified

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commitment is summarized in Table 4. Data indicate that a strong perception of threat

led to an increase in financial and organizational commitment behind the online ventures.

In some instances the concern was built around a loss to the classified products, including

employment, real estate, and auto listings. In other cases, the concern was more

generally placed around the entire business itself and a threat to the fundamental

readership and advertising market for a printed newspaper. The source of increased

perception of threat often came from external analysts. For example, a 1997 report by a

leading new media analyst argued that the Internet would drive many newspaper

organizations to extinction. The cover of the article featured the image of a fossilized set

of dinosaur bones. A 1998 research report entitled “Goodbye to Classifieds,” predicted a

$4.7 billion dollar annual displacement by 2003.

The sense of threat in the newspaper organizations built gradually at first, and at

slightly difference paces. By 1997 to 1998, most newspapers were thoroughly concerned

about the threat of online media, even though the customers in their mainstream markets

were still not viewing the media as a valuable advertising outlet. The director of

marketing at The Morning News B described the evolution at the newspapers:

“You felt like Chicken Little screaming ‘the sky is falling’, but after a while people started listening when they saw what the other competitors were doing. We made watch lists for TV, radio, vertical start-ups, telephone companies, and Citysearch. Citysearch was poaching people. . . . The publisher was unlike some in that he saw the threat.”

In all of the primary research sites but one, threat was the primary motivator

toward action. In each of these cases, there were various manifestations of threat

perception that were consistent with the construct as described in the social psychology

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literature. For example, the CEO of The Press Company’s Internet group described how

his organization was motivated out of fear of loss:

McKinsey had come in and had done a rather startling analysis of the classified business . . . They predicted that 20-30 percent of our classified revenue would disappear by 1998. That raised enormous alarm bells in some people. I think the notion that people would start reading their newspapers on the screen was also quite prevalent. . . There were people who thought we would lose half of our circulation.

There was also a general concern that the future of this media was largely out of the

newspaper companies’ control. The publisher of The Beacon A expressed this fear:

“What if we do every damn thing we can think of and execute flawlessly and we still

don’t make it? We can slow it down, but we can’t stop it.” The potential for opportunity

was not completely absent, but the overall tone was generally defensive and negative.

In the seven of the cases where threat became the impetus for commitment,

financial and organizational commitment expanded with increasing concerns about the

threat of the Internet. Financial expenditures in the field sites expanded as much as 400

percent during the years that threat perceptions were building (See Table 4). The number

of employees allocated to these sites similarly expanded. For example, dedicated online

staff went from 5 to 40 during an 8 month period in 1998. Other sites also expanded their

dedicated online employees, many increasing their numbers to over 100 individuals.

However, the commitment of resources was not limited to dollars and personnel. There

was also an expanded commitment at the operating levels. As one sales manager at The

Beacon A described, “Look, it didn’t make any sense for us to try to sell this stuff, but we

were made to feel that if we didn’t work on it, it might come back to haunt us.”

Reporters were asked to summarize articles and stories before they were published in

print. Many were also encouraged to write follow-on stories just for the web.

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Evidence for the linkage between expanded threat perception and expanded

commitment came not only from interview data and informant recollections, but also

from triangulation with independent archival data. For example, of the five business

plans that were obtained during the period of most rapid expansion, all five stated

categorically the threat of inaction. A 1997 business plans at The Beacon B suggested

that they would lose 15-20 percent of their print classified revenues if they did not

respond aggressively. Several documents from other newspapers pointed out that if the

newspapers didn’t cannibalize themselves, someone would. Unlike earlier proposals that

had emphasized financial returns and new market opportunities, arguments for increased

funding were now focused on the potential downside to the print business. This

expansion came despite increasing losses, typically greater than 100 percent of revenues.

The notable exception to threat as impetus was The Morning News A.

Nevertheless, the pattern exception was consistent for theoretically consistent reasons. In

the case of this newspaper, the Internet actually helped solve an existing organizational

problem and accordingly needed less threat motivation to generate response. Note that

The Morning News A was the only pure nationally distributed newspaper in the sample.

In this sense, the Internet offered some unique operational benefits that sustained the

existing business. The president and publisher described:

This was a wonderful opportunity from the start. If you are a national newspaper with a three percent penetration, all of a sudden you have an opportunity for virtually no cost to distribute the product . . . The Internet creates huge opportunities to deliver product in areas that were uneconomical before. . . Eighty percent of my costs are production and distribution. Now all of a sudden I have a solution. It is not a content play, but a major cost reducer and product expander.

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The newspaper also had a limited classified product and was not strapped by the fear of

cannibalization like many of the other sites in the sample. In many ways, the Internet fit

with a set of sustaining needs for the print newspaper business and was accepted

accordingly.

THREAT LEADS TO RIGIDITY

Unfortunately, the data from the research show that the same threat-based mechanism

that is required to motivate resources also leads to aggressive rigidity around the

established market and product. Having shown evidence for Proposition 2, we can now

move to consider otherwise contradictory findings concerning the effect of threat framing

on decision-making. The conflict arises around the question of whether threat perception,

often measured as risk perception, leads to action or inaction. Mentioned earlier,

Kahneman and Tversky’s research on prospect theory suggests that individuals in the

domains of loss are more likely to be risk seeking (1979). Meanwhile, Staw, Sandelands,

and Dutton (1981) and later Dutton and Jackson (1987) show that individuals who are

threatened by losses respond rigidly and become risk averse. Research by Sitkin and

Pablo (1992) acknowledges this contradiction and suggests that part of the problem lies

in the fact that previous research has viewed threat-based action along single

determinants of behavior. They suggest that a model for this behavior, based on a more

complex set of determinants, is required. The data in this study support Sitkin and

Pablo’s suggestion, but add new insight into specifying the different determinants of

behavior. Namely, threat framing does lead to action through increased commitment (in

support of Kahneman and Tversky, 1979 and their colleagues), but that commitment is

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rigidly deployed around a narrow set of previously learned behaviors (in support of Staw,

Sandelands, and Dutton, and Dutton and Jackson). Both streams of literatures measure

outcomes based on a change in behavior. But the former measures that action as a

change in basic resource commitment, while the later measures that action as a change in

basic organizational patterns and routines. For example, much of the research following

Kahneman and Tversky and their colleagues measures risky behavior not as a

“willingness to try something different or new” but rather as “willingness to spend

aggressively.”

Mittal and Ross created scenarios where they induced threat and opportunity

framing (1998). Framing was manipulated by creating a controlled questionnaire setting

in a lab with constructed introductory descriptive stories that were either threat or

opportunity focused. The study participants were then presented otherwise identical

scenarios and asked to select financial commitments, given a set of identical probability

scenarios. Participants who had been given the threat introductions had significantly

higher “willingness to spend” than participants who had been given the opportunity

introduction. Hartman and Nelson found similar results in their research (1996).

Kahneman and Tversky’s seminal study on risk showed that if issues were framed

as being in the domain of loss versus the domain of gain, individuals were much more

likely to commit financial resources, given otherwise identical outcome probabilities

(1984). The work of Staw, Sandelands, and Dutton (1981) and Dutton and Jackson

(1983) demonstrate that threat motivation leads an individual, group, or organization to

rely on previously proven response behavior with little altercation. The data in the

current research fuse these two previously contradictory literatures, showing that threat

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creates active, even aggressive change in behavior when measured as resource

commitment, but intensely rigid behavior when measured as a change in basic work

patterns and routines.

To study the intermediate behavioral effects of threat motivation, I used

constructs that were consistent with those articulated in the existing literatures. Using

data observed in the field and sharpening those observations by enfolding literature on

threat rigidity, I was able to identify three intermediate behaviors associated with threat

perception that led to the rigidity observed. The intermediate behaviors examined and

confirmed in the data include: 1) a willingness to commit substantial resources, 2)

contraction of authority, and 3) focus on existing resources. For the first intermediate

behavior, a marked difference appeared between the data observed and the findings

discussed by Kahneman and Tversky (1979). The very process that leads to a change in

resource commitment also leads to rigidity around basic organizational patterns and

routines. This occurs because increased commitment down one path of response makes it

more difficult to move to another. The effect of this intermediate behavior can be stated

more formally as:

Proposition 3a: Threat perception creates an intermediate behavior that demonstrates a willingness to spend aggressively without changing initial response patterns.

