Home Studio Owners Strategies to Compete in the Recording Indust

Section 1: Foundation of the Study

Before the early 1980s, the cost of owning a music recording studio was so

expensive that only large recording companies and major artists could afford one (De

Carvalho, 2012). However, since that time, disruptive technological advances that

reduced the cost and size of recording studios have been revolutionizing recording

industry practices regarding who records music and where music recording occurs (Bell,

2014). Contemporary recording devices are compact, affordable, and simple to use, so

more people have been able to set up semiprofessional recording studios in their

bedrooms (Bell, 2015).

Innovative uses of technologies can often disrupt established markets by

providing new functionality, service trajectories, or access to ownership (Nagy,

Schuessler & Dubinsky, 2016). Christensen defined disruptive innovation as “an

innovation that makes it so much simpler and so much more affordable to own and use a

product that a whole new population of people [historically denied access or ownership]

can now have one” (Christensen & Euchner, 2011, p. 12). Considering Christensen’s

definition of a disruptive innovation and the evolution of the music recording studio, a

person might consider the home recording studio a potentially disruptive innovation.

With the traditional business model of large recording companies on the decline and the

practice of DIY (do it yourself) music releasing on the rise (Bell, 2014), home studios

will play a vital role in the future of the recording industry.

Background of the Problem

The music recording industry is in a state of disruptive technological change. The

emergence and evolution of digital technologies has led to the decline of traditional

record companies and the delocalization of the professional recording studio (Bell, 2015;

Kling, 2015; Pras & Guastavino, 2013). The major record label model is declining, and

large recording studios are closing, whereas home recording studios are gaining

recognition as the new professional recording studio (Kling, 2015). This means that

aspiring music artists can forego seeking major record deals and become DIY music

releasers instead, which is helpful for unsigned music artists whose music appeals

primarily to niche markets, especially because they may often gain more money through

DIY music releasing than by signing major record deals (Passman, 2013). Most standard

recording contracts preclude artists from receiving royalty distributions until the record

company sells enough records to recoup their recording costs, cash advances, and other

unrecouped balances of the recording agreement (Passman, 2013). With no definitive

home recording studio model in place to serve as a benchmark of best practices for this

emerging industry, strategies for successful business practice are unclear. For these

reasons, especially considering the increasing popularity and inevitable diffusion of this

innovation, the home recording studio ownership phenomenon warranted further

exploration, which this study addressed.

Problem Statement

The evolution of digital technologies democratized access to music recording

technologies across a broad spectrum of industry participants and delocalized the

professional recording studio from large commercial workspaces to private bedrooms,

basements, and garages (Bell, 2014). The digitization of music gave rise to a file storage

format for which the marginal costs for copying and distributing music was near $0.00

(Waldfogel, 2017). This contributed to a surge in independent music production that

created such an oversupply of music that infinite choice and intense competition

characterized the marketplace (Hracs, Jakob, & Hauge, 2013). The general business

problem is that the increase of novice home recording studios has fragmented (split-up

and decentralized) the recording industry and created a home-based recording industry

that does not have clear strategies for success. The specific business problem is that some

home recording studio owners lack strategies to compete in the fragmented recording

industry.

Purpose Statement

The purpose of this qualitative multiple case study was to explore strategies that

well-established home recording studio owners used to compete in the fragmented

recording industry. The target population consisted of home recording studio owners in a

city in the southeastern United States who competed for at least five years under the

conditions of industry fragmentation that followed the 2011 collapse of the recording

industry’s Big Four oligopoly. The study population consisted of four home recording

studio owners, each of whom had run an established home studio business for over 10

years. The participants had insight from their experiences about how they survived in

their fragmented industry sector with no distinct industry leader in place to influence

trends in the marketplace. The implications for positive social change include the

economic empowerment for aspiring entrepreneurs by presenting home recording studio

ownership as an innovative home-based businesses option for creating new jobs and

helping strengthen the local economy.

Nature of the Study

This study involved a qualitative research methodology with a multiple case study

design. Using this qualitative multiple case study approach helped me understand what

influences competitive strategies, especially regarding how home recording studio

owners have competed in the fragmented music recording industry. Further, qualitative

research is an inductive form of research in which the researcher listens to participants

and builds an understanding of the problem based on what they say, whereas quantitative

research is a deductive form of research commonly used for testing hypotheses based on

empirical data (Denzin & Lincoln, 2011). Qualitative research is rarely used for testing

hypotheses (Ingham-Broomfield, 2015). The mixed methods approach combines both

qualitative and quantitative data collection and provides greater understanding of research

problems than either approach could provide alone (Bryers, van Teijilingen, & Pitchforth,

2014). I rejected both the quantitative approach and the mixed methods approach for the

same reasons; in this study, there were no hypotheses to test or quantitative empirical

data to collect.

Choosing this multiple case study design allowed me to use methodological

triangulation using multiple sources of evidence to increase the reliability and validity of

the research. Case study designs allow the researcher to incorporate a wider variety of

evidence documents, artifacts, interviews, and observations (Yin, 2014). Case study

designs also offer researchers greater flexibility and adaptability than other approaches

(Yin, 2014). I rejected phenomenology because typically the design relies on individual

interview data to explore the meaning ascribed to a phenomenon (Myers, 2013).

Although the narrative research and ethnographic designs both allow the use of multiple

sources of data collection (as required to achieve methodological triangulation), their

respective focuses did not align with the focus of solving an applied business problem.

Thus, the narrative design, which is focused on creating detailed stories or life

experiences of a single event, and ethnography, which is focused on examining the

shared patterns of behavior, beliefs, and language within an entire cultural group did not

fit this study.

Research Question

What strategies do well-established home recording studio owners use to compete

in the fragmented recording industry?

Interview Questions

1. How did you become involved in the home recording studio business?

2. How does owning a home studio help you compete in the recording industry?

3. What challenges (if any) does operating a recording studio in your home present?

4. How has the decline of traditional recording companies affected your business?

5. How do you use your studio to generate supplementary or replacement income?

6. Who are your targeted or primary customers (including yourself if applicable)?

7. How do you attract new customers and keep your business in their minds?

8. Please share anything else you wish about competing in the recording industry

that we have not talked about.

Conceptual Framework

In this study, I combined the five competitive forces framework by Porter (1979)

with the disruptive innovation theory by Christensen (1997/2016) to view the home

recording studio ownership phenomenon. Porter describes five forces that shape the

structure of all industries and establish the rules of competition and profitability within an

industry: the rivalry between existing competitors, the threat of new entrants to the

market, the bargaining power of buyers, the bargaining power of suppliers, and the threat

of substitute products or services. Porter’s model also describes that the most intense

force (or combination of forces) at work within a given industry determines the profit

potential for that industry. Force configurations differ from one industry to the next.

Understanding the intensity and configuration of the forces is vital to strategy

formulation. If the competitive forces in an industry are intense, virtually no company

profits, but if the forces are mild, many businesses profit. Industry structure drives both

competition and profitability. Using Porter’s framework aided my understanding of the

competitive, structural, and power dynamics of the recording industry.

The principle tenets of disruptive innovation theory (Christensen, 1997/2016) are

the notions of (a) sustaining versus disruptive technologies, (b) non-breakthrough

innovations making historically inaccessible products or services simpler and more

affordable, (c) inferior products in the near term improving with technology, (d) low-end

market disruption with a subsequent move upmarket and, (e) disruptor firms competing

against nonconsumption. Disruptive innovation theory helped me appreciate how

emerging firms approach strategy formulation in an industry challenged by disruptive

technological change.

Operational Definitions

Disruptive innovation: A disruptive innovation is an innovation that makes

owning and using a product simpler and affordable, so a new population of people who

historically did not have the money or skill to be in the market can own or use one

(Christensen & Euchner, 2011). Disruptive innovations usually spur the creation of new

markets and business model strategies that are unattractive to powerful incumbents

because the disruptive products or services appeal to customers who welcome simple and

affordable products (Robles, 2015).

Fragmented industry: A fragmented industry is a segment of business in which no

distinct leading firm exists to influence market trends (Porter, 1980).

Home-based business: A home-based business is a business run out of a person’s

home, with some business activities perhaps conducted at other locations as well (Small

Business Administration, 2014).

Small business: A small business is an independent business with fewer than 500

employees (Small Business Administration, 2014).

Assumptions, Limitations, and Delimitations

This subsection contains some basic beliefs, weaknesses, and boundaries pertinent

to this study. I included this subsection to place the study in context and attribute a level

of credibility to the study through my transparency.

Assumptions

Assumptions are basic beliefs or presumed truths about aspects pertinent to a

study that are beyond the researcher’s control (Kirkwood & Price, 2013). I assumed that

combining inclusion criteria with a snowball sampling method would yield qualified

cases and that a sample size of three to five cases was enough to gather meaningful data.

Another assumption was that the format of the interview questions and the interview

process would inspire the participants to share in-depth information. Another assumption

was that all participants would answer honestly. Regarding the recording industry, the

main assumption was that most home recording studio owners in the target population

area were novice owner-entrepreneurs with no employees having an outside source of

sustainable income. Another assumption was that most home recording studio owner-

entrepreneurs recently attracted by the low entry barriers were DIY musicians or

singer/songwriters. Additionally, I assumed that home recording studio owners were like

other new market entrants and would behave as such. The final assumption was that the

home recording studio, or home studio ownership (as a behavior), qualified as a

disruptive innovation, which would make low-end market disruption with an eventual

move upmarket a practicable strategy consideration for home studio owners.

Limitations

Study limitations are self-reported delineations of weaknesses, uncovered during

the investigation process that place the study in context and attribute a level of credibility

to the study through authors’ admission, which highlights the importance of the

weaknesses (Brutus, Aguinis, & Wassmer, 2013). For instance, the limited scope of this

study did not allow me to assess the comparative effects of profit motivation on

competitive strategy formulation and firm profitability between home recording studio

owners who have outside sources of full-time income and those who do not. Respecting

the presumed private nature of home-based business affairs, I limited the scope of the

document collection efforts to point of contact information such as business cards,

brochures, sales promotions, and online materials available to the public. Another

limitation was the brief time limit within which to complete the study.

Delimitations

Delimitations are the conscious decisions that determine the scope and define the

boundaries of a research study (Shukla & Jharkharia, 2013). I focused on capturing the

perspectives of home recording studio owners only. Capturing the perspectives of large

commercial studio owners exceeded the scope of this study. Whereas a vast amount of

data exists in the literature about the impact of disruptive technologies on the music

distribution model, there is a knowledge gap regarding the impact of disruptive

technologies on the music recording model. For this reason, I limited the scope of this

study to gathering information about recording studios and the recording of music, not

record labels and the selling of records. Home studio owners in a city in the southeastern

United States exclusively made up the target population of the research sample.

