Why Giants Collapse: When “Doing Everything Right” Becomes the Biggest Mistake

The easy story goes down smooth: Kodak was “too cautious,” Nokia “too arrogant,” Blockbuster “didn’t get the internet.” Nice and tidy—just not the whole truth. Plenty of incumbents did see what was coming and did pour money into it… and still lost.

What doomed them wasn’t personality; it was the system they operated in.

Two kinds of innovation: sustaining vs. disruptive

Sustaining innovation: make the existing product better on the metrics your best customers already care about—higher performance, richer features, fatter margins.

Disruptive innovation: starts small and scrappy—lower performance (by old yardsticks), thinner margins, a weird little market that looks “beneath you”—serving edge cases and overlooked users first.

Textbook case: disk drives. Incumbents kept perfecting big, fast, reliable drives for data centers. New entrants came from the fringes—miniaturized, portable units for “unimportant” customers—and eventually rewrote the leaderboard. Same arc with Blockbuster vs. Netflix: the former polished stores and late-fee economics; the latter began with mail-order DVDs—clunky at first, but tailored to people mainstream players ignored, and riding a new distribution channel.

The point isn’t who was smarter. It’s who they chose to serve.

Value networks: why successful organizations can’t just “turn the wheel”

A mature company is a finely tuned machine built around two imperatives:

• keep the biggest customers happy, and
• protect the highest-margin lines.
  
  

That creates a value network—a web of customer mix, channel incentives, KPIs, budgeting rhythms, margin models, and investor expectations. Think of it as an invisible exoskeleton that keeps the firm upright—and locks its joints.

• Sales compensation is tied to high-margin SKUs.
• Engineering culture gravitates to high-spec solutions.
• Stage-gate reviews filter out projects that look “small and slow.”
• Finance rewards near-term ROI and scale efficiency.
  
  

It’s not that leaders don’t want the new thing. The system makes them late to it.

Kodak built digital cameras early, but asking a 10%-margin newcomer to cannibalize a 70%-margin cash cow was organizational heresy. Nokia wasn’t blind to smartphones; its real “customers” were carriers, so reception, battery life, and durability trumped app ecosystems—an incentives mismatch with where the market was heading.

Three common misreads

• “We’ll jump in once it’s big.”
  By the time the market looks materially attractive, entry barriers and the new ecosystem’s power centers are already locked down.
• “Make the new thing premium, too.”
  Dragging a disruptive path back to old performance metrics strips away its cost and simplicity advantages—the very reasons it wins.
• “Share resources to be efficient.”
  Forcing the new venture through legacy processes and KPIs means it loses the race at the starting line. Different game, different clockspeed.
  
  

The Rare Survivors: How to Disrupt Yourself

Very few incumbents make it cleanly through a technology shift. The ones that do tend to make the same moves—and they look nothing like business as usual.

1) Stand up a “rebel” team

Small: Keep it tiny—small enough that, if it burns the cash, headquarters won’t panic.
Separate: Give it its own brand, sales motion, P&L, hiring, and technical roadmap.
Slack: Protect a 3–5 year window with explicit tolerance for mistakes; don’t grade it on the parent’s KPIs.

Examples: IBM built the original PC in Boca Raton with an autonomous team that bypassed standard processes and sourced externally. Sony created an independent subsidiary for PlayStation to break free from “consumer-electronics margin math.”

2) Grant explicit cannibalization rights

• Eat your own first: The new line is allowed—expected—to take profit from the old line.
• Pricing autonomy: Let the new product set price/packaging without the legacy margin guardrails.
• Channel freedom: Permit different channels, partners, and go-to-market plays than the core business.
  
  

3) Replace “scale KPIs” with learning velocity

In the early innings, measure retention, repeat usage, unit economics improving over time, and cycle time between iterations—not revenue contribution.
Use stage gates: move from problem–solution fit → product–market fit → repeatable growth.

4) Bet like a portfolio

Treat disruptive bets as a set of options: if 1–2 out of 10 hit, the math works.
View failures as information assets—sunk cost traded for insights and capabilities you can reuse.

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Five signs a disruptor is taking shape

• Your non-core users are suddenly thrilled, while flagship customers shrug.
• The newcomer underperforms on old specs but crushes you on portability, price, or convenience.
• The rival sells outside your channels—and is growing fast.
• Your team says, “That’s beneath us.”
• In every model it’s “too small, too slow, too little profit.”
  
  

If two or more show up, assume a paradigm shift in tech or business model is approaching.

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A deliberately “unnatural” playbook for leadership

• Decide now: Ring-fence a fixed slice of next year’s budget (e.g., 5–10% of OPEX) for an independent disruptive unit.
• Write it down: Amend bylaws or operating principles to allow cannibalization; forbid evaluating the new line on group gross margin or short-term ROIC.
• Dual track governance: Optimize the core for efficiency and cash; optimize the new line for speed and learning.
• Rethink comp: Pay the new team on its own curve—learning, retention, unit economics—not on legacy product commissions.
• Create a “decoupling list”: Spell out which processes, IT systems, compliance gates, and brand elements must be kept separate.
  
  

Quarterly retro—ask three things:

• Which assumption did we kill this quarter?
• Which metric showed user stickiness, not just one-off transactions?
• What evidence proves we’re self-cannibalizing rather than waiting to be hit?
  
  

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Stop asking, “How could they make such a rookie mistake?”

Giants rarely die because they quit innovating. More often, they innovate brilliantly—on the old curve—serving big customers and fat margins so well that success hardens into a cage. What knocks you out usually isn’t the opponent straight ahead; it’s the new curve you looked down on.

The cold verdict:
Even when you’re “doing everything right,” keep a rebel squad ready. Its job, on the right day, is to knock down the very world you worked so hard to build.