Data presented previously in Table 4 show that threat indeed led to an increased

willingness to commit substantial resources. The data show that the aggressive pace of

commitment makes it more difficult to step back and change behavior. Firms in the

sample expanded their resource commitments at more than 100% per year during the

period of accelerated threat perception. Recall that The Morning News A had gone from

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five to 40 people in less than eight months. Expenses at The Beacon B doubled, and then

nearly doubled again in 1997 and 1998, despite original forecasts for profitability by

1996. Whereas initial disappointments might have led a manager to step back and change

behavior, threat motivation caused managers to push harder on the same misdirected

paths. To paraphrase Santayana’s definition of a fanatic, it was like someone who had

doubled their speed when they had lost their direction. If initial behavior is similar to

traditional response patterns, even if only because that was the point of origin, then rapid

expansion of resources may serve only to reinforce and harden commitments around

those previously applied patterns. Evidence for Proposition 3a was found across nearly

every site in the sample (See Table 5).

The two other intermediate behaviors that led to rigidity as were observed in the

data were contraction of authority and focus on existing resources. There is support for

this finding in the literature on threat rigidity. For example, Staw, Sandelands, and Ross

found that threat situations were associated with “increased centralization of authority,

more extensive formalization, and standardization of procedures” (1981, p. 513).

Hermann also noted a contraction of authority associated with crisis situations (1963).

As decision-making becomes centralized, organizations and managers tend to focus on

what they know best, making it more difficult to include dissenting opinions (Janis,

1972). However, in non-threat situations, managers are much more likely to allow

authority to be delegated to the operating levels of an organization (Nutt, 1984; Mintzerg,

et al., 1976). Finally, because threat-induced behavior is focused around concern for loss,

attention and energy is focused around those resources that might be lost and not the

resources that might be gained, which are often new or different (Hartman and Nelson,

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1996; Mittal and Ross, 1998; Dutton, 1992). The repeated focus on existing resources

runs counter to the literature on corporate innovation and entrepreneurship which

suggests managers pursue “opportunity, regardless of resources currently controlled”

(Stevenson and Jarillo, 1990, p. 23). The existence of these intermediate behaviors can

be stated more formally as:

Proposition 3b: Threat perception creates an intermediate behavior that demonstrates a contraction of authority, which serves to formalize initial response patterns. Proposition 3c: Threat perception creates an intermediate behavior that demonstrates a focus on existing resources, directing initial response patterns to center around the core business at the expense of innovating around the new business.

Evidence of the existence of these intermediate behaviors is again summarized in Table

5. For example, there was intense contraction of authority at The Beacon Company. The

vice president of technology and operations described, “It was very centralized in the

beginning, which was very uncharacteristic, because the culture is very much to let these

guys run their own businesses. . . We had a basic business model for every site. We

gave them money. We told them they could hire people, but we told them exactly how to

do it.” More critically, this aggressive response was focused around defending the

existing resources. One manager at The Press A described, “Cannibalization was a huge

concern for everyone initially, both of print subscriptions and the Lexis-Nexis type

vendors (archives) . . . We asked questions about readership overlap and whether they

would stop reading the paper when people registered on the site.” There was a real

concern in many of the ventures as to how their actions would impact the existing

resources of the paper. In some cases, this meant functional managers held onto the

control of the Internet activities that related to their responsibilities in the print

23

organization. For example, the president of The Expositor A Internet site explained that

“because the classified organization was so worried about defending the print classifieds

business, that group held onto the online business.” This focus on the newspaper was

powerful even when groups were told they had reasonable autonomy. The head of sales

for The Press Company’s Internet group explained, “On the one hand I should go do

whatever we need to do, but on the other hand there is concern about the paper.”

The data show that the combined effect of these three intermediate behaviors

leads to firm response that is aggressively rigid. The focus on existing resources prevents

initial patterns of behavior from innovating around the new opportunity, a behavior that is

hardened through aggressive commitment of resources and a contraction of authority.

Data showing the resultant rigidity are summarized in Table 6. In almost every instance,

threat motivated commitment led to an aggressive replication of the newspaper product

and business model. Seven of the eight research sites showed a product that was merely

an extension of the newspaper product. In these sites, greater than 75 percent of the

product came directly from the newspaper. As the publisher of The Beacon A described,

“We learned [from early involvement with new media] that there wasn’t very much

appetite for an ‘electronic’ newspaper . . . But that is exactly what we did with the

Internet.” Common features such as reader discussion boards, site searching tools,

breaking news from third party sources, community and special interest forums, and

many other content features that were being developed by many new entrant competitors

were largely missing from newspaper sites. Ironically, the technologies to develop these

products were largely available and relatively easy to deploy. The Chairman and CEO of

The Beacon Company described:

24

Where I think we missed the boat is that we saw it as an extension of the newspaper. In other words, something richer and deeper than the newspaper. . . But here was the real mistake. When the search companies came along in 1995, we didn't really pick up on the fact that this was really a way of getting all kinds of information. So when they were starting up search, we never really jumped on the bandwagon and our internet operations were really run by people who came out of the newsroom, so they were editors who tended to look at this more as a newspaper.

In most of these sites, the product looked and functioned exactly like the printed

newspaper. The CEO who was hired on to run The Press A business described,

“Remember that I had said to the CEO at the time that it made absolutely no sense to

replicate the newspaper on the internet. Then I saw the product and it was just that.”

The rigidity was expressed not only with the product but with the business model

used to pursue the venture. Using a panel set of five entrant competing firms, I compared

the income statement of the sites in the research sample. This analysis identified six new

categories of revenue associated with the new media that were different from those

categories built around a print newspaper. While the comparative set of entrants

averaged more than five new categories per site, most of the newspaper sites in the

sample captured only one (See Table 6). In many cases, these new categories of revenue

represented over 40 percent of the revenue streams of entrant firms, the bulk of which

was missing from the online newspaper comparisons. As the CEO of The Expositor

Company explained, “We couldn’t see any models that we were familiar with, nor any

we knew how to make money with.”

THE NOTABLE EXCEPTION TO THE PATTERN

25

The most notable exception to the pattern of rigidity was The Press B. In this case, the

Internet was still undervalued by the traditional resource allocation mechanisms of the

firm. And threat was also the impetus that eventually motivated action. In fact, in initial

proposals managers argued that “if we don’t cannibalize ourselves, someone else will.”

And just like the other firms, the early thought of The Press B newspaper management

was that the Internet product should be a “newspaper in electronic form.” However,

unlike other incumbents, The Press B did not follow those initial impulses to replicate the

newspaper. Senior management channeled their threat-induced call to action by first

looking outside for advice on the strategy, hiring a business executive from Silicon

Valley with background in new media to write their original business plan. Second, and

more importantly, they decided to setup the Internet business as a separate, wholly owned

subsidiary and hired senior management with new media experience. They soon

developed a separate brand name so that it would not be viewed as an “electronic version

of the newspaper.” The Press B also set up a separate sales force that would price and

sell online ads independently. Finally, the Internet group moved out of their newspaper

offices and setup more than a mile away from the print organization. From very early on,

rather than replicating the newspaper, the site evolved to become a regional source of

news and information with significant differences from the newspaper. Over 50 percent

of its site content was from sources other than the newspaper, including many of the

product features that were being developed in other new entrant competitors. Its lead

stories were different, and were rotated throughout the day to match site usage patterns.

