Monday, May 16, 2005

Book — The Innovator's Dilemma — Clayton M. Christensen

Synopsis

The thesis of this book is that innovations arise in two broad flavours: ones that sustain existing enterprises, and ones that disrupt them; and that these categories are not correlated with the technical sophistication required to turn any given innovation into product (or process). Using examples from the manufacture of disk drives over the last couple of decades, of earth-moving/digging equipment over the last century and a half, and retailing over an intermediate period, amongst others he shows where changes have caused significant shake-ups in the appropriate industry and how the responses made by individual enterprises have led to their success or failure in the new landscape.

Discussion

There are a number of ways that the lesson of these studies can be categorised; but the most obvious is that the process of improvement in product tends to outstrip the demand for such. At some point paying for the consolidated cost of labour represented by an over-featured product no longer makes economic sense when a new, lower featured competitor reaches the level of being adequate for the purpose. On the producer side, however, the lure of the bigger margins that can be gained by selling the incrementally improved version, with the initial risks past and costs amortized, remain more compelling than the high-risk, low rewards strategy of developing and marketing something at the low-end which will potentially cannibalise sales of the main cash cow.

The producer side of the picture is one I have seen at work, during the early 1990s. The company I was working for produced Architectural CAD software for VAX and UNIX workstations; but had licensed some formats and brand identity to a small outfit to produce a compatible product for the PC. The product was sound, and was a true Windows MDI application at a time when AutoCAD was a cumbersome DOS-based single-window program. But the sales force were happier looking for high 6-figure deals with the main product than the low 5-figure ones for the PC program; and development in the main company included a port of the main product to WindowsNT that still showed that it had once been based on two-layer (text and graphics phases) Tektronix vector terminals with fixed screen size and aspect ratio. The native PC-based re-implementation that could have led the market was neglected, and the company eventually imploded. Ironically, the surviving rump of that organization is now focussed around the once neglected PC-based product which is still selling in a few niche markets.

Conclusion

This book can be considered an exercise is spelling out the blatantly obvious (obvious in hindsight, at least); but one that has dug below the surface to examine the responses to change and what distinguished success from failure. In most case, alas, the successful strategy involves a great deal of "I wouldn't start from here if I were you." — the need to maintain rigorous separation between the risk-taking part of the venture and the existing body.

Post a Comment