Significance of the Study

The home is becoming widely recognized as a legitimate place of business for

individuals who choose to engage in economic activity from their places of residence.

Home-based businesses are gaining recognition as an important form of entrepreneurial

activity (Vorley & Rodgers, 2015). Though literature documents the importance of home-

based businesses (Vorley & Rodgers, 2015), there is a gap regarding home recording

studio ownership as a viable home-based business option or as an important form of

entrepreneurial activity. This study was conducted to decrease this gap.

Contribution to Business Practice

The findings of this study may fill gaps in the literature about competitive strategy

formulation and business model innovation under conditions of industry disruption and

fragmentation as well as the challenges of managing disruptive technological change.

Information gained from this study might help promote the establishment of business

practice standards on a national basis for the emerging home-based music recording

industry. This study could also promote other research that leads to a sustainable business

model for the home-based subset of the music recording industry, which is significant

because home recording studios are home-based businesses and as of 2014, more than

half of all the small businesses in the United States were home-based businesses (Small

Business Administration, 2014). Information derived from this study could help position

home-based music recording businesses to become recognized by the Small Business

Administration as micro-enterprises capable of working successfully and worthy of small

business funding, which can affect the economy and help create new jobs.

Implications for Social Change

The implications for positive social change include the potential to establish the

home recording studio as a viable home-based business option through which aspiring

entrepreneurs can become self-employed and empowered to create new jobs that help

strengthen their local economy. These implications for positive social change are

significant because displaced or aspiring music professionals can gain access to music

careers in addition to people who might never have considered a career in the music

industry before.

A Review of the Professional and Academic Literature

The purpose of this study was to explore strategies well-established home

recording studio owners have used to compete in the fragmented recording industry. A

fragmented industry is a business segment in which no distinct firm exists to influence

market trends (Porter, 1980). For this study, the focus on the fragmented structure of the

industry was deliberate because the structure of an industry drives competition and

profitability (Porter, 1979). I conducted this review in alignment with Porter’s (2008)

statement that a good industry analysis should carefully explore the structural

underpinnings of profitability.

The purpose of this literature review was to assess systemic activities in the U.S.

recording industry and to gain insight on home recording studio owners’ building

strategies to compete in their fragmented industry. The focus of this review was the

innovative process by which small or entrant firms could successfully challenge and

topple larger incumbent firms, disrupting their business model, or entire industry, despite

the smaller firms having fewer resources.

The Dual Lens Conceptual Framework

The conceptual framework used for this study was a hybrid of two seminal

frameworks for viewing the home recording studio ownership phenomenon. The first

framework was Porter’s (1979) five competitive forces framework. I selected this

framework to,

 explore how five competitive forces contributed to the reshaping of the

competitive landscape of the recording industry,

 highlight the strongest of the competitive forces at work in the recording

industry because the strongest forces become the most important to strategy

formulation (Porter, 2008), and

 understand how the fragmented structure of the recording industry influences

the competitive practices of home studio owners.

This last point of Porter’s framework is important because understanding industry

structure can help strategists find highly profitable competitive niches and determine the

basis of competition and the drivers of profitability (Porter, 2008).

The second framework was Christensen’s (1997/2016) disruptive innovation

theory. Used to explain how new businesses thrive while mature companies fail,

disruptive innovation theory is effective for predicting the future success of new ventures

(Robles, 2015). Despite the broad dissemination of the theory’s core concepts and

essential refinements, disruptive innovation theory has remained misunderstood and the

label disruptive has been indiscriminately applied (Christensen, Raynor, & McDonald,

2015). To ensure the proper application of the label disruptive, I examined the tenets of

disruptive innovation and the published criteria for disruptive innovations to determine

whether the label disruptive innovation applied to the home studio phenomenon. In this

section, I present the essential modifications in disruptive innovation theory to help

preserve the integrity of the theory and describe the theory’s core concepts.

Strategy for Searching the Literature

To compile information for this study, I conducted an extensive review of the

literature via the Walden University online library using the following business and

management databases: Business Source Complete, ABI/INFORM Complete, and

Emerald Management. Also used in the search process were the multidisciplinary

databases Academic Search Complete and ProQuest Central. Additionally, I searched the

Walden University Scholarworks database of dissertations and doctoral studies, pertinent

government websites, and music industry websites. This review encompasses content of

the literature obtained from various scholarly sources, such as journals, seminal books

that cover a broad range of subjects related to management theories, and pertinent music

industry subject matter.

The search strategy for this literature review involved keyword searches, using

conjunctions to combine or exclude keywords to achieve more focused and productive

search results. The keyword combinations included: disruptive innovation, disruptive

technologies, music industry, recording industry, record business, sound recording

industry, major record labels, independent record labels, and home studios. I used the

search term combinations that tended to yield the greatest numbers of pertinent articles to

search many databases, and abandoned combinations that seldom yielded relevant

material, eventually replacing them by more effective keyword combinations. I found

additional pertinent reference articles by searching the reference sections of peer-

reviewed papers previously identified to contain large volumes of pertinent information.

This doctoral study includes information gathered from a total of 117 sources, of

which 101 (86%) are peer reviewed, 16 (14%) are not peer reviewed, and 100 (85%)

have a publication date less than five years from the anticipated CAO approval

completion date. The literature review component of this study comprises information

from 60 of the peer-reviewed sources. The frequencies and percentages achieved in this

study meet or exceed the minimum requirements established by Walden University in

each category.

Organization of This Literature Review

This literature review has four main subject categories:

1. The restructuring of the competitive landscape of the recording industry

2. The five competitive forces framework,

3. Disruptive innovation theory, and

4. Additional perspectives on competing in changing environments.

I address the significance of the business problem and the concept of competitive strategy

formulation in business practice. I explored the perspective of home recording studio

owners competing in a new sector of a declining industry in which (a) no proven business

model has been there to guide their business practices, (b) no distinct industry leader has

existed to control market trends (fragmented industry), and (c) the strategies that lead to

success have been unclear.

In the first part of this review, I address the existing industry structure and

competitive dynamics at work in the music recording industry and explain the importance

of including structural considerations in competitive strategy formulation. I tie in Porter’s

(1979) thinking on competition in fragmented industries and describe the setting in which

the home studio business operates. I begin the discussion by exploring how the evolution

of digital technologies have influenced the restructuring of the competitive landscape of

the recording industry. I then explain how three key factors—the democratization of

recording technologies, the delocalization of large recording studios, and the decline of

traditional record companies—have contributed to bringing the industry to its current

fragmented state (Figure 1).

The next part of the review includes an in-depth critical analysis and synthesis of

the literature pertaining to each of two supporting conceptual models. Throughout the

review, I bridge between the models and relate them to the literature on the recording

industry, offering supporting and contrasting conceptual models where applicable. The

review concludes with added perspectives on competing in changing environments as

they relate to issues such as business model innovation, supply chain management, and

building personal branding platforms.

The Restructuring of the Competitive Landscape of the Recording Industry

Bell (2015), Kling (2015), and Pras and Guastavino (2013) suggested that the

emergence and evolution of digital technologies has led to three fundamental occurrences

that have contributed to reshaping the competitive landscape of the recording industry:

 the democratization of music recording technologies across a much broader

spectrum of industry participants (skilled and unskilled),

 the delocalization of the professional recording studio from large commercial

spaces to people’s private bedrooms, basements, and garages, and

 the decline of traditional recording companies because of the competitive

pricing and rival sonic quality of home recording studios.

The economic evolution of the recording industry has been traced through

technological advances (Pras & Guastavino, 2013). Both the decline of large recording

studios and the decline of the traditional business model of record companies has been

attributed to digital technology and Internet file sharing (Pras & Guastavino, 2013).

Digital technology has also led to the delocalization of the professional recording studio

and the decline of studio professionals. There is now a virtual studio in which almost

anyone with a computer can participate in the recording of music (Pras & Guastavino,

2013). Likewise, the democratization of digital recording technology can be linked to

digital devices such as the digital audio workstation (DAW), which brought music

making to the masses (Bell, 2015).

Figure 1. The evolution of digital technologies and the effect on the recording industry.

Understanding democratization. Through democratization of technology, a DIY

music artist could build an inexpensive in-home recording studio and begin producing

and self-releasing his or her records via the Internet with zero intervention by a record

label. The democratization of technology addresses technological needs while reducing

unnecessary complexity (Kelly & Farahbakhsh, 2013). In-home recording studios have a

rivalled sonic quality and there is an increasing number of popular music releases that

were recorded in in-home recording studios (Harkness, 2014; Kling, 2014). The authority

that major recording company executives used to have now spans a broader spectrum of

players, with individual music artists claiming the larger share of creative control

(Galuszka, 2012).

Modern music artists have increased control over the likelihood of their songs

becoming hit songs. The art of writing a hit song has evolved into a science known as hit

song science (Tough, 2013). Songwriters have access to comprehensive information on

hit songwriting that allows them to create their own formula or follow a formula for

writing a hit song (Tough, 2013). With advantages such as virtually unlimited access to

recording studio technologies and the technology to improve the likelihood of writing a

hit song, a person might not perceive any problem with democratization.

The dilemma of democratization. Digital technologies that alter the way people

produce, promote, and distribute goods has led to the dilemma of democratization (Hracs,

Jakob, & Hauge, 2013). Although democratization has increased access to music-making

technologies, the associated rise in new market entrants has created competition and has

hindered the ability of these cultural producers to command top dollar for their creative

goods and services (Hracs, Jakob, & Hauge, 2013). Declining entry barriers, competition

from an incursion of music producers, and abundant substitutes have caused independent

music producers to shift their primary attention from music making to developing

promotional strategies to help artists stand out in the crowd (Hracs, Jakob, & Hauge,

2013).

The dilemma of democratization relates to music sales and product placement not

necessarily recording studio activity. What happens on the artistic and creative music

recording side of the business is not necessarily what happens on the competitive music

sales and distribution side of the business. Over decades of use, the term the music

industry has become an umbrella term used to refer to both the music business and the

recording industry (Galzuka, 2012). Although people often use the terms

interchangeably, the music business and the recording industry are two distinctly

different industries that serve different core functions and produce different end products

(Galzuka, 2012). The music business consists of three distinct parts: the recording

industry, the music publishing business, and the live performance business (Galuszka,

2012). The music business is a system composed of three primary income streams: the

sale and use of songs, live performance of songs, and the sale and use of recordings

(Hull, Hutchison, & Strasser, 2011). These three income streams have in common three

distinct creative events around which they each revolve: the writing of a song, live

performance of a song, and the making of a recording of a song (Hull et al., 2011). The

primary focus of this study was centered on recording studio practices and the making of

a recording of a song.