It also added sections that did not exist in print, but were more relevant to the Internet

audience, and it created user tools that took advantage of the medium: traffic web

26

cameras, searchable event databases, interactive discussion forums on local area issues,

music downloads from local artists, and many other new forms of content. One online

editor described just how different the new product became:

Page views from the newspaper are now barely more than 1/3 of the available pages on our site. We are really becoming a separate company from the newspaper. I came from there. I love the paper, but we are now a different group with a very different way of working. They are one source of information--an important source. But we buy our content from them like we buy it from anywhere else.

Similarly, the site captured multiple new categories of revenue that did not exist in the

business model of its parent newspaper. Though its business model was still not as

innovative as other new entrant competitors, it was considerably more innovative than

most of the other sites in the newspaper sample (See Table 6). For example, while most

online newspapers in the sample showed only one new category of revenue, The Press B

captured three, including: fee-based archival access, e-mail marketing, and usage data

analysis fees.

STRUCTURAL FORM AND MANAGERIAL FRAMING

Previous research on disruptive technology implied that the role of structure freed the

new venture from the pressures of resource allocation in the parent, enabling resource

commitment to flow to the emerging opportunity (Christensen, 1997). However, in the

current research all of the research sites had been able to commit significant resources to

the new ventures prior to separating them from their parent organizations. The case of

The Press B seemed to initially suggest that the role of structure extends beyond resource

allocation. Four of the research sites, including The Press B, eventually separated their

online venture from the parent organization. The process of separation often took several

27

years as the functional units in the parent organization were often reticent to lose their

control of the strategy and development of the online business. To answer whether the

venture had been separated from its parent organization, I performed analysis that

considered the units’ own reported classification and a number of other metrics, including

reporting lines and physical location (See Table 7).

Though all of the research sites considered whether or not to separate their online

venture, there were powerful forces to keep the sites integrated. For example, most of the

research sites viewed the resources of the newspaper as a clear competitive advantage for

the online newspaper websites. In the original 1990 online business plan from The

Beacon A, the publisher wrote: “The power of the newspaper to provide thrust for the

new services can be harnessed only if it achieves deep levels of integration with the

newspaper. Structuring the experiment as an enterprise separate from the newspaper

would be crippling if not fatal.” Reflecting in 2000 on some companies who had

separated their online divisions, the vice president of business development at The

Morning News A described it as a mistake: “Our basic strategy is an integrated strategy,

so we’re not like some of these companies who have spun online out. In the local

information market the newspaper has an advantage. To separate the online unit from the

newspaper is to give away a lot of that advantage.” Indeed with increased threat

perception, newspapers were even more likely to contract authority around considerations

of the existing newspaper resources.

Nevertheless, many companies did separate, including four research sites in the

sample. The underlying motivation, though not entirely set in pattern, appeared to be

related to outside influences. Two of the sites separated at the adamant demands of their

28

general managers, who came from outside of the newspaper organization. In the case of

the online CEO at The Press A, his condition for joining the venture was that it be

separated from the parent organization. At The Beacon Company, the process was more

evolutionary and was driven by interactions with outside partners. One such experience

at The Beacon A is indicative. A partner of the online newspaper who marketed online

directory services through the newspaper’s website had asked if they could build their

own sales force agency to sell the product for the newspaper. Within a year, the sales

agency had tripled the performance of an equivalent number of dedicated print sales reps.

The newspaper then purchased the agency, but kept it separate on the demands of the

sales director. The Agency, as it continued to be referred even after it was bought, stole

product after product from the print organization until 2000, by which time it was selling

close to two-thirds of the online ads for The Beacon A online site.

Even before sites separated, there were some managers who thought that the

Internet, while still a threat, could also offer new opportunities to newspapers. The

president of the Press Company shared this view:

We were worried about the web in that it would alter the way in which people would get information, but it was not purely defensive. We had launched into entertainment years ago as a defensive move in the paper. It eventually became a new source of growth for us. Many of the threats eventually become opportunities. The Internet may be the same way. We definitely classified this as a threat and were concerned about the potential impact on the core business, but there is also something new there we could never have done before.

However, this dualistic view was hard to maintain in an operating environment where

operating responsibilities make it difficult to emphasize the opportunity. Thus, one of the

roles that structure as observed in the data is to de-couple the motivation at the parent and

the motivation at the venture. As the former head of new media at The Beacon Company

29

described: "I didn't focus people on the threat, especially those managing the new

business. Where I did emphasize the threat was in working with the print folks to get

them off their butts and in arguing for resources.” This is consistent with the concept that

separate structure allows competing frames to simultaneously co-exist as described by

Gilbert (2002). Data from the other sites further confirmed that structure played a role in

the way managers framed their motivation. Thus, an additional proposition can be stated:

Proposition 4: Separating the new venture from its parent organization can help de-couple the threat motivation in the parent from an opportunity focus in the separate venture.

The data show that as sites separated, structure played a role in creating an environment

where the entire motivation could be built around the separate opportunity that existed for

online. As one manager in a separated site explained, “When we simply changed our

name from the newspaper name to the city.com . . . it changed people’s expectations of

what would be on the site. This in turn changed how people in our online organization

viewed who they were and what they were producing.” The Beacon Company’s new

president of the new media group described, “Now that we are separate, we own the

opportunity in a way we never did when we were still with the newspaper.” And while

the concept of the opportunity was changing in the separated sites, the integrated sites

continued to remain focused on the threat of the Internet to their parent organizations. As

the vice president at The Expositor B described, “We continue to see this as a way to

protect classifieds, and that if we don’t do it someone else will.” Thus, structure allowed

threat motivation to continue to provide the impetus for resources from the parent, while

blocking its rigidity producing intermediate behaviors from continuing to impact the

venture. Evidence for Proposition 4 is summarized in Table 8.

30

The process of separation, which led to a process of re-framing or frame de-

coupling, combined to help relax the rigidity in these sites. A final proposition can thus

be stated:

Proposition 5: Separating the new venture from its parent organization and re-framing in the venture around a separate opportunity combine to relax the rigidity created by threat-based impetus.

In the four sites that separated, there was substantial expansion in innovation away from

the newspaper and more in line with entrant firms competing in the emerging market.

These sites became less of a newspaper in electronic form, with increasing percentages of

their content coming from new products, including many of those described previously.

While the integrated sites continued to distribute as high as 90 percent of their content

from the newspaper, all of the separated sites relied on 50 percent or less of their content

from their print counterparts (See Table 8). When comparing the two groups, a two

sample t-test showed that the separated group had a significantly lower percentage of re-

used newspaper content than the integrated group, where t(6)=5.81, p<.01. This

evolution had a positive effect; those sites that had separated and moved their emphasis to

the emerging opportunity showed much higher local market penetration scores than the

other sites in the sample (See Table 8). Again, these differences were significant, with

t(6)=2.75, p<.05. Finally, the separated sites became more innovative along the changes

in the underlying business model of the business, averaging close to five new categories

of revenue compared to the integrated sites that developed just above two new categories.

These differences were also significant, with t(6)=4.63, p<.01.

31

TOWARDS A PROCESS MODEL OF RESPONSE TO DISRUPTIVE CHANGE

This research explored the process of response to disruptive change. The findings are a

set of propositions, captured in Figure 1. They are organized around a model that maps

the process of firm response to disruptive change. The first two propositions focus on the

process of resource commitment by examining the source of impetus that drives the

resource allocation process itself. A considerable amount of data exist across the

research sample to confirm the earlier findings of Christensen and Bower (1996) that

when the impetus for commitment is built around the demands of customers in a firm’s

established markets, resource allocation mechanisms will deny resources to the disruptive

technology (Proposition 1). However, when the impetus shifts to a strong perception of

external threat, resource allocation mechanisms will result in the aggressive commitment

of resources (Proposition 2).

