Or at least, newspaper companies?

An auditorium full of newspaper executives heard recently at Northwestern University that the answer is yes – if they adopt the recommended approaches of the Newspaper Next project, a joint effort of the American Press Institute and Innosight, a consulting firm founded by Harvard Business School Prof. Clayton Christensen.

Like Newspaper Next's managing director, Stephen Gray, who led the Evanston program, I agree that newspapers can still manage to adapt to the changes swirling around them. But I also think time is running out, especially for papers in metropolitan markets. And while Newspaper Next offers some useful concepts and tools to newspaper companies, I'm not convinced it truly offers a "blueprint for transformation," which is the title of the project's recently released report.

First, the background. Newspaper Next is an effort to apply Christensen's concept of "disruptive innovation" to the newspaper industry. Christensen introduced this framework to the general public in 1997 with "The Innovator's Dilemma." Since then, Christensen (with co-authors) also has published "The Innovator's Solution" and "Seeing What's Next."

I'm a strong believer in Christensen's disruptive innovation framework, and I've used it for years in my Medill classes, my consulting work and my presentations to media executives at programs run by Northwestern's Media Management Center. If you want to understand why the newspaper industry is having such trouble adjusting to changes in technology, consumer behavior and media business models, "The Innovator's Dilemma" might be the first book you should read – even though it doesn't specifically mention newspapers at all. The book explains clearly why it is that successful companies have such trouble adapting to disruptive innovations. It resonates strongly with me because of my experience as The Miami Herald's first new media director from 1995 to 1999.

What I found was that trying to build a successful Web publishing business inside a newspaper company was a never-ending battle. And from my perspective, many of the challenges seemed internal and unnecessary. Newsroom staff didn't want to cooperate. Advertising salespeople didn't want to learn about online ads. Top executives said the Web was important, but their behavior made clear that it wasn't so important they would support fundamental changes in how the company operated. Outside of the online department, almost no one at the company saw what seemed obvious to me and my team: that the Web could ultimately upend the entire newspaper business if we didn't make the right decisions.

Christensen's book helped me understand why the rest of the company – especially in the newsroom and ad department – saw things differently than we did in the new media operation. It wasn't that the rest of the people at The Herald were stupid, or closed-minded, or unaware. Instead, as Christensen explains, disruptive innovations change the rules of the game. The very things that make successful companies successful – a focus on their best customers, a drive to improve products for those customers, and well-tuned processes to decide which new initiatives are worth investing in – turn out to be handicaps when disruptive innovations emerge.

In some ways, the explanatory power of "The Innovator's Dilemma" is its biggest problem. If you work for a successful company confronted by disruptive innovation, the book paints a very pessimistic picture. "The Innovator's Dilemma" says successful companies never survive disruptive innovations. If your industry is being disrupted, the book says, your company will fail. Not a very exciting message if you work for a successful company – or if you want to sell books about disruptive innovation to these people.

So Christensen's later books try to put a positive spin on his subject. Basically, they say companies have a fighting chance at surviving – if they follow Christensen's advice. Hence, the creation of Innosight, a consulting business geared to advising firms how to survive in a disruptive landscape. (Innosight also publishes Strategy & Innovation, a very good bimonthly print publication with an accompanying email newsletter.)

Which brings us to Newspaper Next. Judging from the turnout and engagement level of more than 100 newspaper executives in Evanston, API and Innosight have put together a pretty compelling case. As someone who has taught the disruptive technology framework, I was particularly impressed with Gray's presentation. He did a brilliant job of weaving together the specifics of Christensen's work, examples from the newspaper industry and his own experience as a newspaper owner and editor. It was a very engaging show.

Amid a mood of despair at many newspaper companies, Gray offers hope that newspapers can find new ways of engaging customers and generating the revenue they need to offset declines in key advertising categories such as real estate, automotive, recruitment and department stores. Right now, a little hope is something the industry needs.

Here's what I think Newspaper Next gets right:

The Internet is a disruptive technology for newspapers.
In Christensen's worldview, that means the Internet is fundamentally changing consumer and advertiser behavior – and, more significantly, the newspaper's business models. To me, the key business model components under assault are:

1. vertical integration – the idea that a single company collects and packages content, sells the ads, manufactures a product that contains both, and owns the distribution system for that product;
2. audience manufacturing – the idea that money is made by attracting people to the newspaper, then “selling” those people to advertisers who want to reach them;
3. mass media economics – the idea that larger audiences are better, because they attract a disproportionate share of ad dollars in a given market;
4. the adjacency assumption – the idea that advertising can be effective simply because it appears next to content people are interested in – even if the ad is not targeted to either the audience or the subject matter;
5. one size fits all – the idea, stemming from mass media economics, that one newspaper can meet the needs of a wide variety of different types of people, on a wide variety of different occasions.