The rise of home recording studios. Before the emergence of the DAW in the

1970s, many people considered home recording studio owners to be hobbyists, and home

studio recordings were synonymous with amateur recordings (Bell, 2014). However, as

DAW technologies evolved, so did the sound quality of music that was recorded in home

studios. Capitalizing on disruptive advances in music recording technologies, these home

studio hobbyists can produce recordings of the same sonic quality as music produced in a

professional studio (Kaloterakis, 2013). Though professional sound engineers have

asserted that the commercial studio is a better place for recording music, they have

acknowledged the sound quality of music produced in home studios (Kaloterakis, 2013).

Many popular music artists record exclusively in their home studios (Kaloterakis, 2013).

The decline of large recording studios. The professional recording studio,

formerly characterized by expansive rooms, expensive equipment, skilled professional

staff, and massive recording budgets, no longer fits that former description. The

multitracking capability of DAWs, which has allowed users to asynchronously record

individual instruments and microphone input onto individual tracks, has reduced the need

for recording studios to be big enough to accommodate large numbers of musicians

simultaneously (Kling, 2014). The widespread practice of unpaid music file sharing has

led to the slashing of major-label recording budgets, the primary source of funding for

most large recording studios (Harkness, 2014). As large recording studios’ executives

have been unable to compete with the competitive pricing of smaller home and project

studios, the number of large recording studios has declined to the point where relatively

few large studios remain (Kling, 2014). Hundreds of large recording studios have closed,

with a corresponding rise in the number of commercial releases of music projects

recorded in private bedroom, basement, and garage studios (Harkness, 2014).

The decline of studio professionals. After the introduction of digital recording

technologies in the late 1970s, the popular music framework has changed recording

studio practices and the role of session musicians (Campelo, 2015). The emergence of the

DAW and subsequent innovations in music recording technologies has diminished the

gap between audio engineer and music producer to the point of consolidating both roles

(Kling, 2014). In the modern home studio, a single musician–engineer hybrid can handle

the multiple functions that once required numerous studio professionals (Bell, 2014). The

technology available in the typical modern home recording studio can empower one

person to perform every studio function, from preproduction to mixing and mastering a

finished product, with a sonic quality that rivals that of big studio operations (Bell, 2015;

De Carvalho, 2012). The ability to download inexpensive consumer versions of popular

DAW software applications, such as Cubase, ProTools, or the freeware Audacity,

empowers even amateurs and non-musicians to excel at the art of semiprofessional music

recording (De Carvalho, 2012).

The professional sonic quality achievable via home recording studio technologies

is distinct from the lossy quality inherent to the popular MP3 file compression format

used to facilitate the online transfer and distribution of digital musical files. Lossy audio

compression formats, which discard information unperceivable by the human ear

anyway, became popular among file sharers because they are easily downloadable, and

they take up considerably less space on computer discs and portable storage devices (Pras

& Guastavino, 2013). Home studio engineers have a variety of other lossless file storage

formats available to them that do not diminish/sacrifice sonic quality at all. The

Waveform (WAV) audio file format is an example of a lossless file format that delivers

compact disc (CD) quality sound, but WAV files are usually quite large and take a long

time to download (Lu, 2015).

Findings by Bell (2015), Kling (2014), Pras and Guastavino (2013), and others

suggested that factoring home recording studio ownership into a DIY music releasing

strategy is an increasingly advisable consideration for aspiring music makers. Watson

(2013) said that finding gainful employment in the fragmented recording industry is

increasingly difficult for both experienced and inexperienced music producers and audio

engineers. Whereas new entrants and displaced industry workers might find the

exploitable opportunities presented by home studio ownership attractive, with no well-

established business model yet in place, some home studio owners lack strategies to

compete in the fragmented recording industry.

Porter’s Five Forces Framework

Porter (1979) described five distinct forces that help business leaders formulate

effective strategies and set up the rules of competition and profitability in their industry.

During the two decades that followed, Porter updated and extended his five forces model

(Porter, 2008). The forces include the rivalry among existing competitors, the threat of

new entrants to the market, the bargaining power of suppliers, the bargaining power of

buyers, and the threat of substitute products or services (Figure 2). Porter (2008) said that

understanding these five competitive forces and the structure of their industry may help

strategists carve out highly profitable competitive niches and render their companies less

vulnerable to competitive attacks. According to Porter (2008), managerial discernment

and attentiveness to the impact of forces affecting a firm’s industry are central to

successful use of the five forces framework. Porter (2008) explained that creative

strategists, who are more proficient in the use of the five forces framework than their

competitors, are likely to spot new and potentially profitable industry opportunities long

before their competitors.

Figure 2. Five forces framework. From “The Five Competitive Forces that Shape

Harvard Business Publishing Corporation. Reprinted with permission.

Misapplication of the five forces framework. Dobbs (2014), Gould and

Desjardins (2015), and Rajasekar and Al Raee (2013) used Michael Porter’s competitive

strategy model as their conceptual framework for industry analysis. As with other

conceptual frameworks; however, misapplication of the five forces framework is

common (Dobbs, 2014). According to Dobbs (2014), who developed a comprehensive set

of templates for applying Porter’s five forces framework, misapplication can lead to

misanalysis or incomplete analysis and result in poor decision-making and undesirable

outcomes. Assessing whether an industry is attractive or unattractive is not the primary

use for the five forces framework (Dobbs, 2014). Instead, the primary reason for using

the five forces framework is to gain strategic insight about how individual firms can

compete more effectively within an industry (Dobbs, 2014). Gould and Desjardins

(2015), who studied the Canadian telecommunications sector as an example of

refurbished generic strategy, considered Porter’s view of competitive strategy generic and

not adapted to industries that have thrived in the Internet age. Gould and Desjardins

presented a modified version of Porter’s framework that accounts for the dimension of

complexity alongside the original dimensions of target market and type of advantage.

Rajasekar and Al Raee (2013) also used Porter’s five forces framework to conduct

an analysis of the telecommunications industry. Rajasekar and Al Raee collected data

primarily from secondary sources such as published interviews of chief executive officers

in the industry, government reports, and the Telecommunication Regulatory Authority

(TRA) of Oman, a country about which little was known in terms of strategic

management. Rajasekar and Al Raee (2013) found that Porter’s five forces model

provided a framework to study the industry structure regarding the competitive forces at

work in the industry under analysis. To gain an understanding the competitive forces at

work was why I focused on industry structure as a vital component in the analysis of the

home recording sector of the music recording industry.

The main concept in brief and in practice. To ensure proper application of the

five forces framework, and to provide a few important takeaways to sustain long-term

profitability, here are a few key points to remember when using Porter’s (1979) five

forces framework for industry analysis:

 Keep tabs on the firm’s established rivals while constantly scanning the

competitive arena looking beyond the firm’s direct competitors.

 Remember that shrewd buyers can force down prices by playing the firm

against its rivals.

 Understand that powerful suppliers may impede the firm’s profits simply by

charging higher prices.

 Understand that aspiring new entrants can raise the investment needed for the

incumbent firm to remain in the market.

To enhance a firm’s long-term profits, the firm’s decision makers must first understand

how the five forces influence profitability in their own industry. Porter recommended the

following steps:

 Identify where the forces are weakest and position the firm there.

 Exploit changes in the forces.

 Reshape the forces in favor of the firm to reduce profits leaking to other

players.

Rivalry among existing competitors. Regarding the competition-shaping

dynamics explained in Porter’s (2008) five forces model, the cycle of rivalry among

existing competitors is the principle component upon which the remaining four forces

exert their respective effects from every side. Porter’s classic configuration of the five

forces, with the rivalry among existing competitors positioned in the center of the other

forces (see Figure 1), seems to hold true for the music recording industry. The rivalry

among existing competitors was so intense that mergers and acquisitions among major

recording companies became commonplace activities (Mihaela, 2012).

Prior to 1987 and the onset of both Internet influence and digital disruption, six

major record companies EMI, CBS, BMG, PolyGram, MCA, and WEA (the Big Six)

comprised a powerful oligopoly that dominated the global music industry (Mihaela,

2012). In 1987, the Big Six dwindled to five (the Big Five) when Sony bought CBS and

PolyGram merged into Universal Music Group, which was formerly MCA (Mihaela,

2012). Some of the remaining large record companies eventually merged and hostilely

acquired smaller record companies while others simply collapsed because of the negative

effects of disruptive technological change (Mihaela, 2012). Although some companies

got bigger, the overall number of major record companies declined markedly. The impact

of disruptive technological change negatively affected both the size of the oligopoly and

the power it wielded to shape industry outcomes and influence market trends (Mihaela,

2012). In 2004, when Sony acquired BMG (becoming Sony BMG), the Big Five

oligopoly effectively declined to just four major record companies (Mihaela, 2012). For

nearly a decade thereafter, Sony BMG, Warner Music Group, EMI, and Universal Music

(The Big Four) were the chief influencers of market trends throughout the global music

recording industry (Pras & Guastivino, 2013).

Together these four rival competitors controlled upwards of 76% of the

worldwide wholesale music sales market (Moreau, 2013; Tennent, 2013). However, in

November of 2011, rival competitors Sony BMG and Universal Music Group purchased

EMI (Mihaela, 2012; Tennent, 2013). In lieu of foreclosure, EMI’s bank brokered a $4.1

billion deal in which Universal Music Group acquired EMI’s operations division, and

Sony acquired EMI’s publishing division (Mihaela, 2012; Tennent, 2013). This industry-

consolidating reduction of the number of major record companies from four to three

(Sony BMG, Universal Music Group, and Warner Music Group), effectively dismantled

the Big Four oligopoly and marked the historic collapse of the recording industry

(Mihaela, 2012; Tennent, 2013).

The threat of new entrants. New market entrants threaten market share and

exert pressures that influence prices, costs, and rates of investment necessary to compete

(Porter, 2008). It is the mere threat of new entrants that holds down profitability, not

whether new firms enter the market or not (Porter, 2008). The threat of new entry is

highly dependent on the existing barriers to market entry, and those barriers to market

entry are advantages that incumbents have over new entrants (Mathooko & Ogutu, 2013).

Camacho (2013) defined an entry barrier as anything that requires a financial outlay by a

new entrant into an industry that does not impose an equivalent cost upon an incumbent.

Porter listed seven major entry barriers: supply-side economies of scale, demand-side

benefits of scale, customer switching costs, major capital requirements to enter or exit the

market, incumbency advantages independent of size, unequal access to distribution

channels, and restrictive government policies.