The data show that threat of loss to the core business does indeed motivate

commitment and lead to action being taken (Proposition 2). However, that action then

leads to a series of behaviors that cause the action to become exceedingly rigid around an

organization’s best learned response patterns (Proposition 3a, 3b, 3c). For example,

threat behavior was shown to create a rigid focus on the firm’s existing resources, making

it difficult to see new opportunity outside of the existing business (Proposition 3c). This

initial rigidity is then hardened by the aggressive pace of commitment (Proposition 3a

which creates lock-in effects as commitment expands around a focus on the existing

business. This rigidity is further hardened by the contraction of authority that is placed

around the new venture, further leading to a focus on the established business at the

expense of recognizing the new, independent opportunity emerging around the new

32

technology (Proposition 3b). Thus, these intermediate behavior effects associated with

threat motivation lead to intense rigidity around an organization’s most familiar routines

and behavioral patterns.

Two final propositions relate to the impact of separating the new venture from the

operations of its sponsoring parent. Data showed that separate structure created an

environment where managers were more likely to focus on the unique and independent

opportunity associated with the new technology (Proposition 4). The effects of structural

independence and opportunity focus led to a relaxing of the rigidity and an increased

level of innovation (Proposition 5). Where sites remained integrated and management

framing remained focused around the threat to the parent organization, the rigidity was

perpetuated.

CONCLUSIONS AND IMPLICATIONS

Like any model intending to capture the complexity of an organizational response

process, there are elements of the model that need further exploration. Two specific areas

are worth mentioning here. First, there is the question of the source of the threat impetus.

In the current research this was largely triggered by external analysts who were

forecasting the demise of the newspaper industry even prior to any visible loss of

revenues to online media. The question remains as to whether that source of threat-based

motivation could have been triggered without the pressure from outside the firm. The

second limitation to the model is its current inability to determine a direct causal source

leading to separation. As noted earlier, there is some indication that the decision is

driven partly by being able to access input from outside of the firm. This appears to have

33

come either through the demands of outside managers (The Press A and The Press B) or

through what seems to have been a rather serendipitous set of comparative successes with

outside partners (The Beacon A). Further research into this linkage needs to be

conducted.

Nevertheless, the current research does add considerable insight into a number of

existing research streams. First, the very phenomenon of response provided an

opportunity to observe a set of firm behaviors that have previously gone unobserved.

Christensen and Bower (1996) had developed a theory that would predict if firms were

unable to commit resources to disruptive technologies because of dysfunctional resource

allocation mechanisms. The current research found that not only is commitment possible,

but it can be intense when the impetus moves to a sense of threat to the existing

organization. Unfortunately, the very motivation required to secure commitment leads to

a set of intermediate behaviors that produce intense rigidity around the core

organization’s existing work patterns and routines. This finding provides insight into

previously contradictory findings in the decision-making literature, namely, whether

threat perception leads to action or inaction. Kahneman and Tversky’s research on

prospect theory suggested that individuals who are in domains of loss are risk seeking

and able to commit to action (1979). Meanwhile, Staw, Sandelands, and Dutton (1981)

and later Dutton and Jackson (1987) showed that individuals who are threatened by

losses respond rigidly and become risk averse. What the current research shows is that

both of the previous findings are correct, but around different determinants of behavior

(Sitkin and Pablo, 1992). Threat can motivate action as manifest in a willingness to

commit resources. But threat can also lead to inaction around behavior other than those

34

already manifest in the existing patterns and routines of an organization. Thus, threat

leads to high levels of commitment, but that commitment is rigidly deployed around

those response patterns most familiar to the organization.

Another contribution to the literature that comes from the current research is how

it expands the understanding of the role of structure. Previous research stated that the

role of structure was to separate the venture from the resource allocation process of the

parent organization, thus helping secure financial and organizational commitment

(Christensen, 1997). But in the current research, all of the sites had secured considerable

commitment prior to separating the venture. The role of structure then moved beyond

resource allocation. Structure allowed the new venture to de-couple its motivation away

from the threat to the parent organization. This allowed the management to focus on the

independent opportunity being developed around the new technology and to start to

innovate away from the rigid confines of the parent organization.

The current study also presents several opportunities for further inquiry. First,

this paper examined the process of response across eight field sites. This was an

appropriate design given the phenomenological nature of the behavior observed and the

need to deeply examine the complex process of response at multiple levels across time.

This process helped sharpened the constructs around threat perception and rigidity. A

larger sample study is currently being conducted that will look at the phenomenon across

a much larger population of firms in the newspaper industry. Other research also needs

to be conducted across other industries to test whether the behavior observed in repeated

in other settings. Nevertheless, the current findings have expanded our understanding of

the existing literature and will continue to open new opportunities for future research.

35

TA

BL

ES

AN

D F

IGU

RE

S

Tabl

e 1:

Des

crip

tion

of th

e Ei

ght N

ewsp

aper

s Stu

died

New

spap

er

Pare

nt O

rgan

izat

ion

Loca

l Pap

er D

aily

Pr

int C

ircul

atio

n O

nlin

e La

unch

D

ate

Num

ber o

f Onl

ine

Empl

oyee

s (20

00)

The

Bea

con

A

The

Bea

con

Com

pany

2

50,0

00

1994

45

Th

e Be

acon

B

The

Bea

con

Com

pany

2

00,0

00

1995

20

Th

e Pr

ess A

Th

e Pr

ess C

ompa

ny

>500

,000

19

94

>100

Th

e Pr

ess B

Th

e Pr

ess C

ompa

ny

400

,000

19

95

60

The

Expo

sito

r A

The

Expo

sito

r Com

pany

>5

00,0

00

1995

>1

00

The

Expo

sito

r B

The

Expo

sito

r Com

pany

2

00,0

00

1996

32

Th

e M

orni

ng

New

s A

The

Mor

ning

New

s C

ompa

ny

>500

,000

19

94>1

00

The

Mor

ning

N

ews B

Th

e M

orni

ng N

ews

Com

pany

3

00,0

00

1996

41

36

Tabl

e 2:

Sum

mar

y of

Dat

a C

olle

ctio

n

Lev

el in

O

rgan

izat

ion

Spec

ific

Typ

es o

f Dat

a C

olle

ctio

n

Cor

pora

te

Leve

l •

10 In

terv

iew

s: C

orpo

rate

Man

agem

ent (

incl

udin

g C

EO/C

hairm

an)

- Ev

olut

ion

of m

otiv

atio

ns c

once

rnin

g co

mm

itmen

t to

the

Inte

rnet

bus

ines

s -

Inte

rnet

impl

icat

ions

for t

he p

rint n

ewsp

aper

bus

ines

s -

Inte

ract

ion

betw

een

onlin

e an

d pr

int o

rgan

izat

ion

- St

ruct

ural

diff

eren

ces,

coor

dina

tion

chal

leng

es a

nd o

ppor

tuni

ties

- C

ultu

ral,

man

agem

ent,

and

busi

ness

pla

n di

ffer

ence

s -

Fina

ncia

l exp

ecta

tions

and

acc

ount

abili

ty

• D

irec

t Obs

erva

tion:

Inte

ract

ion

with

ven

ture

exe

cutiv

es, p

lann

ing

mee

tings

•

Arch

ival

Dat

a: P

ropo

sals

, int

erna

l mem

os, a

nd c

omm

unic

atio

n w

ith n

ew v

entu

re

Gen

eral

Man

agem

ent

Sale

s an

d M

arke

ting

Edi

tori

al S

taff

•

7 In

terv

iew

s -

Evol

utio

n of

mot

ivat

ions

co

ncer

ning

com

mitm

ent t

o th

e In

tern

et b

usin

ess

- In

tern

et im

plic

atio

ns fo

r the

prin

t ne

wsp

aper

bus

ines

s -

Coo

rdin

atio

n ch

alle

nges

-

Cul

tura

l, m

anag

emen

t, an

d bu

sine

ss p

lan

diff

eren

ces

• 6

Inte

rvie

ws:

-

Mot

ivat

ion

for I

nter

net

busi

ness

-

Coo

rdin

atio

n ch

alle

nges

an

d op

portu

nitie

s -

Cul

ture

-

Ince

ntiv

e sy

stem

-

Sale

s cyc

le

- C

usto

mer

pro

file

• 4

Inte

rvie

ws:

-

Mot

ivat

ion

for I

nter

net

busi

ness

-

Coo

rdin

atio

n ch

alle

nges

and

op

portu

nitie

s -

Cul

ture

-

Stor

y de

velo

pmen

t cyc

le

- C

onte

nt p

rofil

e

• D

irec

t Obs

erva

tion:

Sto

ry c

reat

ion,

sale

s cal

ls

New

spap

er

Leve

l

• Ar

chiv

al D

ata:

Bus

ines

s pla

ns a

nd p

ropo

sals

, cus

tom

er li

sts,

sale

s col

late

ral

Ven

ture

G

ener

al M

anag

emen

t M

arke

ting

Man

ager

E

dito

rial

Sta

ff

37

• 10

Inte

rvie

ws:

-

Mot

ivat

ion

for n

ew b

usin

ess

- In

tern

et im

plic

atio

ns fo

r the

prin

t ne

wsp

aper

bus

ines

s -

Coo

rdin

atio

n ch

alle

nges

-

Cul

tura

l, m

anag

emen

t, an

d bu

sine

ss p

lan

diff

eren

ces

• 8

Inte

rvie

ws:

-

Coo

rdin

atio

n ch

alle

nges

an

d op

portu

nitie

s -

Cul

ture

-

Ince

ntiv

e sy

stem

-

Sale

s cyc

le

- C

usto

mer

pro

file

• 6

Inte

rvie

ws:

-

Coo

rdin

atio

n ch

alle

nges

and

op

portu

nitie

s -

Cul

ture

-

Stor

y de

velo

pmen

t cyc

le

- C

onte

nt p

rofil

e

• D

irec

t Obs

erva

tion:

Sto

ry c

reat

ion,

sale

s cal

ls

Leve

l

• Ar

chiv

al D

ata:

Cus

tom

er li

sts,

sale

s col

late

ral

38

Tabl

e 3:

Res

ourc

e A

lloca

tion

and

Pres

sure

s Aga

inst

Com

mitm

ent

New

spap

er

Evid

ence

aY

ears

inPr

opos

al

Fina

ncia

l C

omm

itmen

t B

asis

Dat

e of

La

unch

C

halle

nges

to

Ope

ratin

g

Com

mitm

entb

Exam

ples

: Fin

anci

al a

nd

Ope

ratio

n

The

Bea

con

A

I, A

, O, P

2

Publ

ishe

r Sp

onso

rshi

p 19

94

N, S

, T

New

sroo

m: “

Get

the

hell

out o

f he

re, I

’ve

got a

real

new

spap

er to

ge

t out

.” (N

ewsp

aper

Edi

tor)

Th

e Be

acon

B

I, A

2

Fore

cast

Pr

ofita

bilit

y 19

95

N, S

, T

Sale

s: S

taff

pro

vide

d tra

inin

g, b

ut

then

dro

pped

pro

gram

mul

tiple

tim

es d

ue to

lack

of c

lient

inte

rest

Th

e Pr

ess A

I,

A, O

, P

2 Fo

reca

st

Prof

itabi

lity

1994

N

, S

Sale

s: “

I occ

asio

nally

sell

a bu

ndle

d pr

int a

nd o

nlin

e pa

ckag

e .

. . it

is h

ard

to re

ally

kno

w w

hat

prin

t adv

ertis

ers w

ould

wan

t.”

(Sal

es R

ep)

The

Pres

s B

I, A

, P

2 C

EO

Spon

sors

hip

1995

N

, S, T

N

ewsr

oom

: Edi

tors

cal

l onl

ine

staf

f “lo

w b

row

con

tent

” fo

r usi

ng

radi

o fe

eds f

or b

reak

ing

new

s, pe

rson

als,

and

uned

ited

user

po

sted

con

tent

and

refu

se to

wor

k to

geth

er. (

New

spap

er E

dito

r)

The

Expo

sito

r A

I, P

3 C

EO

Spon

sors

hip

1995

N

, S, T

B

udge

ting:

“A

nd in

the

end,

the

only

real

val

ue is

cas

h an

d ca

sh

crea

tion.

Y

ou c

an’t

build

a

busi

ness

just

on

pote

ntia

l or

hope

.” (C

EO)

The

Expo

sito

r B

I, A

, O, P

2

Fore

cast

Pr

ofita

bilit

y 19

96

N, S

, T

Bud

getin

g: “

Look

. W

hen

we

role

th

ese

up in

to o

ur b

udge

ts w

e m

iss

out t

arge

ts.”

(VP

Prod

uct

Dev

elop

men

t) Th

e M

orni

ng

New

s A

I,P

1Pu

blis

her

Spon

sors

hip

1994

N

, S

New

sroo

m: “

I will

be

god

dam

ned

if so

me

onlin

e re

porte

r is g

oing

to

39

call

my

sour

ces a

nd sa

y th

ey a

re

from

our

pap

er.”

(Pub

lishe

r)

The

Mor

ning

N

ews B

I,P

2

Fore

cast

Prof

itabi

lity

1996

N

, S, T

Sa

les:

“W

e bu

ndle

d pr

int a

nd

onlin

e, b

ut th

ere

wer

e cl

ient

s who

w

ante

d on

line

only

. Th

ese

wer

e le

ss in

tere

stin

g to

sale

s rep

s and

th

e or

gani

zatio

n w

asn’

t rea

dy to

de

al w

ith th

at re

ality

.” (V

P M

arke

ting)

a I=

Inte

rvie

ws,

A=A

rchi

val D

ocum

ents

, O=D

irect

Obs

erva

tion,

P=P

ublic

Doc

umen

ts

b N=N

ewsr

oom

, S=S

ales

, T=T

echn

olog

y Su

ppor

t

40

Tabl

e 4:

Thr

eat M

otiv

ates

Com

mitm

ent

N

ewsp

aper

Pr

imar

y St

ated

Con

cern

s Im

petu

s of

Thre

at

Mot

ivat

ion

Evid

enc

ea Ex

ampl

esEx

pend

iture

Ex

pans

ion

b

Empl

oye

e Ex

pans

ionb

The

Bea

con

A

Rea

ders

hip,

D

ispl

ay

Adv

ertis

ing,

C

lass

ified

s

Publ

ishe

r

Cor

pora

te L

evel

I,

A, P

La

ck o

f Con

trol

: “W

hat i

f we

do e

very

da

mn

thin

g w

e ca

n th

ink

of a

nd

exec

ute

flaw

less

ly a

nd w

e st

ill d

on’t

mak

e it?

We

can

slow

it d

own,

but

we

can’

t sto

p it.

” (P

ublis

her)

1996

-19

98:

400%

1996

-19

98:

1540

The

Beac

on B

C

lass

ified

A

dver

tisin

g C

orpo

rate

Lev

el

Pub

lishe

r I,

A

Focu

s on

Loss

: 199

7 In

tern

al

estim

ates

of 1

5-20

% lo

ss o

f cla

ssifi

ed

shar

e by

200

1 (1

997

Stra

tegi

c Pl

an)

1997

-19

99:

300%

1997

-19

99:

518

Th

e Pr

ess A

R

eade

rshi

p,

Dis

play

A

dver

tisin

g,

Cla

ssifi

eds

Publ

ishe

r

Cor

pora

te L

evel

I,

A, P

Fo

cus o

n Lo

ss: “

Ther

e w

ere

peop

le

who

thou

ght w

e w

ould

lose

hal

f of o

ur

circ

ulat

ion.

