How do Successful Institutions Respond to Disruptive Change?

Joshua-Michéle Ross writes that while there’s no shortage of good ideas to address the decline of the newspaper industry, those ideas can’t go anywhere until media companies address the larger problem hindering their progress: institutional resistance to change.

John Puchalla of Moody’s Investors Service published a report in June that illustrates this in terms of where newspapers spend their money:

Newspapers on average devote just 14% of cash operating costs to content creation — the main reason anyone picks up a paper — and only 16% to advertising sales — the principal source of revenue — while lavishing 70% of operating cash costs to production, circulation and corporate services.

This led Ross to suggest what appears to be the obvious solution:

Maximize your online presence, build your online community, concentrate on journalistic talent, and jettison all costs associated with print; stop the presses.

Others have suggested reducing print infrastructure and focusing on content-producing staff. AOL has been doing this – quietly snapping up journalists laid-off from struggling publications – as it builds a content-focused operation:

AOL is finding success with a strategy that employs 300 content producers who maintain over 80 web sites, many of which don’t prominently display the AOL brand, according to David Carr. The recession and news industry troubles have helped by making available a large pool of talent, which the company has quickly snapped up in an effort to gain credibility.

NPR is another example, albeit different because historically their distribution infrastructure is over-the-air, not print, and they have a significant revenue stream from member stations. On my article about NPR’s embrace of digital media, commenter Sage Ross writes:

NPR doesn’t see digital media as a threat because digital media hasn’t shattered NPR’s business model… in fact, it’s made it more viable, with some relatively minor changes (i.e., a continued shift of financial inflows to the hub rather than the member stations). Even the most whole-hearted embrace of digital media isn’t going to save newspapers, at least not with anything like their current scale, because nothing can replace the inflated market for print ads, which subsidized the real journalism and everything else newspapers do.

The key thing about NPR is that they’re not trying to hide from digital media and pretend that the revenue stream from member stations will carry them indefinitely. Newspapers, on the other hand, have largely treated digital media as a side-business, instead of what it is rapidly becoming – the only line of business.

Ross suggests that this is a direct result of being an institution – an entity that is not, by nature, wired for change:

The failure of newspapers is not a failure of imagination or foresight nor is it a failure of individuals. This kind of failure is the hallmark of all institutions in the face of tectonic disruption. Institutions are a set of agreements that perpetuate a social order beyond individual intention or tenure. Changing those agreements is costly and time-consuming. So when the rate of change accelerates beyond the institution’s adaptive capacity – extinction follows.

There’s certainly some truth here, but I’m not entirely convinced, because there’s a whole class of institutions that have done quite well for over a thousand years: universities.

Perhaps it’s because their product is knowledge, produced by research and discovery, and disseminated by teaching? This inherently involves change, because discovery of new knowledge changes commonly held beliefs. Even when that change takes time, and involves controversy among scholars, it still compels changes in theory and practice.

People pay for this knowledge, in the form of an education and academic degree, because it promises them an opportunity to improve their social and economic standing. Can the same be said of the news?

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