Manral (2015) stated that new entrants into low-end markets face two choices of

entry. New entrants can choose to imitate the incumbents by offering attractive consumer

discounts to offset the charges that incumbent firms impose on their customers as

penalties for switching. This strategy would not be an advisable strategy for new entrants

because entrant firms typically do not enjoy supply-side cost advantages over the

incumbents. New entrants to low-end markets can also choose to differ from the

incumbents by offering compliments to the incumbent’s products or services. This

strategy of offering compliments would allow new entrants to benefit from any increases

in the consumption of the incumbent’s products or services while avoiding direct

competition with the incumbent firms. For these reasons, Manral (2015) advised that

firms with no experience in the incumbent’s market formulate a differentiation strategy

rather than an imitation strategy.

New entrants diversifying from other markets pose an additional threat because

they can often leverage their extensive resources to gain market share or increase their

competitive advantage (Porter, 2008). When the barriers to entry are high the threat of

new entrants is usually low, and when the barriers to entry are low the threat of new

entrants is usually high (Porter, 2008). Such is the situation in the music recording

industry. The democratization of access to recording technologies (Bell, 2015; Kling,

2014) has made the dream of someday owning a music recording studio attainable for a

whole new population of individuals who historically could not afford to do so.

Recording technologies have become so compact, affordable, and easy to use that a

typical semi-professional home recording studio can fit easily within a standard sized

bedroom. In response to disruption by the incursion of small home recording studio

businesses, offering customers virtually unbeatable costs, most large commercial

recording studios have closed (Harkness, 2014).

The threat of substitute products and services. A substitute is a rival product or

service that meets the same customer needs or performs a similar function as the

incumbent’s mainstream offering but does so by a different means (Fountoukidis, 2015;

Rajasekar & Al Raee, 2013). The existence of a substitute product or service poses a

threat to industry profitability because substitute offerings possess qualities or pricings

that lure customers away from incumbent firms (Porter, 2008). The greatest threat occurs

when substitutes offer buyers better service at lower costs (Rajasekar & Al Raee, 2013).

A high threat of substitution negatively impacts profitability (Mathooko & Ogutu, 2015).

Fountoukidis (2015) considered illegal music downloading from websites that offer

music free of charge a good example of a substitute for the recording industry.

Apple’s iTunes music store as a substitute service. Perhaps the most popular

substitute service impacting the music recording industry is Apple’s iTunes music store.

As the Internet age made worldwide digital distribution of music a reality for unsigned

artists, digital distribution of music via the Internet became an appealing substitute for the

once coveted distribution deals major record companies usually provided their artists

(Porter, 2008). After record companies tried, unsuccessfully, to develop their own digital

distribution platforms (Porter, 2008), Apple stepped into the market with its substitute

music store iTunes in support of its compliment music player iPod. With digital

distribution costs to the artist approaching zero, Apple’s iTunes store lists millions of

albums, compared to about 15,000 albums listed by the largest offline music store (Hracs,

Jakob, & Hauge, 2013). The success of substitute services such as iTunes contributed in

part to a drop in the number of major labels from six in 1997 to three between the end of

2011 and the beginning of 2012 (Porter, 2008).

The home studio as s substitute service. Whereas the success of Apple’s iTunes

is well documented, a gap exists in the literature regarding the home recording studio as a

substitute for the large commercial recording studio. However, a growing body of

evidence suggests that, with improving technology driving the rival sonic quality of home

studio offerings, music producers no longer need large studios or specialized skills to

achieve high-quality music recordings (e.g., Bell, 2015; Harkness, 2014; Kaloterakis,

2013; Kling, 2014; Pras & Guastavino, 2013). Modern music artists and producers can

completely bypass major label involvement if they desire (Pras & Guastavino, 2013).

Poplar websites such as the Apple’s iTunes website provide a means for artists to bypass

record companies and sell their songs directly to consumers. Shifting power hierarchies

and increasing amateur activity in music promotion and distribution have complicated the

roles traditionally played by record labels and industry executives (Morris, 2014),

reducing the need for major labels. The typical DIY musician is a multiskilled studio

professional who independently performs duties that previously required a team of highly

skilled studio professionals and provides his or her own value-added component in the

supply chain (Pras & Guastavino, 2013). The delocalization of the recording studio, from

large commercial spaces to private bedroom studio spaces gave rise to a decline of

specialized professionals and the rise of the musician-engineer as a multiskilled

professional (Pras & Guastavino, 2013).

Arditi (2014) studied the downsizing effects of digital music production on labor

and concluded that the digitization of music has caused a devaluation of skilled labor.

Arditi suggested that the digitation of music removes intermediaries in the distribution

chain and eliminates the need for musicians in the recording process. For example,

though many producers might play some instruments well enough to record their own

sessions, few producers play drums at a level of precision suitable for recording sessions.

The power of digital recording technologies; however, enables producers to replace

drummers in the production of some genres of music (Arditi, 2014). In view of the home

recording studio a substitute product, and the services performed therein substitute

services, it would stand to reason that home recording studio ownership also poses an

encroaching threat of substitute products and services. That is, at least, at the low end of

the market.

The power of suppliers. The power of suppliers is yet another salient force that

can shape competition and help determine the profitability of an industry (Porter, 2008).

Powerful suppliers can increase their profits from the goods or services they supply in

one of three ways, or any combination thereof:

 increasing their prices,

 reducing the quality of the services they provide or

 passing on costs to industry participants (Porter).

Porter also stated several conditions under which the power of suppliers increases. The

power of a suppliers group increases if,

 only a limited number of suppliers serve many buyers,

 the suppliers’ revenues are not majorly industry dependent,

 the suppliers can themselves threaten market entry,

 changing suppliers is very expensive for industry groups,

 no substitute exists for the supplied products or services, or

 the supplier group offer products or services which are more differentiated

than the available (common or generic) alternatives (Porter, 2008).

Only the strongest of the competitive forces at work at any given time contribute

noticeably to shaping the strategy and profitability of an industry (Porter, 2008).

Regarding the comparative intensities of the competitive forces impacting the music

recording industry, this review yielded no data to suggest that the power of suppliers

ranks high among the strongest of the competitive forces at work in the industry. That

does not mean the power of suppliers is an insignificant force in the competitive force

dynamics of the music recording industry, only that less documentation exists regarding

its industry-shaping involvement.

The power of buyers. Mihaela (2012) talked about music as a commodity that

consumers must experience in some way to understand and appreciate it, making their

opinions impactful upon demand. Mihaela submitted that music companies are becoming

increasingly sensitive to consumers’ opinions and responsive to their demands. In highly

competitive markets, buyers can pressure suppliers to lower their prices by demanding

better quality or more service or by playing industry participants one against the other

(Porter, 2008). While this consumer demand drives up costs for the suppliers, consumer

demand can also force prices down to keep customers happy and loyal to brands, again

demonstrating the power of buyers (Porter, 2008). For highly standardized or highly

undifferentiated products, buyers can often find equivalent products or services, giving

buyers considerable negotiating power to help force prices downward (Porter, 2008).

Perhaps a good example of the power of buyers exists in the music market where

consumers can choose between downloading music files for free or paying for music

physically affixed to a compact disc.

Disruptive Innovation Theory

The findings which led Christensen (1997) to formulate his disruptive innovation

theory stemmed from a series of case studies he conducted toward the completion of his

doctoral dissertation. Christensen used multiple sources of data collection: (a) analysis of

archival studies, (b) historic research on the disk drive industry, (c) reviews of models of

change in a wide range of academic disciplines, and (d) interviews with 46 officials of

leading disk drive manufacturers. Presented as a supporting conceptual model to the five

conceptual forces framework, this literature review comprises an exhaustive critical

analysis and synthesis of sources in the extant literature pertaining to disruptive

innovation theory. When used together, these mutually supportive frameworks provided a

uniquely informative perspective and a dual conceptual lens through which to view the

home recording studio ownership phenomenon. Despite the many ways in which the two

conceptual models are mutually supportive, there is a point at which the two models

radically diverge. To truly understand disruptive innovation theory, especially compared

to Porter’s five forces framework (Porter, 2008), it might help to first understand the

radical divergence between Porter’s thinking and Christensen’s thinking regarding why

successful firms sometimes fail.

Where Porter and Christensen contrast. As mentioned previously, Porter

(2008) asserted that managerial discernment and attentiveness to the impact of forces

impacting a firm’s industry is central to success using the five forces framework. Deeply

embedded in Porter’s (2008) five forces framework is the notion that the success or

failure of a firm is dependent upon the specific activities and decisions of a firm’s

executives. This apparent need to assign blame suggests that the failure of an incumbent

firm is somehow the fault of the firm’s executive decision makers (someone did

something wrong). In stark contrast to that way of thinking, but central to Christensen’s

teaching on why successful businesses fail, is the notion that incumbent failure does not

necessarily mean that the firms’ executives did something wrong. Christensen (2016)

explained that ironically some of the best firms fail for having done exactly what caused

them to succeed in the past. They invested too much time and resources in trying to meet

their customers’ current and future needs (Christensen, 2016). Christensen warned that

blindly following the adage that good managers should keep close to their customers can

sometimes be a critical mistake. Christensen referred to this irony as the innovator’s

dilemma. Successful company leaders can experience this dilemma when deciding

between pursuing the sustaining strategies that made their companies successful and

changing strategies to manage disruptive technological change. Christensen developed a

preliminary framework, based on the innovator’s dilemma, to explain why leading

companies fail. Christensen referred to that framework as a failure framework.

The innovator’s dilemma. Christensen (2016) built his failure framework upon

the following findings from his research:

 the difference between sustaining technologies and disruptive technologies,

 the realization that the pace of technology can overshoot what the market

needs, and

 the customers and financial structures of successful companies influence the

types of investments company leaders find attractive when assessing the

potential threats posed by the business models of new market entrants.

Jameson (2014) stated that the innovator’s dilemma occurs because newer and cheaper

technologies threaten more profitable older technologies and make it difficult for large

firms to substitute the newer game-changing disruptive technologies.

Sustaining versus disruptive technologies. In a study on technological change

over the history of the disk drive industry, Christensen (1997) identified two types of

technologies that had very different effects on the industry’s leaders. The first type,

sustaining technologies, sustained the industry’s product performance improvement

trajectories. In other words, when sustaining technologies improve the performance of

established products or services, they do so along a trajectory of product performance that

mainstream customers have historically come to expect and value (Christensen, 2016).