” (C

EO, I

nter

net G

roup

)

1997

-19

99:

300%

1997

-19

99:

5010

0+

The

Pres

s B

Rea

ders

hip,

D

ispl

ay

Adv

ertis

ing,

C

lass

ified

s

Sim

ulta

neou

s Im

petu

s fro

m

both

Cor

pora

te

Leve

l and

NP

Publ

ishe

r

I, A

, P

Neg

ativ

e Fo

cus:

“Pe

ople

wer

e te

lling

us

that

new

spap

ers w

ere

head

ing

to

the

grav

eyar

d an

d w

e w

ere

begi

nnin

g to

bel

ieve

them

.” (P

ublis

her)

1997

-19

99:

250%

1997

-19

99:

3050

The

Expo

sito

r A

Stoc

k Pr

ice,

C

lass

ified

s O

pera

ting

Pu

blis

her,

bloc

ked

to

Cor

pora

te u

ntil

stoc

k pr

ice

conc

erns

I, P

Focu

s on

Loss

: “W

e w

ere

wor

ried

abou

t cla

ssifi

eds p

rimar

ily.

Thes

e ne

w fi

rms w

ere

set t

o co

me

in a

n ta

ke

our m

ost p

rofit

able

pie

ce o

f bus

ines

s.”

(Ear

ly O

nlin

e Pr

esid

ent)

1997

-19

99:

300%

1997

-19

99:

5010

0+

The

Expo

sito

r B

Rea

ders

hip,

D

ispl

ay

Adv

ertis

ing,

C

lass

ified

s

Ope

ratin

g Pu

blis

her

I, A

, P

Neg

ativ

e Fo

cus:

“W

e [m

iddl

e le

vel

man

ager

s] h

ad b

een

conc

erne

d fo

r a

whi

le, b

ut .

. . th

e re

ason

we

final

ly

got i

nto

the

mar

ket w

as th

at o

ur C

EO

1998

-20

00:

250%

1998

-20

00:

1531

41

was

taki

ng h

eat f

rom

Wal

l Stre

et.”

(V

P Pr

oduc

t Dev

elop

men

t) Th

e M

orni

ng

New

s A

Thre

at n

ot p

rimar

y m

otiv

atio

n, ra

ther

di

strib

utio

n /

prod

uctio

n sa

ving

s.

Thre

at n

ot

prim

ary

mot

ivat

ion

I,P

Not

Thr

eat:

“Eig

hty

perc

ent o

f my

cost

s are

pro

duct

ion

and

dist

ribut

ion.

N

ow a

ll of

a su

dden

I ha

ve a

solu

tion.

It

is n

ot a

con

tent

pla

y, b

ut a

maj

or

cost

redu

cer a

nd p

rodu

ct e

xpan

der.”

(P

ublis

her)

1997

-19

99:

200%

1997

-19

99:

6010

0+

The

Mor

ning

N

ews B

C

lass

ified

A

dver

tisin

g Pu

blis

her

C

orpo

rate

I,P

N

egat

ive

Focu

s: “

You

felt

like

Chi

cken

Litt

le sc

ream

ing

‘the

sky

is

falli

ng’,

but a

fter a

whi

le p

eopl

e st

arte

d lis

teni

ng .

. .”

(VP

Mar

ketin

g)

1998

-20

00:

400%

1998

-20

00:

540

a I=In

terv

iew

s, A

=Arc

hiva

l Doc

umen

ts, O

=Dire

ct O

bser

vatio

n, P

=Pub

lic D

ocum

ents

b Pe

riod

base

d on

rele

vant

exp

ansi

on o

f thr

eat p

erce

ptio

n ba

se o

n pr

oces

s ana

lysi

s acr

oss e

ach

site

—se

e Ta

ble

2. N

umbe

rs re

pres

ent

com

pany

est

imat

es fr

om st

art o

f per

iod

year

1 to

end

of p

erio

d ye

ar 3

.

42

Tabl

e 5:

Beh

avio

ral A

ctio

ns A

ssoc

iate

d w

ith T

hrea

t Mot

ivat

iona

N

ewsp

aper

W

illin

gnes

sto

Com

mit

Subs

tant

ial

Res

ourc

es

Con

tract

ion

of

Aut

horit

y

Focu

s on

Exis

ting

Res

ourc

es

Evid

ence

bEx

ampl

es

The

Bea

con

A

L L

L I,

A, O

, P

Con

trac

tion

of A

utho

rity

: “It

was

ver

y ce

ntra

lized

in

the

begi

nnin

g . .

. W

e ha

d a

basi

c bu

sine

ss m

odel

for

ever

y si

te.

We

gave

them

mon

ey.

We

told

them

th

ey c

ould

hire

peo

ple,

but

we

told

them

exa

ctly

how

to

do

it.”

(VP

Tech

nolo

gy a

nd O

pera

tions

) Th

e Be

acon

B

L

L

LI,

AW

illin

gnes

s to

Com

mit

Reso

urce

s: D

espi

te

incr

easi

ng lo

sses

, dou

bled

exp

endi

ture

s in

1998

and

ne

arly

dou

bled

reso

urce

s aga

in in

199

9.

The

Pres

s A

L L

L I,

A, O

, P

Focu

s on

Exis

ting

Reso

urce

s: “

Can

niba

lizat

ion

was

a

huge

con

cern

. . .

We

aske

d qu

estio

ns a

bout

re

ader

ship

ove

rlap

and

whe

ther

they

wou

ld st

op

read

ing

the

pape

r whe

n pe

ople

regi

ster

ed fo

r the

si

te.”

(Res

earc

h D

irect

or, T

he P

ress

Com

pany

In

tern

et G

roup

) Th

e Pr

ess B

L

X

X

I, A

, P

Key

beh

avio

ral a

ctio

ns o

f thr

eat m

otiv

ated

beh

avio

r la

rgel

y ab

sent

in re

spon

se.

The

Expo

sito

r A

L

L

LI,

PC

ontr

actio

n of

Aut

hori

ty:

“Bec

ause

the

clas

sifie

d or

gani

zatio

n w

as so

wor

ried

abou

t def

endi

ng th

e pr

int c

lass

ified

s bus

ines

s, th

at g

roup

hel

d on

to th

e on

line

busi

ness

.” (T

he E

arly

Pre

side

nt)

The

Expo

sito

r B

L L

L I,

A, O

, P

Focu

s on

Exis

ting

Reso

urce

s: “

Ther

e w

ere

som

e pe

ople

who

said

, if w

e gi

ve o

ur n

ewsp

aper

out

for

free

, the

n w

ho is

goi

ng to

buy

it?”

(CFO

) Th

e M

orni

ng

New

s A

T

XL

I,PFo

cus o

n Ex

istin

g Re

sour

ces:

All

deci

sion

s mad

e re

leva

nt a

s the

y re

late

d to

the

core

new

spap

er

stra

tegy

.

The

Mor

ning

L

L

LI,P

Will

ingn

ess t

o C

omm

it Re

sour

ces:

“In

June

199

8 w

e

43

New

s B

star

ted

a ra

mp

up fr

om 5

to 4

0 pe

ople

by

Oct

ober

.”

(VP

Mar

ketin

g)

a Bas

ed o

n Y

in’s

(199

4) te

chni

que

of re

plic

atio

n, L

=lite

ral r

eplic

atio

n of

the

beha

vior

, T=t

heor

etic

al re

plic

atio

n, w

here

the

beha

vior

w

as n

ot o

bser

ved

byt f

or th

eore

tical

ly c

onsi

sten

t rea

sons

, X=i

ndic

ates

that

the

beha

vior

was

not

repl

icat

ed fo

r any

con

sist

ent c

ause

b I=

Inte

rvie

ws,

A=A

rchi

val D

ocum

ents

, O=D

irect

Obs

erva

tion,

P=P

ublic

Doc

umen

ts

44

Tabl

e 6:

Thr

eat M

otiv

atio

n Le

ads t

o R

igid

ity

N

ewsp

aper

Ea

rlyPr

oduc

tPe

rcen

tage

of P

rodu

ct

from

Prin

t N

ewsp

aper

by

199

8

N

umbe

r of

New

C

ateg

orie

s R

even

ue

by 1

998

a b

Exam

ples

The

Bea

con

A

Exte

nsio

n of

New

spap

er

>75%

1

“We

lear

ned

. . .

that

ther

e w

asn’

t ver

y m

uch

of a

n ap

petit

e fo

r an

‘ele

ctro

nic’

ne

wsp

aper

. . .