The industry has been blind to its most significant competitors.
Christensen posits that a disruptive innovation typically takes hold in markets unimportant to a successful company's core business, and typically among non-core customers. Even if they even notice the new venture, successful firms will minimize the competition, feeling that the new product is inferior, doesn't matter to their best customers and won't make the kind of profits they're used to. But if an innovation is disruptive, it will ultimately improve to the point where it is competitive with the more traditional product. This cycle has happened over and over again for newspapers in the Internet space. Back in 1995, newspaper people looked down on Internet news. A few years later, they ignored Craigslist. Then it was blogs. Now it's MySpace. Newspapers could have created any of these, but failed to do so because they didn't fit newspapers' way of thinking, seemed inferior (for instance, less authoritative) and couldn't measure up to print publications by the metrics typically used to evaluate new initiatives (revenue and profitability). Now they are all taking audience, revenue or both from newspapers.

Newspaper companies need to become portfolio companies.
As media choices explode and consumer expectations rise, it is no longer possible for a local media company to have just one product, a newspaper, or even a newspaper plus a Web site. The successful local information companies of the future will have a wide variety of products serving different audiences and different needs. Many newspaper companies have already started down this road.

There's money on the table.
One of the most compelling case studies generated through Newspaper Next involves the Richmond Times-Dispatch, the paper where I started my journalism career 25 years ago. The newspaper's research identified 16,000 "public-facing" businesses in the Richmond market. Only 3,500 advertise in the Times-Dispatch. The rest either can't afford to advertise in a mass market newspaper or have concluded that they have better ways of engaging customers and potential customers. Most of these businesses are small and relatively unprofitable for a newspaper company to serve compared to, say, a major employer buying classified advertising or a department store buying a full-page display ad. Newspapers have abandoned these businesses – leaving an opportunity for competitors offering new advertising products such as search-engine keywords.

The Newspaper Next "innovation method" makes a lot of sense.
Here Newspaper Next basically adopts Christensen's prescription for product development, which is very different than newspaper companies are used to. The key components:

1. Think of "jobs to be done" rather than products. For instance, if you think of businesses only as potential buyers of advertising, you will try to figure out what kind of ad they'll buy or what kind of product they'll advertise in. If you think of a "job" a business needs done – say, getting prospective customers in the door – you might come up with ideas for products or services that go beyond advertising.
2. Innovate with business models as well as products. Here, the newspaper industry's experience with the Web is instructive. However weak their Web strategies have been, newspapers have done a much better job of building their Web audience than making money from it. In large part, that's because newspapers have tried to "cram" (Christensen's term) the Web into their traditional business model, which generates money through display and classified advertising, subscriptions and single-copy sales. Of these revenue streams, only classified advertising is significant on the Web – and it's significantly less lucrative than print classifieds. Meanwhile, newspapers typically make little or nothing from the dominant Web revenue sources: search-engine keywords and email marketing.
3. Develop “good enough” products for "overshot" markets – people for whom your existing product (for instance, the hefty Sunday paper) is too expensive/complex/time-consuming/inconvenient. This runs counter to the instincts of newspaper people, who tend to be perfectionists and want to create products that they themselves would be interested in. Newspapers are much more comfortable creating high-quality products for demanding customers (say, a lifestyle magazine for high-income zip codes) than low-cost, low-margin products for demographic groups less appealing to newspaper advertisers. That's why free dailies arrived in most markets courtesy of a company other than the dominant daily newspaper.
4. "Invest a little, learn a lot." Newspapers tend to spend a lot of time and money on research, prototypes and business plans before launching a product. They then expect a new product to launch fully formed. This approach can produce successes, but it also leads to very expensive failures - which will discourage further investment in innovation. Christensen's research suggests that companies capitalizing on disruptive technologies should craft experiments allowing them to learn as much as possible as inexpensively as possible, then revise based on the lessons learned.

Leadership - especially in information sharing - is critical.
Gray refers back to his role as president of his family's newspaper company, a point when he remembers wanting two-thirds of his employees to change their thinking. "Up on the bridge you can see everything. But down in the hole, pulling on the oars, you don't see it," he recalled. "I literally got goosebumps when I realized the problem was me." Ultimately, he realized he had information that his staff didn't have. He ramped up his communication efforts and ultimately achieved his goals, Gray said.

