Discussion Point 1: Chapter Two:
How Can We Beat Our Most Powerful Competitors?
Key passage: “The Innovator’s dilemma identified two distinct
categories–sustaining and disruptive–based on the circumstances of innovation. In sustaining
circumstances–when the race entails making better products that can be sold
for more money to attractive customers–we found that incumbents almost always
prevail. In disruptive circumstances–when
the challenge is to commercialize a simpler, more convenient product that sells
for less money and appeals to a new or unattractive customer set–the entrants
are likely to beat the incumbents. This
is the phenomenon that so frequently defeats successful companies. It implies,
of course, that the best way for upstarts to attack established competitors is
to disrupt them.” (Page 32)
Key Take-away: Firms can and must adapt to the type of
innovation that is occurring at the moment.
The idea Christensen develops here
is initially useful in guiding innovation in firms at various stages of
maturity. A firm’s context has a large
impact on which strategies will and will not be successful. Since there are so many business books
published, it can be very tempting for a leader to take a concept or idea that
resonates with him or her, and has been successful at this or that company, and
decide to execute the same strategy, wrongly expecting the same results under
different circumstances. Focusing on
innovation, Christensen gives a simple, yet profound rule of thumb. Incumbents are better positioned when
innovation is of a sustaining nature and at a disadvantage when innovation is
disruptive. He gives two examples in
particular that help strengthen his model.
The first relevant example
Christensen gives is that of Honda penetrating the US motorcycle market. This example demonstrates his point about new
comers having to focus on disruption.
Honda tried to go toe to toe with Harley Davidson using sustaining
innovation and could not break into the market.
However, when it serendipitously stumbled onto the off-road bike market,
it created a disruption and was able to establish a foothold from which it
could then establish itself and grow.
Second, the advent of mini-mill in
the steel industry created a disruptive innovation known as thin-slab
continuous casting technology. As the
established steel giants continued to improve their processes, they did so
focusing on sustaining innovations. Now
this brings up an interesting point. The
steel mills could have prevailed: though one can frame Christensen ideas as a
rule of thumb for focusing on what strategy is more appropriate for a new or
established firm, it is really the nature of the innovation that dictates what
a successful strategy will be, regardless of whether it used by a newcomer or
an incumbent.
The role of technology in the
long-term success of firms has become huge.
As long as all the innovation is confined to the sustaining
circumstance, incumbents will continue to prevail. But incumbents had better watch out when
disruptive technologies emerge. The
problem (or opportunity) lies in the fact that disruptive innovation is
ultimately inevitable. It is this
realization that led Joseph Schumpeter to formulate his theory of creative
disruption: “The…process of industrial mutation…incessantly revolutionizes the
economic structure from within, incessantly destroying the old one, incessantly
creating a new one. This process of
creative destruction is the essential fact of capitalism. It is not [price and output] competition that
counts, but competition from the new commodity, the new technology, the new
source of supply, the new type of organization.”1 From Christensen’s point of view, this means
that as long as a new breakthrough is not discovered, incumbents will tend to
prosper, but that eventually new technologies will come about to disrupt and
challenge their hegemony. So what can an
industry-leading firm do to prevent this inevitable challenge? If destruction is inevitable, then it needs
to find a way of doing the destroying.
One strategy is to foster an entrepreneurial culture. The benefits of such a culture are many, but
first and foremost come creativity and a pioneering spirit. This often translates into corporately funded
new-ventures, such as was seen at Boeing and Xerox (Internal Venture Divisions)
and Chase and Intel (Corporate Venture Capital)2. Alternatively (or
concurrently), firms can offer structures that allow employees to devote time
to side projects, like at 3M or Google. Speaking of the “15 percent time” at 3M,
Daniel Pink writes: “These walled gardens of autonomy soon became fertile
fields for a harvest of innovations—including Post-it notes. Scientist Art Fry
came up with this idea for the ubiquitous stickie not in one of his regular
assignments, but during his 15 percent time.
Today, Post-its are a monumental business: 3M offers more than six
hundred Post-it products in more than one hundred countries.”3 Neither
strategy (entrepreneurial ventures or time for autonomous creativity) was
present at US Steel and as a result, the biggest challenge US Steel faced was
its blindness to fundamental changes in the industry. The cause of its blindness? A deeply seated
paradigm and unfounded faith that what had made them successful in the past
would continue to make them successful… To highjack Paul Revere’s famous words,
“Disruption is coming!” Successful firms
must be primed and ready when it emerges.
Notes
1.
J. Schumpeter, Capitalism,
Socialism and Democracy. Harper, New York, 1950, p. 83
2.
D. Garvin, A Note on Corporate
Venturing and New Business Creation, Harvard Business Review, Boston, 2002,
p. 9-11
3.
D. Pink, Drive, Riverhead
Books, New York, 2009, p.95
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