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The Innovator's Dilemma.

Christensen, Clayton M., The Innovator's Dilemma (Harper Business: New York, 2001)

One of the most influential business books of the last few years has been The Innovator's Dilemma by Clayton Christensen of Harvard Business School. The book is based on research of the core question: "Why do leading companies fail when confronted with disruptive technologies?"

In reviewing businesses that were leaders in their industries, Christensen has discovered that good management techniques--listening to the customer, investing in new technologies, studying market trends, and allocating resources to the most promising innovations--are strategies that are only situationally successful. By studying the boom and bust cycles of companies in different industries, the author shows that the ability of a company to successfully innovate depends, to a great extent, on the organization's understanding of the type of innovation it is creating. While certain management techniques are still useful for sustaining technologies, these same management techniques are disastrous if applied to the marketing of more disruptive technologies.

Indeed, the key to understanding Christensen's principles of disruptive innovation is to discern between sustaining and disruptive technologies. Through various examples, Christensen illustrates that sustaining technologies improve the performance of established products in ways that are valued by mainstream customers in major markets. A sustaining technology was, for example, the process and materials used to allow disk-drive makers to increase the memory and speed of computer 5.25-inch hard disk drives.

Disruptive technologies, in contrast, are not valued by major customers in the short term and under perform established products in major markets. Although disruptive technologies are usually cheaper, smaller, and more convenient to use, it often takes time for them to mature to the point of meeting the performance needs of major customer groups. In other cases, it may require time to even find a use for certain disruptive technologies. Once the use is found, the disruptive technology may totally redefine the product performance required by a given set of customers. Examples of disruptive innovations include 1.8-inch disk drives, LaserJet printers, mini steel mills, and digital photography technology.

Heeding the Principles of Disruptive Innovation

Once the above distinctions are understood, managers can then grasp Christensen's five principles of disruptive innovation. These principles may seem counter-intuitive to conventional management practice and thus are listed and discussed each in turn.

Customers and Investors

The first principle, that companies depend on customers and investors for resources, seems very obvious, especially to those who are familiar with the wide range of reengineering books and writings on customer-focused organizations. Christensen emphasizes this point, however, to remind managers that they have less control over organizational resources than they think. While a customer-focused organization is usually a positive one, Christensen shows that major customers can inhibit a company's ability to deploy a useful, disruptive technology. The company management may see the benefit of a disruptive innovation, but if the customers and investors do not see its added value, then the chances of that technology being successfully introduced into the marketplace are vastly diminished.

Small Markets and Large Companies

The second principle, that small markets don't solve the growth needs of large companies, is actually about three things:

* disruptive technologies thrive in new, small markets before they thrive in new, large markets;

* larger, more successful companies find it very difficult to invest in small, emerging markets because the return on investment does not help large companies maintain their growth rate; and

* most successful companies focus on selling to large markets.

These observations led Christensen to research those few large companies that had succeeded at marketing a disruptive innovation. He found that large companies were best able to promote disruptive innovations by giving responsibility for the development and "commercialization" of those innovations to spin-off organizations with highly talented employees, adequate resources, and whose size matched the size of the target market.

Market Analysis

The third principle, that markets that don't exist can't be analyzed, reminds managers that assessing the effects of disruptive technologies is often counter-intuitive to good management practice. Many companies require the development of a business case and a business plan for new products. This approach is generally very successful when applied to sustaining technological innovations, because the market is well known. But when companies apply this strategy to new, emerging markets resulting from disruptive technologies, they become paralyzed. They are seeking data on markets that do not yet exist.

Christensen concludes that businesses can counteract this principle by planning for failure and taking a discovery-based planning approach to disruptive technologies. Managers should not plan on being right all the time and should view their initial strategy as a learning opportunity. As they gather data, managers must be prepared to make revisions to their business plans.

Capabilities and Disabilities

The fourth principle, that an organization's capabilities define its disabilities, is perhaps the most obvious statement of the difference of the disruptive technology environment. An organization's capabilities lie in its processes and its values, neither of which are as flexible, for example, as the skill sets of an organization. These organizational processes and values develop over time because they help make the company successful in a certain environment. Because these processes and values become ingrained and inflexible, they can impede success in the disruptive technology environment.