The types of changes brought on by sustaining technologies ranged from discontinuous or

radical changes to incremental changes, but they still fell within the expected trajectory

path. Established firms in the industry (firms practicing the prior technology) usually led

the development and adoption of sustaining technologies. The second type of

technologies, disruptive technologies, disrupted or redefined product performance

trajectories and consistently caused leading firms to fail. Firms new to the industry at the

point of the technological change generally led the development or adoption of disruptive

technologies (Christensen, 2016).

Market need versus technology improvement. The observation that market need

can outpace market demand represents the second element of Christensen’s (2016) failure

framework. Reiner (2013) explained that as the disruptive offerings improve in quality or

functionality, mainstream customers become attracted, especially if the price remains

lower than the incumbent’s offering. The impact of sustaining and disruptive

technological change, illustrated in Figure 3, demonstrates that,

 suppliers, in their efforts to outshine their competitors and increase their profit

margins, often overshoot, and give their customers far more product features

and functionality than they need and are ultimately willing to pay for

 disruptive technologies that may underperform in the near term, regarding the

performance and functionality consumers demand, may be fully performance-

competitive in that same market in the future.

Figure 3. Impact of technological change. From “The innovator’s dilemma: When new

technologies cause great firms to fail,” by C. M. Christensen, 2016, Harvard Business

Disruptive technologies versus rationale investments. This last element in

Christensen’s (2016) failure framework centers on the conclusion that established

companies have four reasons why investing aggressively in disruptive technologies does

not make sense for them. Christensen explained that (a) though disruptive products which

are cheaper and simpler promise lower margins, they do not yield outstanding profits; (b)

disruptive technologies tend to be more easily monetizable in new and developing

markets, (c) a firm’s most profitable, high-end, customers seldom desire or can use

products based on disruptive technologies; and (d) established companies have little

incentive to invest in disruptive technologies until it is too late to change their

unfavorable outcomes.

Lessons learned from the hard disk drive industry. Christensen (2016), in his

search to understand how leading firms can fail, used insight from the hard disk drive

industry to accomplish an acclaimed analysis of changing technology and its importance

to the future success of a firm. Christensen stated that never had there been an industry in

which changes in technology, market structure, global scope, and vertical integration,

were so prevalent, rapid, and unrelenting, as the hard disk drive industry. In a revised

edition of his seminal work, Christensen (1997, 2016) stated that if someone wants to

understand why something happens in business, that person should study the disk drive

industry. Perhaps, the same is true regarding the modern music industry, particularly

regarding its complexity and how changes in technology cause certain types of firms to

succeed or fail. Therein lies the central reason for choosing disruptive innovation theory

as one of two conceptual models for this study.

Disruptive innovation overview. To understand the concept of disruptive

innovation better, a person should think about simplicity and affordability and understand

what a disruptive innovation is not. A disruptive innovation is not a breakthrough

innovation that makes good products better (Robles, 2015). A disruptive innovation is an

innovation that so simplifies and increases the affordability of a product or service that a

whole new population of consumers can gain access to that product or service

(Christensen & Euchner, 2011). This definition approaches disruptive innovation from

the perspective of consumers. In a conversation with Denning (2016) though, Christensen

redefined disruption from the perspective of business leaders as, a theory of competitive

response that tells business leaders what they can expect depending on the type of

innovation they mount. If competitors introduce a sustaining innovation, incumbents will

try to mount a defense response, but if they introduce a disruptive innovation, the

incumbents will likely ignore the disruptor or flee rather than fight (Denning, 2016).

Regardless of one’s perspective, the disruptive innovation theory provides its users a

powerful way of thinking about innovation-driven growth. By way of disruptive

innovation, a small company can take on a much larger competitor and win, despite the

smaller company having fewer resources (Christensen, Raynor, & McDonald, 2015).

The disruptive process. Technologies tend to advance much faster than market

demands (Christensen et al., 2015). As established firms focus on improving their

products and services to meet the demands of their more profitable high-end customers

they often overshoot, exceeding the needs of some segments of their market while

ignoring the needs of others (Christensen et al., 2015). The resulting underserved, low-

end, segment of the market, typically perceived as less profitable or unattractive by

incumbents, becomes a potentially exploitable target market for entrant firms.

Entrant disruptor firms gain their initial footholds by providing low-end

customers with a good enough product or service, frequently at a lower price than the

incumbent’s mainstream offering (Christensen et al., 2016). Markides (2012), studied the

disruptiveness of innovations from emerging markets and reported that what incumbents

do to influence customer expectations of what is good enough can influence the

perception of what is good enough. However, incumbents who focus on meeting the

demands of their more profitable high-end customers tend to not respond vigorously to

defend the low end of their respective markets. Disruption is a process for which the

onset is gradual (not instant), which might explain why incumbents often underestimate

the gravity of the slowly encroaching threat (Christensen et al., 2016). Successful

disruption centers on exploiting overlooked or unserved segments of the market that, if

exploited by new entrants, will not provoke a marked defensive response from the

incumbent firms (Christensen et al., 2016). As these entrant disruptor firms improve the

quality of their disruptive product or service to the point where they begin delivering

performance levels that mainstream customers require, the firms slowly begin moving

upmarket to gain increased shares (Christensen et al., 2015). Once mainstream customers

begin choosing the disruptive product over the incumbent’s product or service, disruption

has occurred.

Christensen et al. (2015) described disruption as a process that can progress

swiftly or sometimes take years. A disruptive innovation is not a product or service

confined to some arbitrary fixed point in time when it reached the market (Christensen et

al., 2015). Instead, a disruptive innovation involves the evolution of a product or service

over time (Christensen et al., 2015). Even so, technologies still tend to advance much

faster than market demands (Christensen et al., 2015).

When the disruptor becomes the disruptee. In their attempt to attract

mainstream customers and move upstream claiming market share, disruptors must focus

on improving the performance of their disruptive products while still maintaining a

sustainable cost advantage (Markides, 2012). Disruptor firms must avoid the mistake of

overshooting the needs of their own low-end customers. To prevent becoming disrupted

themselves, disruptor firms must remember to preserve the product or service advantages

that initially attracted their low-end customers in the first place (Christensen et al., 2015).

Lacourbe (2013) stated that a firm can be both a disruptor and a disruptee at the same

time. Occasionally, there develops a cycle in which the move upstream leaves customers

at the low-end of the market again unserved and creates a new market for even newer

technologies to potentially disrupt the existing disruptive product (Lacourbe, 2013). Such

is the encroaching threat encountered by well-established home recording studio owners

faced with risk of disruption by even small bedroom studios owned by DIY musicians.

Lacourbe (2013) explained that disrupting firms must deal with the dilemma of how to

strike a balance between their profit and their risk of becoming disrupted. Lacourbe

suggested two strategies for disruptive firms to prevent themselves from becoming

disrupted: (a) slowing down the firm’s migration upmarket or (b) offering a low-end

version of its own product in lieu of price cutting.

Lacourbe (2013) noted that even at the risk of their own disruption, disruptor

firms are more likely to focus on disrupting than on defending against becoming

disrupted because disrupting is more profitable. Lacourbe suggested that to avoid the

same fate as the incumbents they disrupted, disruptors must balance their dual role of

disruptor and disruptee. Though that holds true for entrant firms that become disruptors,

the rules are a bit different for incumbent companies. Whereas incumbent companies

should respond defensively to active disruption, they should avoid overreacting and

changing their whole company posture to a disruptive posture. Incumbent companies

engaging in disruption should create entirely new divisions through which to identify and

exploit disruptive growth opportunities (Christensen et al., 2015). These new divisions

should be led by people expressly empowered by top management with the autonomy to

think differently and make decisions on behalf of the company without myopic concerns

about immediate profitability consuming their thinking and impeding innovation

(Christensen et al., 2015).

A whole new way of thinking. As alluded to previously, understanding

disruption requires a whole new way of thinking. In typical markets, suppliers of

comparable products or services target the same customers and aggressively compete for

their business. In a disruptive situation, the disrupting firm targets consumers who are not

using a product or service (Markides, 2013). The low end of the market, predictably

unattractive to large incumbents because of its low profitability, remains wide open to

newcomers (Robles, 2015). Therefore, low-end market disrupters, attempting to attract

the nonusers of a service or product, are not truly competing against other suppliers of a

good or service, but against nonconsumption (Markieds, 2013; Robles, 2015).

Whereas most companies focus on improving their existing products via

sustaining technologies, by thinking disruptively, companies can gain a competitive

advantage through creating new products or making existing products available to people

who do not have access to them (Robles, 2015). That means going after the consumers at

the lower, less profitable end of the market, a strategy that industry leaders would

typically not pursue (Robles, 2015). This nearly predictable lack of response by industry

leaders is something disrupting firms count on to ensure the success of their disruptive

strategy. Robles (2015) advised firm leaders seeking to formulate disruptive competitive

strategies to make their strategies as unattractive to incumbents as possible. This way,

disruptor firms can attract customers at the low end of the market and eventually attract

mainstream customers as their product quality improves, without the incumbents

perceiving the need to mount a defensive response until it is too late (Robles, 2015).

Many small organizations, with their comparatively lower overhead and greater

flexibility than larger organizations, can better afford to place meeting customer needs

before earning profits (Christensen et al. (2015). Firms that do not find protecting that

less profitable low end of their market a strategically attractive option leave their firms

vulnerable to low-end market disruption (Robles, 2015).

Three types of disruptive innovations. Christensen et al. (2015) described two

types of disruptive innovations: (a) those that originate in low-end footholds and (b) those

that originate in new-market footholds. Later, during an interview with Denning (2016),

Christensen described efficiency innovations as a third type of innovation, unmentioned

in earlier versions of disruption theory. Efficiency innovations help firms do more with

less, thereby increasing efficiency and eliminating jobs (Denning, 2016). For example,

Walmart’s business model disrupted department stores from a growth point of view by

making retail much more efficient, and that resulted in fewer net jobs (Denning, 2016).

Low-end footholds developed because incumbents attempted to provide their most

profitable and demanding customers with so many product or service improvements and

special offerings (bells and whistles) that their offerings often overshoot the performance

requirements of their less-demanding customers (Christensen et al., 2015). For example,

as the large IBM mainframe computers became so difficult to house and expensive to

access, potential users at the low end of the market became that underserved segment of

the market described earlier by Christensen (2016). When Microsoft developed their line

of personal desktop computers, they gained a firm foothold in the low-end segment of the

market (Christensen et al., 2015). New-market footholds developed when disrupters

innovatively exploited technologies and developed entirely new markets that never

existed before. For example, Xerox targeted large companies and offered copiers that

provided performance features or options only large companies could typically afford.