But

that

’s

exac

tly w

hat w

e di

d w

ith

the

inte

rnet

.” (P

ublis

her)

Th

e Be

acon

B

Exte

nsio

n of

New

spap

er

>85%

1

“Whe

re I

thin

k w

e m

isse

d th

e bo

at is

that

we

saw

it a

s an

ext

ensi

on o

f the

ne

wsp

aper

. In

oth

er w

ords

so

met

hing

rich

er a

nd

deep

er th

an th

e ne

wsp

aper

.” (C

EO)

The

Pres

s A

Exte

nsio

n of

New

spap

er

>85%

3

“Rem

embe

r tha

t I h

ad sa

id

to th

e C

EO a

t the

tim

e th

at

it m

ade

abso

lute

ly n

o se

nse

to re

plic

ate

the

new

spap

er

on th

e in

tern

et.

Then

I sa

w

the

prod

uct a

nd it

was

just

th

at.”

(CEO

, Int

erne

t G

roup

) Th

e Pr

ess B

R

ich

Inte

ract

i

<50

%

3 “W

e ar

e re

ally

bec

omin

g a

sepa

rate

com

pany

from

the

new

spap

er.

I cam

e fr

om

ther

e. I

love

the

pape

r, bu

t w

e ar

e no

w a

diff

eren

t

45

ve

Con

tent

fr

om

M

ultip

le

Sou

rces

grou

p w

ith a

ver

y di

ffer

ent

way

of w

orki

ng.”

(Onl

ine

Edito

r)

The

Expo

sito

r A

Exte

nsio

n of

New

spap

er

>85%

1

“We

coul

dn’t

see

any

mod

els t

hat w

e w

ere

fam

iliar

with

, nor

any

we

knew

how

to m

ake

mon

ey

with

” (C

EO)

The

Expo

sito

r B

Exte

nsio

n of

New

spap

er

>85%

1

“We

faile

d to

reco

gniz

e th

e im

porta

nce

of to

ols s

uch

as

sear

ch, b

ut ra

ther

pre

sent

ed

this

in th

e la

yout

of a

pr

inte

d ne

wsp

aper

.” (V

P,

Prod

uct D

evel

opm

ent)

The

Mor

ning

N

ews A

Exte

nsio

n of

New

spap

er

>90%

1

“Whe

re w

e m

ade

our

mis

take

was

we

mis

sed

the

next

wav

e of

opp

ortu

nity

. W

e co

uld

have

said

we

wan

t to

be a

nat

iona

l cl

assi

fied

sour

ce.

We

coul

d

46

have

bec

ome

diff

eren

t co

nten

t ver

tical

s. B

ut w

e ha

ve d

one

very

littl

e on

co

nten

t ver

tical

s.”

(Pub

lishe

r)

The

Mor

ning

N

ews B

Exte

nsio

n of

New

spap

er

>80%

1

“I d

on't

see

this

as t

hat

diff

eren

t tha

n w

hat t

he

new

spap

ers c

urre

ntly

do,

it

is ju

st a

noth

er c

hann

el.”

(V

P M

arke

ting)

a B

ased

on

inte

rnal

est

imat

es a

nd in

com

e st

atem

ent a

naly

sis a

t eac

h si

te

b Bas

ed o

n co

mpa

rison

s of p

rint n

ewsp

aper

inco

me

stat

emen

t ana

lysi

s and

pur

e-pl

ay e

ntra

nt in

com

e st

atem

ent a

naly

sis.

Six

cat

egor

ies

of re

venu

e w

ere

iden

tifie

d as

bei

ng “

new

” re

lativ

e to

a p

rint n

ewsp

aper

: 1) f

ee-b

ased

arc

hiva

l acc

ess,

2) e

-mai

l mar

ketin

g, 3

) e-m

ail

list r

enta

l, 4)

dat

a an

alys

is fe

es, 5

) beh

avio

ral t

arge

ting,

and

6) d

emog

raph

ic ta

rget

ing.

47

Tabl

e 7:

Stru

ctur

al V

aria

tion

Acr

oss S

ites (

2000

) N

ewsp

aper

Tim

ing

Sepa

ratio

n D

ivis

iona

l U

nita,

b R

epor

ting

Line

sc N

ewsr

oom

dSa

lese

Loca

tionf

Des

crip

tion

The

Bea

con

A

Sprin

g 19

99

S S

H

H

S Se

t up

as a

sepa

rate

uni

t in

a di

ffer

ent

build

ing

from

the

pare

nt, w

ith p

rimar

y re

porti

ng th

roug

h th

e on

line

gene

ral m

anag

er.

The

Beac

on

B Su

mm

er

1999

S

SH

H

H

Se

t up

as a

sepa

rate

uni

t, bu

t sha

red

resp

onsi

bilit

ies w

ith so

me

pare

nt fu

nctio

nal

staf

f. P

rimar

y re

porti

ng re

spon

sibi

lity

still

pr

imar

ily th

roug

h on

line

GM

. Th

e Pr

ess A

Su

mm

er

1997

S

SH

S

S Se

t up

as a

sepa

rate

uni

t in

a di

ffer

ent

build

ing

from

the

pare

nt, w

ith p

rimar

y re

porti

ng th

roug

h th

e on

line

GM

. A

ll fu

nctio

nal s

taff

hire

d se

para

te fo

r onl

ine.

Th

e Pr

ess B

Sp

ring

1995

S

SH

S

S Se

t up

as a

sepa

rate

uni

t in

a di

ffer

ent

build

ing

from

the

pare

nt, w

ith p

rimar

y re

porti

ng th

roug

h th

e on

line

GM

. A

ll fu

nctio

nal s

taff

hire

d se

para

te fo

r onl

ine.

Th

e Ex

posi

tor A

R

emai

ned

Inte

grat

ed

I I

I I

H

Kep

t int

egra

ted

with

the

pare

nt o

rgan

izat

ion.

O

nlin

e G

M a

nd sm

all s

uppo

rt st

aff h

ired

and

loca

ted

in a

sepa

rate

bui

ldin

g, b

ut a

ll fu

nctio

nal s

taff

and

resp

onsi

bilit

ies k

ept

inte

grat

ed w

ith p

aren

t. Th

e Ex

posi

tor B

R

emai

ned

Inte

grat

ed

I I

I I

I K

ept i

nteg

rate

d w

ith th

e pa

rent

org

aniz

atio

n.

Onl

ine

GM

hire

d, b

ut a

ll fu

nctio

nal

resp

onsi

bilit

ies c

oord

inat

ed th

roug

h pa

rent

or

gani

zatio

n.

The

Mor

ning

N

ews A

R

emai

ned

Inte

grat

ed

H

I H

I

I St

ated

stru

ctur

e as

bei

ng h

ybrid

. N

ewsr

oom

w

as c

lear

ly a

hyb

rid, w

ith so

me

onlin

e co

nten

t goi

ng b

ack

to th

e pr

inte

d ne

wsp

aper

. H

owev

er, m

ost f

unct

iona

l re p

ortin

g ru

n

48

thro

ugh

pare

nt o

rgan

izat

ion.

Th

e M

orni

ng

New

s B

Rem

aine

d In

tegr

ated

I

I H

H

I

Kep

t int

egra

ted

with

the

pare

nt o

rgan

izat

ion.

