(OT) NOVL Management:
November 3, 1999
MANAGEMENT
Ideas Into Action
A Primer on Weathering Technology's Storms
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By FRED ANDREWS
n Round 1, the giants of the old bricks-and-mortar economy took
their lumps from their new Internet rivals on several notable fronts:
books, toys, stock trading. Now, in Round 2, they are fighting back with
their own incursions into the Internet, most prominently the online
services established by the big Wall Street firms.
The counteroffensive is much too
diverse to follow a single battle plan.
But to the extent that any one
doctrine is shaping the climate of
corporate opinion, it is a sweet piece
of business scholarship by Clayton
M. Christensen, a professor at the
Harvard Business School.
Professor Christensen's study, "The
Innovator's Dilemma: When New
Technologies Cause Great Firms to
Fail" (Harvard Business School
Press, 1997), has become the book
to read among mainstream managers
trying to dope out an Internet
strategy. It is now in its 12th printing,
with sales of 125,000 copies.
What attracts Professor Christensen's scrutiny are "well-managed
companies that listen astutely to their customers, invest aggressively in
new technologies and yet still lose market dominance." It is almost a
compliment to be numbered among his distinguished flops.
In a nutshell, the professor issues a warning to today's corporate success
stories: "Lose at the low end today, lose at the high end tomorrow," he
said in an interview. But he offers a prescription for escaping that fate:
"Create a separate subsidiary; free it to attack the parent."
That advice has hit a chord in corporate boardrooms. Professor
Christensen's fans include Michael R. Bloomberg, founder of Bloomberg
L.P.; Michael Dell, chairman of Dell Computer; David S. Pottruck,
co-chief executive of Charles Schwab; George M. C. Fisher, chairman
of Eastman Kodak, and George Gilder, the futurist.
Andrew S. Grove, the chairman of Intel, has credited Professor
Christensen's ideas with helping to propel Intel's painful but pivotal
decision to develop the Celeron chip, its cheaper microprocessor for the
sub-$1,000 personal computer. The embrace of an inferior product,
however strategic, ran so counter to Intel's perfectionist culture that Mr.
Grove turned development over to a special project team in Israel.
For all its high-profile following, and for all the information-age ring of its
"principles of disruptive innovation," however, "The Innovator's Dilemma"
makes no mention of the Internet. It is a curious omission, yet the book
succeeds in spite of it because it offers the e-perplexed a familiar way to
think about the puzzling Internet economy. It will probably unfold as new
technology always has -- which is to say, unpredictably.
"The Innovator's Dilemma" rests on a study of the disk drive's rapid
evolution through six generations of architecture, from mainframe
computers through hand-held devices. Only twice has the leading
manufacturer maintained its place from one technology to the next; thus,
Control Data gave way to Shugart Associates, Shugart to Seagate,
Seagate to Connor Peripherals and Connor to new entrants.
What explains the turnover? The professor distinguishes between
"sustaining" and "disruptive" technologies. Sustaining technologies
improve existing products, either marginally (fuel injection instead of
carburetors) or dramatically (color television). Pioneering those advances
is red meat for managers at dominant companies.
By contrast, products from disruptive technologies perform poorly at
first. But even as these ugly ducklings are shrugged off by the industry's
big players, they catch on with fringe customers, often new to the
industry, who value some aspect lacking in the more sophisticated
alternatives, like simplicity or low price.
Again and again, the substitute shoves
the industry leader aside. Inkjet
printers, far slower than laser printers,
inferior in both resolution and cost
per copy, improved enough to satisfy
most customers and drive more
costly laser printers into the uppermost corner of the market.
Something is reassuring in a business scholar who writes as sure-footedly
about steam shovels as about disk drives.
Replacing steam with gasoline power was sustaining. Early backhoes
were disruptive; simple hydraulic lifts attached to tractors, they were so
puny they appealed only to home builders, who used them to dig sewer
trenches previously dug by hand.
But in 20 years, hydraulic excavators became the rule.
How does one tell a genuine disruptive threat from just another
techno-fizzle? Not very easily, the professor says.
Markets that don't exist can't be analyzed. What typically opens the
window of opportunity for low-end competitors is "performance
oversupply," that is, products with costly features that buyers don't need.
The cheaper Celeron chip, it turns out, is perfectly fine for most home
computer users.
What gives Professor Christensen's research its bite is his conclusion
about the inflexibility of big companies. Paradoxically, the more ably a
company serves its bread-and-butter customers, the more likely it is to
bungle the test of change. Up and down the line, managers recoil from
chasing after small beer. Disruptive products promise lower margins (and
smaller commissions) in insignificant markets.
The company's best customers don't want them, can't use them. Who
needs the distraction from serious work? The corporate organism resists
all efforts to change its nature.
So what to do? The professor's answer is to create a small unit entirely
focused on the emerging market. Staff it with people whose careers
depend on its success. Give it the bare-bones cost structure necessary to
make money in the bush leagues. Be prepared to court an unorthodox
customer base. Be probing and nondogmatic, poised to learn from
mistakes.
Sounds a lot like an Internet operation.
This column about management will appear every other week. Fred
An drews's e-mail address is frandrew@nytimes.com. |