Small customers and users such as school librarians and front office professionals

resorted to using carbon paper or mimeograph machines. However, Cannon created a

new market when they diversified into the copier market and introduced personal copiers

at a price these small customers and users could afford (Christensen et al., 2015).

Kyoseva, Poulkov, Mihaylov, and Mihovska (2014), researchers who explored

disruptive innovation in the telecommunications industry, also observed two classes of

disruptive innovations. Their descriptions of the two classes of disruptive innovations and

Christensen’s descriptions of low-end and new-market footholds are similar. Innovations

that displace incumbent technologies and eventually become adopted over time comprise

the first class of disruptive innovations observed by Kyoseva et al. (2014). Innovations

that create a new market or capability in a place where none had existed previously

comprise the second class of disruptive innovations.

Ever since Christensen’s (1997) ground-breaking discoveries in the computer

hard drive industry, countless other industries (such as the wireless telecommunication

industry) have reported disruptive developments (Kyoseva et al., 2014). Included are the

publishing industry (Hargrave, 2013), the science and medical industries (Jameson,

2014), the film industry and many more. A supporter of the notion of thinking differently,

Jameson (2014) also supported the notion of continuous innovation. This was the same

strategy used by Steve Jobs at Apple, who focused on bridging art and technology to

develop products that people did not even know they wanted (Jameson, 2014). Jameson

explained that through continuous innovation, the mission of the organization becomes

redefined such that generating a short-term benefit should not be the primary goal.

However, if the strategy works, profits will follow. Instead of focusing on immediate

profits or short-term benefits, the driving force behind disruptive business models should

be the belief that if the firm meets their consumers’ needs well, the profits will follow

(Christensen et al., 2015).

As innovative technologies arise, disruption theory can help inform competitive

strategy formulation (Christensen et al., 2015). Disruption theory is not a guide that tells

managers what to do. Instead, disruption theory helps managers decide between taking a

sustaining or a disruptive path and predict the intensity of the response they can expect

from incumbents (Christensen et al., 2015). Newly developed technologies are not

inherently sustaining or disruptive because technology itself is not what creates the

disruptive impact, but rather the business model enabled by the technology’s existence is

what creates the disruptive impact (Christensen et al., 2015). This idea of new

technologies not being inherently sustaining or disruptive aligned with Markides’s (2012)

statement that determining, at a product launch, whether the product will be disruptive is

not possible. What makes a product disruptive is how the product develops and how

incumbents react to it (Markides, 2012). Hargrave (2013) similarly asserted that

disruptive products or services are disruptive because, unlike incumbent firms, disrupting

firms do not seek to meet the needs of high-end customers.

Criteria for consideration as a disruptive product or service. Markides (2012)

and Gans (2016) listed the same criteria for determining whether a product is disruptive.

To be considered disruptive, the product (a) must initially be inferior in performance to

what mainstream customers expect but be superior in price, and (b) must evolve to

become “good enough” in performance to attract mainstream customers yet remain

superior in price. Hargrave (2013), in a study of the history of the history of papermaking

to digital printing, reported that to consider a paper a disruptive technology the product

had to meet five criteria. The product had to be (a) cheaper, (b) smaller, (c) more

convenient to use, (d) initially inferior in performance, and (e) undesirable to established

incumbent firms (Hargrave, 2013). Customers who are not interested in superior product

performance (usually nonconsumers of the incumbent products) tend to respond to the

low price of the disruptive product or other product attributes that meet needs they deem

more important than mere product performance (Markides, 2012). Some disruptive

productive products surpass the incumbent technology on important accessory

dimensions with attributes that add value for low-end customers, though high-end

customers might not deem them particularly important (Lacourbe, 2013).

Whereas Hahn, Jensen, and Tanev (2014), also assigned criteria for disruption,

they took their discussion a slightly different direction. They explored the disruptive

potential of the value propositions of 3D printing technology startups. They developed a

complex Disrupt-O-Meter that assigned points, ranging from 0-10, to measure the

relative disruptive potential of each of nine evaluation criteria. Instead of determining

whether a product of service was disruptive, Hahn et al. provided empirical support for

the conceptualization of the degree of disruptiveness of a firm’s value proposition as a

metric for evaluation of the business potential of newer technology startups.

The win-win misnomer of disruption. Established firms tend to be reluctant to

protect that low and less profitable end of the market and would rather spend their

resources serving the needs of customers in their considerably more profitable high-end

markets (Bergek, Berggren, Magnusson, & Hobday, 2013; Robles, 2015). For these and

similar reasons, low-end market disruptors experience little challenge in claiming the low

end of the market (Bergek et al., 2013; Robles, 2015). As the quality and functionality of

their disruptive products or services improve, those low-end disruptors begin moving

upmarket attracting mainstream customers (Cuitiene & Thattakath, 2014). At the same

time, sustaining technological advancements keep improving product performance

trajectories at the high end of the market, providing established firms increased

justification for preferentially serving the ever-growing needs of their considerably more

profitable high-end customers (Robles, 2015). A seemingly win-win situation develops,

in which incumbents dominate the most profitable segment of the market without

competition from the disruptors, and disruptors dominate the less profitable segment of

the market without retaliation from incumbents. Meanwhile, as the quality of their

disruptive offerings increase, the disruptor firms continue moving upstream attracting

mainstream customers and amassing larger shares of the market without retaliation from

incumbents (Cuitiene & Thattakath, 2014; Markides, 2013; Robles, 2015). Disruption, as

a process that evolves over time, poses such a slowly encroaching threat that incumbents

frequently overlook or ignore disrupters until it is too late for the incumbents to mount a

successful defense (Christensen, 2016). There eventually comes a point in the disruptive

process at which widespread mainstream customers preferably choose the entrant firms’

disruptive offerings over the incumbent firms’ mainstream offerings, and some larger

firms fail (see Christensen, 2015; Cuitiene & Thattakath, 2014; Markides, 2013; Robles,

2015). Although it is not impossible for incumbents to respond successfully to disruptive

attacks by emerging market disruptors, the task is difficult, and few incumbents are good

at it (Markides, 2012).

Disruption can come in many forms. Behaviors can be disruptive, and even

people can become disruptors. For example, Christensen (2016) listed nurse practitioners

as a disruptive threat to medical doctors, on-line retailing as a disruptive threat to brick

and mortar retailing, downloadable greeting cards as a threat to printed greeting cards,

and handheld digital devices as a disruptive threat to notebook computers. Christensen’s

list goes on to include wireline telephony (disrupted by mobile telephony) and the

notebook computer (disrupted by hand-held digital appliances). Corporate universities

and in-house management training programs threaten even graduate schools of

management.

The competitive lessons. Successful disruption centers on exploiting the needs of

those over served and overlooked segments of the market in a manner that does not incite

a defensive response from the incumbent firms (Christensen, 2016; Christensen et al.,

2015). Aspiring disruptors should start with the low-end segments of their desired market

and slowly make their way upmarket by improving product performance to the point that

mainstream customers become attracted and deem the product performance good enough.

The success disruptors will experience depends on the degree to which incumbents

retaliate or defend the lower (less-profitable) end of the market, to avoid becoming

disrupted themselves.

Criticisms of disruptive innovation theory. Disruptive innovation theory,

widely used in prominent business circles, is a powerful tool for explaining and

predicting the success of industry entrants (Christensen et al., 2015; Gobbel, 2015;

Weeks, 2015). Unfortunate, disruption is a concept widely misconstrued and a label far

too indiscriminately applied (Christensen et al., 2015; Gobble, 2015; Weeks, 2015). Since

its publication, the disruption innovation theory has received both extensive praise and

strong criticism (King, Baljir & Baatartgtokh, 2015; Parry, Vendrell-Herrero & Bustinza

2014; Takahashi, Shintaku & Ohkawa, 2013; Weeks, 2015). According to Christensen et

al. (2015), people criticized the theory at times for weaknesses already addressed as

thinking on the subject evolved.

Perhaps the most widely publicized critiques of disruptive innovation theory were

also the most controversial critiques of the topic. Weeks (2015), in an analysis of

critiques of disruptive innovation theory, responded to a commentary published in The

New Yorker magazine by Jill Lepore (2014). Lepore accused Christensen (1997) of

ignoring contradictory evidence and handpicking case studies to match preconceptions.

Weeks (2015) stated that Lepore’s most severe criticisms, which questioned the academic

integrity of Christensen’s work and the reliability of the case study method, “stopped

short of presenting root causes” (p. 417). Weeks suggested that the reason Lepore’s

criticisms received instant international attention was not because of their merit, but

because they appeared in The New Yorker magazine and not “a sleepy peer-reviewed

journal” (p. 417). Weeks stated that Lepore seemed to lack a fundamental understanding

of the nuances of case study research strategy. Weeks questioned why Lepore (a

historian) would forego seeking primary source information, especially when that

primary source (in this case Christensen) was at the same university. Although Weeks

concluded that Lepore’s criticisms went too far, he acknowledged the benefits of healthy

skepticism when examining broad claims about innovation and admitted that the

disruptive innovation framework is not perfect. Weeks also acknowledged that Lepore

(2014) raised critical issues about the disruptive innovation framework and how

researchers should seek and validate knowledge in their scholarly discipline. Parry,

Vendrell-Herrero and Bustinza (2014), in a quantitative study on using data in decision

making, warned that drawing erroneous conclusions from empirical data without

accurately fully understanding said data is potentially industry-damaging because it can

compromise future managerial decisions.

Weeks (2015) explained that, although the Harvard Business Review (HBR)

ranks among the most influential publications in the field of business, HBR is not a peer-

reviewed journal. Instead, HBR articles receive editorial reviews. Weeks referred to the

selection of publication venues for his research as one problem with Christensen’s work.

The focus of most HBR articles is on impact for practitioners and readability, and details

about research methods are often sparse (Weeks, 2015). For this reason, much of

Christensen’s work (published by HBR) seldom received the scrutiny of peer-review

received by most academics (Weeks, 2015).

Gobble (2015), who also criticized Lepore’s (2014) attack on Christensen’s work,

interviewed several experts and researchers and encouraged them to share their views on

the concept of disruptive innovation. The analysis of their responses suggested that the

use of the term disruptive innovation as an all-purpose concept can distract focus from

legitimate issues with emergent companies. Christensen et al. (2015) acknowledged

certain limitations of disruptive innovation theory but predicted that the theory’s

predictive and explanatory powers would continue to improve as research continues.