O

nlin

e G

M h

ired,

but

all

func

tiona

l re

spon

sibi

litie

s coo

rdin

ated

thro

ugh

pare

nt

orga

niza

tion.

a O

nlin

e ve

ntur

e st

ruct

ure

rele

vant

to p

aren

t org

aniz

atio

n: I=

Inte

grat

ed, H

=Hyb

rid, S

=Sep

arat

e b B

ased

on

man

agem

ent’s

self

desc

riptio

n.

c Bas

ed o

n pr

imar

y re

porti

ng re

spon

sibi

lity

of fu

nctio

nal s

taff

, e.g

., on

line

sale

s man

ager

repo

rting

to: p

rint s

ales

man

ager

(I),

onlin

e G

M (S

), or

bot

h (H

). d B

ased

on

prim

ary

resp

onsi

bilit

y fo

r con

tent

dev

elop

men

t: pr

int n

ewsr

oom

(I),

an se

para

te o

nlin

e ne

wsr

oom

(S),

or a

hyb

rid o

f bot

h (H

). e B

ased

on

prim

ary

resp

onsi

bilit

y fo

r sel

ling

onlin

e ad

s: p

rint s

taff

(I),

inde

pend

ent s

ales

reps

(S),

or a

hyb

rid o

f bot

h (H

). f B

ased

on

the

loca

tion

of th

e on

line

vent

ure:

with

in th

e pa

rent

org

aniz

atio

n (I

), ph

ysic

ally

sepa

rate

d fr

om th

e pa

rent

(S),

or a

hyb

rid

(H).

49

Tabl

e 8:

Stru

ctur

al V

aria

tion

Lead

s to

Diff

eren

ces i

n Fr

amin

g an

d In

nova

tion

(200

0)

N

ewsp

aper

St

ruct

ure

Subs

eque

nt F

ram

ing

Exam

ples

Perc

enta

geof

Pro

duct

fr

om P

rint

New

spap

era*

*

Loca

l M

arke

t Pe

netra

tion

Sc

oreb*

Num

ber

of N

ew

Cat

egor

ies R

even

uec

**

The

Beac

on A

Se

para

te

O

ppor

tuni

ty

Emer

ges

“Now

that

we

are

sepa

rate

, we

own

the

oppo

rtuni

ty in

a

way

we

neve

r did

whe

n w

e w

ere

still

with

the

new

spap

er.”

(New

Hea

d of

New

Med

ia)

45%

c1.

94

The

Beac

on B

Se

para

te

O

ppor

tuni

ty

Emer

ges

“We

wer

e al

l set

to le

t peo

ple

buy

adds

onl

ine

. . .

The

pape

rs d

idn’

t wan

t to

buy

into

it.

This

is o

ne a

rea

whe

re

we

will

do

bette

r as a

sepa

rate

com

pany

.” (V

P Te

chno

logy

and

Ope

ratio

ns)

50%

1.4

4

The

Pres

s A

Sepa

rate

Opp

ortu

nity

Em

erge

s

“The

y ju

st si

t the

re a

nd m

ake

us fi

gure

it o

ut.

They

don

’t m

ake

the

deci

sion

s for

us.”

(VP

Sale

s)

50%

c2.

16

The

Pres

s B

Sepa

rate

Opp

ortu

nity

Em

erge

s

“Pag

e vi

ews f

rom

the

new

spap

er a

re n

ow b

arel

y m

ore

than

1/3

of t

he a

vaila

ble

page

s on

our s

ite. .

. Th

e ne

wsp

aper

is o

ne so

urce

of i

nfor

mat

ion-

-an

impo

rtant

so

urce

. B

ut w

e bu

y ou

r con

tent

from

them

like

we

buy

it fr

om a

nyw

here

els

e.”

(Onl

ine

Edito

r)

35%

1.7

5

The

Expo

sito

r A

Inte

grat

ed

Thre

at

Perp

etua

tes

“Fun

ctio

nal r

epor

ting

rela

tions

hips

are

ext

rem

ely

time-

cons

umin

g. I

t’s n

ot ju

st th

at th

e gr

oups

thin

k lik

e th

e ne

wsp

aper

. It

take

s a lo

t lon

g to

mak

e co

llect

ive

deci

sion

s.” (E

arly

Onl

ine

Pres

iden

t)

75%

1.

12

The

Expo

sito

r B

Inte

grat

ed

Thre

at

Perp

etua

tes

“We

cont

inue

to se

e th

is a

s a w

ay to

pro

tect

cla

ssifi

eds,

and

that

if w

e do

n’t d

o it

som

eone

els

e w

ill.”

(VP

Prod

uct D

evel

opm

ent)

70%

0.

93

The

Mor

ning

N

ews A

In

tegr

ate

d Th

reat

Pe

rpet

uate

s

“Our

bas

ic st

rate

gy is

an

inte

grat

ed st

rate

gy, s

o w

e’re

not

lik

e so

me

of th

ese

com

pani

es w

ho h

ave

spun

onl

ine

out.

In

the

loca

l inf

orm

atio

n m

arke

t the

new

s pap

er h

as a

n

90%

1.

62 50

adva

ntag

e. T

o se

para

te th

e on

line

unit

from

the

new

spap

er is

to g

ive

away

a lo

t of t

hat a

dvan

tage

.” (V

P B

usin

ess D

evel

opm

ent)

The

Mor

ning

N

ews B

In

tegr

ate

d Th

reat

Pe

rpet

uate

s

Dis

cuss

ions

with

man

agem

ent r

emai

n ce

nter

ed a

roun

d de

fend

ing

clas

sifie

d pr

oduc

ts.

75%

0.

52

a Bas

ed o

n in

tern

al e

stim

ates

and

inco

me

stat

emen

t ana

lysi

s at e

ach

site

b R

atio

of m

onth

ly w

ebsi

te u

sers

to d

aily

new

spap

er re

ader

s. D

ata

colle

cted

from

new

spap

er si

tes a

nd c

heck

ed a

gain

st o

nlin

e da

ta

from

Med

ia M

etrix

and

Nie

lson

Net

Rat

ings

and

circ

ulat

ion

data

from

the

Aud

ited

Bur

eau

of C

ircul

atio

n.

c Bas

ed o

n co

mpa

rison

s of p

rint n

ewsp

aper

inco

me

stat

emen

t ana

lysi

s and

pur

e-pl

ay e

ntra

nt in

com

e st

atem

ent a

naly

sis.

Six

cat

egor

ies

of re

venu

e w

ere

iden

tifie

d as

bei

ng “

new

” re

lativ

e to

a p

rint n

ewsp

aper

: 1) f

ee-b

ased

arc

hiva

l acc

ess,

2) e

-mai

l mar

ketin

g, 3

) e-m

ail

list r

enta

l, 4)

dat

a an

alys

is fe

es, 5

) beh

avio

ral t

arge

ting,

and

6) d

emog

raph

ic ta

rget

ing.

*

Sig

nific

ant d

iffer

ence

at p

<.05

, bas

ed o

n tw

o sa

mpl

e t-t

est c

ompa

ring

inte

grat

ed a

nd se

para

ted

grou

ps in

sam

ple

** S

igni

fican

t diff

eren

ce a

t p<.

01, b

ased

on

two

sam

ple

t-tes

t com

parin

g in

tegr

ated

and

sepa

rate

d gr

oups

in sa

mpl

e

51

Figu

re 1

: A P

roce

ss M

odel

of R

espo

nse

to D

isru

ptiv

e C

hang

ea

Esta

blis

hed

Firm

Mar

kets

Thre

at to

C

ore

Bus

ines

s

SOU

RC

E O

F IM

PETU

S

Com

mitm

ent

+-

Agg

ress

ive

Com

mitm

ent t

o In

itial

Res

pons

e

Con

tract

ion

of A

utho

rity

INTE

RM

EDIA

TE

BEH

AV

IOR

S

Focu

s on

Exis

ting

Res

ourc

es

(P1)

(P2)

(P3a

)

(P3b

)

(P3c

)

Rig

idity

+ + +

Sepa

rate

Inte

grat

ed

Stru

ctur

e

Opp

ortu

nity

Thre

at

Mot

ivat

ion

Rig

idity

R

elax

es

Rig

idity

Pe

rpet

uate

s

INTE

RV

ENTI

ON

(P4) +

(P5)

a Num

bers

cor

resp

ond

to p

ropo

sitio

ns in

the

text

.

52

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