And yet. While I see the value of the disruptive innovation framework in explaining what's happening to the newspaper industry, frameworks are not necessarily prescriptive. The ideas that emerged from Newspaper Next's seven pilot projects were not especially novel or, in my view, particularly disruptive in their impact on other firms, let alone newspapers themselves. At best, Newspaper Next addresses only part of the picture.

Here's what I think Newspaper Next gets wrong – or fails to address adequately:

Newspaper Next offers little help to newspaper companies facing unrealistic expectations from their investors.
Even if everything about the Newspaper Next approach is right, investors will still have to accept lower profits today (and maybe forever) in order to build new lines of business for tomorrow. The experiences of Knight Ridder and Tribune Co. suggest newspaper industry investors are unwilling to make that tradeoff.

The "jobs to be done" approach suggests that media products are utilitarian rather than emotionally connected.
Research at the Media Management Center shows clearly the value of thinking about reader and user “experiences” while creating and evaluating new product ideas. John Lavine, formerly the center's director and now my boss as dean of Medill, likes to show a picture of a Starbucks and a streetside coffee vendor. He notes that both serve coffee but only Starbucks creates a compelling experience. The center's research shows that reader/user experiences – their emotional responses to media products – are powerful predictors of media usage. The "jobs" concept is similar to experiences, but it doesn't sufficiently tap into consumer psychology as a driver of new product development.

By adopting the approaches recommended in Christensen's later books, Newspaper Next dodges the central lesson of his best book, "The Innovator's Dilemma."
The lesson: that to succeed based on disruptive innovation, you need to be willing to compete with yourself. The newspaper industry could easily have created Craigslist, but would never have done so before Craig Newmark did because of fear it would cannibalize the existing classified business. For a short time, some newspaper companies tried to address this problem by creating independent Internet subsidiaries that didn't answer to newspapers' leadership. For the most part, they have abandoned this strategy in favor of "integrating" print and online. In the near term, this has increased revenue and decreased expenses, but over the long haul it opens the door to further disruption by competitors unencumbered by a legacy business.

Focusing on a product portfolio fails to address the fundamental need to reinvent the core newspaper and its journalism-based Website.
If you follow the Newspaper Next blueprint, you might create a new magazine for busy moms, or a Web site to help people find a good plumber. But maybe that time and money would be better spent on changing the "mothership" to make it more relevant to more people. Readership Institute research suggests that improvements to the newspaper and its Web site could increase their audience – and even a small increase would produce more return on investment than a new niche product.

For at least some papers, it may be too late for incremental change.
Major metropolitan papers in many markets are in "free fall" right now, losing circulation fast and ad revenue faster. The Boston Globe will reportedly lose money this year. The Los Angeles Times sells literally hundreds of thousands fewer copies than it did just a few years ago. To remain profitable, companies like these are going to have to cut expenses – and if they don't figure out how to do it without reducing their appeal to readers, they will enter a death spiral from which there is no escape. That's one reason I'm intrigued by the announcement of Gannett's "Information Center" initiative. I don't know enough about the initiative to assess it fairly, but from what I've read it appears the company plans to radically restructure its newsrooms to both reduce expenses *and* increase engagement among readers and online users. Doing both may very well be impossible, but it also may be the only way to survive. And if it is, only a fundamental rethinking of newsroom mission, jobs and structures will do the job. That's why the Media Management Center has focused so much of its energy in recent years on understanding and changing newspaper culture.

It's the people, stupid.
Christensen's framework does a great job of explaining why successful companies have such a hard time changing to adapt to disruptive innovations. He focuses on what he calls resources, processes and values, all of which need to change. I think, though, that he and Newspaper Next underplay the importance of one particular "resource": people. The workforce of a successful company evolves just like a species does - in newspapers' case, with characteristics useful in operating a market-dominating business bred into its DNA. At a time when different traits are needed, they are hard to find in the DNA of a successful firm.

In the end, whatever the value of the Newspaper Next approach, its innovation "blueprint" is incomplete. The real barriers to change - and, perhaps, survival - are cultural and organizational.

At a newspaper company whose leadership understands the crisis it faces, whose ownership is able to invest for the long-term, and whose employees are willing to embrace change in what they do and how they do it, I think the Newspaper Next approach could be very helpful. How many newspaper companies fit that description today?


By Rich Gordon (richgor@northwestern.edu)
Rich Gordon is Associate Professor and Director of Digital Technology in Education at Medill School of Journalism, Northwestern University.

Read other commentary about Newspaper Next

More articles by Rich Gordon