King, Baljir, and Baatartgtokh (2015) acknowledged that few academic

management theories have had as much influence on the business world as the disruptive

innovation theory, but they questioned how well the theory describes what happens in

business. King et al. (2015) surveyed and interviewed 79 experts, of which 58% were

academics, 18% were authors of non-academic book-length historic analyses, 10% were

financial analysts of the industries under study, and 14% were participants in the

industries. Each expert responded to surveys and interviews regarding one or more of the

77 classic cases of disruption reported by Christensen (2016). In the study by King et al.

(2015), their leading research question was: “How widely applicable is the theory of

disruptive innovation?” King et al. found that the essential validity and generalizability of

the theory seldom received testing in the academic literature and that many of the

theory’s classic cases did not fit the theory’s conditions and predictions well. Though

theories can provide warnings of what might happen, they are no substitute for thoughtful

analysis (King et al., 2015).

Additional Perspectives on Competing in Changing Environments

The final portion of this literature review includes a variety of peer-reviewed

perspectives on competing in ever-changing business environments. The topics range

anywhere from disruptive business model innovation and supply chain management to

building personal branding platforms. These topics could potentially inform home studio

ownership strategies because the type of business strategy and supply chain configuration

a firm adopts depends on the type of innovation (sustaining, discontinuous, or disruptive)

the firm faces (Pagani, 2013).

Carvalho and Scavarda (2015), studying topics on music production by way of

literature review, historic analysis, and theoretical analysis, determined that music is an

experience commodity that has gradually transformed into an industrial commodity.

Carvalho and Scavarda reported that music is a complex phenomenon that impacts and is

impacted by society, culture, business, art, and technology, which provides the means of

music production, distribution, and consumption. In the music supply chain, music

production-consumption falls somewhere between a good and a service (Carvalho &

Scavarda, 2015). The digital revolution and globalized communications shifted the

relationships between music production and music consumption from goods-oriented to

service-oriented (Carvalho & Scavarda, 2015).

Business model innovation. Prior to the fragmentation of supply chains, large

incumbent firms (as users of a dominant or sustaining business model) would commonly

take responsibility for coordinating their own value and supply chains (Moreau, 2013).

Large incumbent firms centralized control of their core activities through vertically

stratified alliances (Moreau, 2013). In the face of disruptive innovation; however, vertical

integration constitutes a handicap for users of the dominant (sustaining) business model

unless that vertical integration centers on the modern technology (Moreau, 2013). This

aligns with Pagani’s (2013) suggestion that, in the face of disruptive innovations,

historically static vertically integrated networks should reorient to become loosely

coupled networks.

Pagani (2013) conducted an empirical analysis of digitally enabled networks

using panel data to determine when to execute a digital business strategy. Pagani

analyzed three types of value networks: a closely vertically integrated model, a loosely

coupled model, and a model based on a multi-sided platform. Pagani integrated and broke

the models down into their functional components to determine which played a critical

role in controlling the dynamics of core and edge competencies of the players. Pagani

studied how the components changed in response to diverse types of innovation strategies

and constructed a view of the value network as a configuration of control points and

analyzed how they created and captured value and in what forms.

Pagani (2013) found that to achieve long-term success, firms within value

networks must occasionally reorient themselves and adopt new strategies and structures

that accommodate the ever-changing environmental conditions. For example, in response

to incremental innovations that either improve upon an existing technology or

reconfigure an existing technology to serve some other purpose, static vertically

integrated supply chain networks tend to shift toward loosely coupled networks.

However, the supply chain configuration shifts from vertical integration to horizontal

stratification in response to discontinuous innovations and the ability to achieve above

average profitability shifts in favor of companies that reduce distribution, transaction, and

search costs, incurred when different subsystems interact (Pagani, 2013). The third type

of value network, the multi-sided platform, emerges in response to disruptive innovations

which spur entirely new services and new business models. The multi-sided platform

exists whenever a company serves two or more groups that need each other in some way.

The company builds an infrastructure that reduces the distribution, transaction, and

search costs, associated with the groups interacting with each other. Christensen (1997)

observed that the emergence of digital platforms enables disruptions that cross industry

boundaries and inspire new forms of business strategies. Cross–boundary industry

disruptions lead to the emergence of new business models (Pagani, 2013).

Under conditions in which consumers are less demanding of functionality and

innovations exist that reconfigure an existing technology to serve a different function or

purpose (e.g., disruptive innovation), emerging business models should centralize core

activities through horizontally stratified alliances (Pagani, 2013). Industry structure

affects industry profitability (Porter, 2008) and affects how companies structurally

integrate to control their core activities and coordinate alliances (Moreau, 2013).

Supply chain management. In the process of business model innovation, no one

can overstate the importance of supply chain management. Saldanha, Mello, Knemeyer,

and Vijayaraghavan (2015) explained that supply chain technology helps firms facilitate

information transfer within and across firm boundaries. Seo and Dinwoodie (2014)

suggested that the strategic success and long-term survival of a firm are integral to the

firm’s level of innovativeness in supply chain management. Perhaps that is because firms

do not compete individually, but their supply chains do (Nag, Han, & Yao, 2014). Seo

and Dinwoodie considered supply chain management a key component of competitive

advantage, but a firm’s supply chain management efforts must connect with striving to

improve overall productivity and profitability through the internal supplier and customer

integration. Saldanha, Mello, Knemeyer, and Vijayaraghavan (2015), using a grounded

theory study, interviewed 50 supply chain managers to develop an institutional theory

perspective on implementing supply chain technologies in emerging markets. Saldanha et

al. found that firms in emerging markets that were early adopters of supply chain

technology experienced unmet expectations of the SCT implementation, suggesting the

need for additional research in this area.

Understanding industry fragmentation. Porter (1980) described a fragmented

industry as an industry in which no distinct firm holds enough market share to strongly

influence industry outcomes. Freelance service providers, who work independently of the

established firms in an industry, frequently dominate fragmented industries (Ceci &

D’Andrea, 2014). Many large companies have moved away from the rigid hierarchical

integration of their supply chains in favor of fragmented networks.

Although the reasons for fragmentation of an industry may vary, such as the lack

of resources to make the necessary strategic investments or myopic or complacent

behavior on the part of incumbent firms, economic forces are often the underlying causes

(Porter, 1980). One or more of a host of economic causes, including but not limited to the

following, accompanies fragmentation.

 low entry barriers (true of nearly all fragmented industries), which explains

why fragmented industries become populated by so many small firms,

 high exit barriers (which can cause marginal firms to stay in the industry),

 an absence of economies of scale or experience curve (such as the economies

of scale accessed by major recording labels regarding music marketing and

distribution),

 diverse market needs (such as the fragmented tastes of music consumers

regarding what they desire of their music experience, such as free downloads),

and

 newness (if no firm or firms have yet acquired the skills and resources to

command a significant market share (Porter, 1980).

Competing in fragmented industries. Overcoming fragmentation requires

ingenuity and creativity in finding ways to deal with the root causes of fragmentation

(Porter, 1980). For example, innovations that create economies of scale or a significant

experience curve (particularly in marketing) can spur industry consolidation (Porter,

1980). When the causes of industry fragmentation center on the production or service

delivery process, firms should decouple their production from the rest of their business

(Porter, 1980). Brown (2015), questioning whether industry structure leads to collective

behavior, determined that firms in fragmented industries tend to engage in franchising to

gain industry level power through collective action.

Laakso and Nyman (2014) advocated standardizing industry practices as a means

of mitigating both technological and market fragmentation. A standard is an approved

specification of a limited set of solutions to actual or potential matching problems

intended for widespread use across an industry platform (Laakso & Nyman, 2014).

Standardization helps reduce diversity in situations where multiple solutions to a specific

problem compete (Laakso & Nyman, 2014). Laakso and Nyman cited standardization in

the global video game industry in which the combined industry revenues in 2013 totaled

$93 billion USD. That figure amounted to more than the global box office revenues for

films ($35.9 billion) and recorded music sales ($15 billion) combined for that same year.

Standardization opened the video gaming industry to third party development, and

technological innovations enabled the spanning of platforms, making games easier to

develop for multiple standards and more available across several platforms (Laakso &

Nyman, 2014).

Maintaining communication and cooperation is another effective way to address

fragmentation (Blokker, Bek, & Binns, 2015). In the Agulhas Plain, in the Cape Floristic

Region in South Africa’s Western Cape Province, the wildflower harvesting industry

provides for the livelihoods of farmers from poor households and communities where the

unemployment rate approaches 80%. Intense competition among the farmers resulted in

fragmentation of the industry and a breakdown in communication (Blokker, Bek, &

Binns, 2015). Based on interview data and meetings they conducted with stakeholders,

Blokker, Bek, and Binns argued that the wildflower industry needed to restore

communication and cooperation to address their shared challenges collectively.

Business model innovation and new market creation. To achieve successful

business model innovation, creating a new business model is a more advisable strategy

than to trying change an existing business model (Christensen, Bartman, & van Bever,

2016). Baden-Fuller and Haefliger (2013) conducted a study on business models and

technological innovation to determine the components of a business model and to

understand how business model innovation occurs. They eventually defined the term

business model in the context of what a business model should help a firm accomplish.

According to Baden-Fuller and Haefliger (2013), the business model should serve as a

tool to help firms identify who their customers are, engage with their customers’ needs,

deliver satisfaction, and monetize the value. Moreover, a business model should link the

firm’s value creation activities and its value capture activities. Effective business model

innovation should involve mediating the link between technology and firm performance

and address issues of openness and user engagement (Baden-Fuller & Haefliger, 2013).

Moyon and Lecocq (2015) advanced the notion of reinventing business models to create

new sources of value. Moyon and Lecocq explained that an emerging firm would be ill-

advised to attempt to compete with an incumbent firm using strategies based on the

incumbent’s sustaining business model. Building a cost advantage that is based on a

different and conflicting business model gives disruptors the best chance of moving

upmarket and eventually displacing incumbents (Markides, 2013).

Ciutiene and Thattakath (2014) and O’Connor and Rice (2013) suggested that

people should no longer think of disruptive innovation only regarding its business model

disrupting abilities, but regarding its potential uses for business model innovation and

competitive strategy formulation. Christensen (2016) explained that disruptive innovation

in the hands of industry leaders can serve as a strategic tool in the management of

disruptive technologies. He encouraged strategists to seek opportunities to create

disruptive innovation. Gans (2016) explored company options for avoiding potential

disruption. Gans stated that to avoid potential disruption companies can either invest

aggressively in the latest technology, acquire, or cooperate with the market entrant, or

leverage critical assets that entrants lack to buy themselves time.