Technology Supply and Market Demand

The fifth principle, that technology supply may not equal market demand, illustrates that disruptive technologies do not meet the needs of mainstream markets at the outset (although they do eventually become competitive). Since the pace of technological change is so rapid, and because companies are always focused on developing a more superior product, companies quickly exceed their customer's product requirements. While aiming at the competitors in higher-performance, higher-margin markets, these companies create a vacuum at lower price points in the market into which companies with disruptive technology can enter.

For example, in the disk drive industry, Christensen shows that customers initially required greater disk capacity. Then as companies met that demand, customers required convenience (i.e., smaller size), greater reliability, and then, lower prices. Typically, companies with disruptive technologies were better able to meet these needs than established companies. To harness this principle, Christensen suggests that established companies closely monitor the use of their products over time.

Some Concluding Remarks on Public Managers and Disruptive Technology

For any manager trying to succeed in a global business environments dominated by accelerating change and the relentless pursuit of greater efficiencies, the principles identified by Christensen are significant. Organizations seeking to successfully introduce innovations into the marketplace need to identify various strategies to improve their chances for success, and Christensen's book provides companies with some useful observations about the nature of innovation and a framework for developing effective tactics. Despite its private sector focus, public sector leaders and managers will also find this book helpful, especially if they are engaged in some effort to radically change business process.

For starters, it may be useful for government managers to consider Christensen's distinctions between sustaining and disruptive innovations, and to think of the application of these terms to public sector operations and services. Given the public sector environment, the definitions for "sustaining" and "disruptive" innovations will probably be different.

In the government context, for example, a "sustaining" innovation may involve the deployment of new software within a small organization, therefore requiring a simplified change management approach. But if the innovation transforms, for example, the way information is processed across various government bureaus within a department, or affects multiple business processes in other government agencies, then it could probably be categorized as a "disruptive" technology.

There are other factors that should be considered before developing definitions that would apply to the government environment, but these are just a few factors that would merit consideration. Once a clear definition of disruptive technology were created for the government sector, it could be easier for public managers to determine what kind of management strategy to use to increase their chances for successful outcomes.

Like private sector companies, government agencies have their customers and stakeholders to satisfy. For government agencies, the American public and Congress play these roles. When implementing truly disruptive innovations in government, agencies must justify their programs not only to internal stakeholders, but to the public and Congress in order to gain financial support. In other cases, agencies may be mandated to implement disruptive innovations before there is a clear understanding of their effect.

In either case, there is usually little financial support for the creation of the small "spin-off" organizations suggested by Christensen, unless the project is related to national defense or a high profile or "hot" issue of the day. And even if an agency does successfully isolate its innovative effort, there is bound to be a demand for quick results and little patience for big mistakes. The discovery-based planning approach suggested in this book, while very necessary, may be a hard one for government oversight agencies and Congress to swallow, especially in the current GPRA environment.

True isolation of an innovation project is also very difficult with organizations like an agency's inspector general, the General Accounting Office, and the Office of Management and Budget scrutinizing every dollar spent. Efforts to improve certain processes across government are easily impeded by limits or appropriations cuts to resources. And if the innovation affects government policy, it will be slowed down through the interagency and public consultation processes.

Given all these challenges, one might conclude that it will be very difficult for government managers to realize potentially groundbreaking (i.e., "disruptive") improvements in government service. But government managers have always faced and overcome these types of environmental obstacles. It is the internal obstacle- Christensen's fourth principle: "an organization's capabilities define its disabilities" that truly poses the greatest challenge. Managers must recognize that traditional management practices are a major part of those "organizational capabilities." In the paperback edition, there is a discussion guide for the book that asks that managers do some true soul-searching before embarking on any kind of disruptive technology effort. The discussion guide admonishes managers:

* plan for failure;

* don't bet all your resources on being right the first time;

* think of your initial efforts as learning opportunities; and

* make revisions as you gather data.

If public managers want to fully understand the nature of disruptive innovation and how to deal with this mighty fourth principle-that is the management mindset that will be required.

Andrea Lewis is a consultant with EDS 's Government Consulting Services Group in Herndon, VA, and was formerly a senior analyst with the Office of Personnel Management.
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Title Annotation:Review; Can successful managers innovate? (Reviews).
Author:Lewis, Andrea
Publication:The Public Manager
Date:Sep 22, 2001
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