Christensen (2016) noted that company leaders should learn to anticipate

disruption and respond proactively (or perhaps disruptively) to the challenges of

managing disruptive change. Christensen explained that the attributes that caused

disruptive technologies to be unattractive to managers in established markets are the same

attributes that managers in emerging markets found of greatest value. Christensen, by

studying how successful managers harnessed disruptive principles and used them to their

advantage, learned that successful managers embedded projects to develop and

commercialize disruptive technologies. These managers aligned disruptive innovation

with what Christensen termed the right customers to increase customer demand.

Successful managers presented disruptive projects to organizations that were small

enough to appreciate small opportunities and small wins. In addition, when seeking to

commercialize disruptive technologies, successful managers actively identified or

established new markets that valued the attributes of the disruptive products (Christensen,

2016).

Sun (2013) published a warning regarding a phenomenon called “herd behavior’

in the adoption and continued use of technology. Sun explained that people often

embrace and adopt innovative technologies (such as Amazon’s Kindle, or Apple’s iPad,

iPhone, or iPod) in imitative patterns like the adoption of new fashion trends. Just as

prevailing fashion trends might be in one day and out the next, abandonment of the latest

technologies might occur in similarly imitative patterns (Sun, 2013). In other words,

regarding the adoption and rejection of the latest technologies, people tend to herd

together imitating each other’s choices, following the crowd, and doing what everyone

else is doing, only to abandon those same technologies later. Sun explained that, creating

herding effects can have a dramatic effect on boosting the potential for adoption of an

innovative technology because early adopters often determine the choices and initiate the

trends that others follow. Perhaps such herd behavioral considerations can help predict

the longevity of disruptive trends in the music industry, such as the free downloading of

music and DIY music releasing behaviors.

Rethinking business models in creative industries. Due to ever changing

market linkages and technologies that transformed how consumers access and use

creative content such as music, films, and software, leaders in these creative industries

had to rethink their business models to remain profitable and competitive (Moyon &

Lecocq, 2015). Throughout the extant literature, a new school of thought is emerging

regarding competitive strategy formulation. Companies that want to create new growth

businesses should out seek disruptive opportunities and develop disruptive business

models to exploit those opportunities (Moyon & Lecocq, 2015; Robles, 2015).

Business leaders, most likely spurred by Christensen’s (1997) seminal book The

Innovator’s Dilemma, have long debated the advantages of firms being customer-

oriented. Strategists trapped in traditional business mindsets might find the prevailing

schools of thought regarding profit disconcerting because profit motives are no longer the

sole consideration leading strategy formulation (Robles, 2015). The cost structure,

operating processes, and distribution system of an effective disruptive business model

results in thinner profit margins but higher net asset turns (Robles, 2015).

Bourreau, Gensollen, Moreau, and Waelbroeck (2013) presented a similar thinner

profit margin yet higher net asset returns type of thinking in their study on the impact of

digitization on record companies. Bourreau et al. found that adaptation to digitization has

a strong and positive impact on the numbers of new albums produced, though no net

effect on the sales of record companies. In other words, labels that adapt to digitization

tend to release more new albums (the creative output) but sell fewer units of the new

albums they release (the commercial output). Bourreau et al. described this improvement

in digital efficiency (though perhaps unconventional) as selling less of more.

In a study on the carnival sector of the entertainment industry in Trinidad and

Tobago, Francis (2015) presented a case for channeling creative industries into a viable

industry sub-sector within a diversified economy. Perhaps a person could make a similar

case for channeling the home recording studio business, as an emerging creative industry,

into a viable sub-sector of the music recording industry. According to Francis, not only

were the creative industries in Trinidad and Tobago thought to account for higher than

average growth and job creation, they helped frame the country’s cultural identity and

fostered cultural diversity. Francis explained that creative industries, particularly in small

island developing states, are based on an essential renewable resource - human capital.

Competitive strategy formulation. Regarding current trends in competitive

strategy formulation, the commitment of resources toward the development of new

business divisions specifically empowered to think differently is evidence of a trend

toward the creation of a top-down corporate climate of disruptive thinking. Ciutiene and

Thattakath (2014) spoke regarding creating disruptive innovation by exploiting a firm’s

dynamic capabilities, which is the firm’s capacity to purposefully create, extend, or

modify its resource base. Christensen and Euchner (2011) explained how to identify

disruptive opportunities and how to craft strategies to exploit them.

Crockett, McGee, and Payne (2013) used a cross-sectional survey research design

to study the interplay between characteristics of the corporation and the venture

management team. Crockett et al. (2013) suggested that to understand the mechanisms

needed to increase the success of their corporate ventures better, a business leader should

consider the corporate characteristics of the firm alongside the characteristics of the

venture management team. Also, to exploit disruptive innovation and improve the

performance of corporate ventures, incumbent firms should establish entirely new

business divisions and extend decision autonomy to the venture management team

(Crockett, et al., 2013). Jameson (2014) also recommended that firms develop smaller

business units within their existing business structure to incubate innovation. In an

interview with Denning (2016), Christensen explained that companies not driven by the

goal of short-term profitability could create value by adopting the goal of continuous

innovation and engage in disruption without setting up separate business units.

Sometimes, successful competitive strategy formulation results from activities

that defy popular logic. For example, despite the serious penalty for willful copyright

infringement of up to $25,000 and one year in prison, records of devastating revenue

losses date back to the 1960s, when an underground bootleg industry wreaked havoc on

the record industry (Melton, 2014). The annual data for pirates and counterfeits increased

from $20 million lost to the industry in 1960 to more than $500 million by the end of the

1980s (Melton, 2014). On October 19, 1976, President Gerald Ford signed into law a

complete revision of copyright law (Melton, 2014). Then in 1992, via a series of home

taping hearings, Congress acted to affirm the right of consumers to engage in analog

taping for personal use (Drew, 2014). During that time, cassette tapes were the ideal open

format medium for sound recording and playback for personal use and combination

cassette-radio units became popular compliment devices because they permitted

consumers to record music as they listened (Drew, 2014).

With onset of widespread online peer-to-peer (P2P) file sharing, music industry

officials again experienced a sizeable drop in music sales, which they blamed on piracy

and intellectual property rights infringements (Hong, 2013). In an unprecedented attempt

to deter piracy industry officials sued thousands of individual consumers who shared

digital music online (Vermeulen, 2014). To protect against further losses, the big record

companies (Sony, EMI, Warner, and Universal) embedded a digital rights management

(DRM) technology into all their music files purchased online, that made the copying of

music files virtually impossible (Vermeulen, 2014). However, in 2007, EMI made a

completely unexpected move that sent their record sales soaring. EMI removed the DRM

restrictions and re-enabled consumers to search and share music digital files, and their

three competitors also removed DRM restrictions two years later (Vermeulen, 2014).

Further investigation into the matter revealed that removing the DRM restrictions

stimulated the sales of lower-selling albums by approximately 30%. Apparently, granting

consumer access to sample products allowed people to discover fringe artists or

rediscover old artists (Ciutiene & Thattakath, 2014).

Online sharing and distributing of music via the Internet have changed the

traditional role of users in music distribution (Lu, 2015). The music industry is shifting

from an ownership-based access model to a context model that creates value by

empowering music consumers to do things with music rather than simply providing them

access to sample products (Redhead, 2015). The music industry is moving toward the

development of an interactive music release format that invites user participation via

sanctioned consumer access (Redhead, 2015). Some copyright holders; however, provide

free music to encourage online music sharing, but they do so without controlling access

to their music in any way (Lu, 2015). Unrestricted access to music offers music owners

no means of protection from rampant copyright infringement (Lu, 2015). Lu (2015)

envisioned a technological safe harbor for both users and cloud service providers that

would make users and cloud service providers immune from copyright liability so long as

they follow certain rules. Lu’s (2015) access control system would empower cloud

service providers to distinguish high aural-quality music files from low aural-quality

music files and make only low aural-quality music files accessible for sharing, since

music with low aural quality music has limited economic value.

Building a durable and lasting artist brand. There is a growing trend in the

music recording industry toward music artist building their own brands and creating

businesses to support those brands. Artists are increasingly using either their true names,

stage names, or the music they create, as branding platforms to promote their music or

acquaint audiences with their lifestyles (Gloor, 2014). According to Perice (2012), the

strategy for building successful music careers in the 21 century is the combination of

artistry and entrepreneurship or strategic brand management. Making albums and selling

records in not enough. Each music artist must build a business to support his or her brand

(Pierce, 2012). Perice highlighted the career of successful music mogul and entrepreneur

Shawn Carter (better known as Jay-Z) whom she quoted as saying, “I’m not a

businessman, I’m a business, man” (Perice, 2012, p. 234).

Transition

A summary of the contents of Section 1 is as follows. Since the early 1980s, the

competitive landscape of the music recording industry has changed dramatically. This

change was due largely to disruptive innovations that lowered key entry barriers and

spurred a massive influx of home recording studio businesses into the music recording

business. This disruptive technological change affected both the music distribution model

and the music recording model. The results included,

 the decline of both the traditional recording company and the traditional

commercial recording studio,

 fragmentation of the music recording industry,

 the decline of specialized professionals, and

 the rise of the musician-engineer (Pras & Guastavino, 2013) as a multi-skilled

professional.

Bell (2014) referred to this combined role as a musician-engineer hybrid role. Bell

attributed this change to the emergence of the DAW, which enabled home recording

studio owners to rival the sonic results of the professional recording studio. The specific

business problem presented in section one is some home recording studio owners lack

strategies to compete in the fragmented music recording industry.

I conducted a thorough review of the professional and academic literature to

determine the relevancy of the literature regarding the home recording ownership

phenomenon. The major elements of this review of the relevant prior literature included a

critical analysis and synthesis of the literature regarding disruptive innovation theory

(Christensen, 1997/2016) and the five competitive forces conceptual framework (Porter,

1979). I used information derived from this review to inform the interview questions and

the overarching research question for this study. The specific focus centered on

 the use of low-end market disruption and the subsequent move upmarket as a

proven way for small emergent firms to displace large incumbent firms and

 perspectives on how the changing structure of the music recording industry

and the redistribution of power from the hands of industry incumbents to

individual music artists contributed to the emergence of a DIY home-based

music recording industry subset.

Section 2 includes details regarding the research method, research design, target

population, sampling strategy, data collection techniques, data collection instruments

used, data analysis techniques, and the specific quality indicators used.

Section 2: The Project

This section contains the plan I used for conducting the research project. In this

section, I present the research methodology, research design, ethical considerations,

measures used to mitigate researcher bias, and measures used to maintain confidentiality

and protect human subjects. Also included are the strategies used to increase the

trustworthiness, transferability, and reproducibility of the research study.

Purpose Statement

The purpose of this qualitative multiple case study was to explore strategies that

well-established home recording studio owners have used to compete in the fragmented