There has been some debate of late as to the validity of Clayton Christensen’s basic idea of the Innovator’s Dilemma. I’m here to tell you it’s real and it requires brave and decisive leaders to work through it.
In his 1997 seminal book by the same name, Christensen recognized that companies and indeed entire industries are being challenged constantly by changes in the markets and new companies attacking the dominant player’s position.
If you think about it, it would seem this is a natural order of things, regardless of the field. Companies are born. They grow. They get complacent and new ones come along to challenge them.
What Christensen did was identify a fundamental mistake or issue that dominant companies face when challenged. In order to protect their dominant position, their natural reaction is to underestimate or dismiss the competition, or if they react to do it in a half-hearted way in order to protect their more mature and lucrative markets.
In doing so, these companies can play into the hands of their new competitors and fail to make the bold moves necessary to fight the disruption adequately. Christensen called this reaction “The Innovator’s Dilemma.”
Recently, one of his Harvard colleagues has called this idea into question and she was not alone. Perhaps ideas are also subject to the same competitive pressures — as they should be. Incoming Infosys CEO Vishal Sikka pointed me to a recent blog post on his reaction to personal disruption, leaving his job at SAP and taking on the challenge of running Infosys.
He talked about personal growth and his own journey from SAP to Infosys and he suggested that the Innovator’s Dilemma didn’t exist. As much as I have enjoyed my conversations with Sikka over the last couple of months, on this point, I have to vehemently disagree.
Sikka wrote, ” So when I see the debate underway among Harvard professors about the Innovator’s Dilemma, and when I look back on what we achieved at SAP, my fundamental conclusion is that there is no innovator’s dilemma. There is only a desire, a willingness, a courage, to change. To learn. To understand new ways of working and being relevant.”
He’s right that companies have to have a willingness to change and fight, but just because he understands this fundamental idea, doesn’t make The Innovator’s Dilemma any less real. It only means that Sikka is smart enough to recognize that every company has to fight its way through that eventually.
I recently read another book about disruption called Big Bang Disruption by Larry Downes and Paul Nunes. In it, the authors give a nod to the Christensen’s early research and suggest that the disruptive pressure that companies face is even greater now than it was in 1997 when Christensen first identified it because of network effects and the availability of cheap, off-the-shelf resources that dramatically lower the barriers to entry into new markets.
Companies are faced with these types of questions every day and increasingly these pressures are coming from competition that might have little or nothing to do with your industry. For instance, I learned at the MIT Sloan CIO Symposium in May that the biggest insurer in Australia is not an insurance company, but a supermarket chain. It’s hard to compete when you don’t realize who your competition even is.
That’s why Downes and Nunes suggest companies have to be forever vigilant and while they didn’t come right and say call it an Innovator’s Dilemma per se, they recognize a similar dynamic at play that requires bold and decisive leadership to prevent a company from becoming entirely irrelevant in the face of changing market conditions.
Downes and Nunes offered a couple of examples from recent history to illustrate this point: Kodak and Fuji Film. Kodak never really recognized the disruption of digital photography, and in spite of having a company full of smart scientists, never found a way to pivot the business in the face of a changing market. Eventually that changing market simply ran them over and they went bankrupt.
Contrast that with Fuji, which found new and creative ways to use its skill set to adjust and keep going even when its primary market, film, was drying up. As an example, Downes and Nunes pointed out that Fuji used its chemical expertise and applied it to the developing LCD industry in the late 1990s. These and other moves and an organizational willingness to accept a challenge to change course helped it survive and move forward, even while Kodak, once one of the biggest companies in the world, collapsed and died.
Just this week, we are seeing are other companies fight disruption in different ways as Apple and IBM, as two strange bedfellows as you are likely to find, have connected to offer enterprise software from IBM running on iOS devices. IBM has struggled to find ways to take advantage of mobile technologies. Apple has struggled to find ways to take advantage of its market position in businesses. Together, they are attempting to fill in each other’s blanks.
It’s a bold move on the part of both companies and it shows a flexibility and a willingness to change and try new things. Downes and Nunes emphasize the need to watch the changes in the markets and constantly experiment and find new ways to approach your business, so you’re ready when the change comes. There is no guarantee your experiment will work of course, but at least it’s an attempt to try a new strategy to affect a positive outcome.
Also this week, Microsoft announced massive layoffs cutting 18,000 workers. It might not seem like a bold move in line with what Apple and IBM did, but make no mistake, this is a similar attempt by Microsoft CEO Satya Nadella to recognize changing market conditions and adjust the workforce to meet those changing conditions.
Nadella’s layoffs come against the backdrop of other changes as the company attempts to shift away from its Windows/Office desktop-driven cash cow and find new ways to make money in the face of a radically changing market. Microsoft still faces a classic Innovator’s Dilemma, whether to continue to put massive resources into the Windows/Office desktop franchise while it continues to make huge profits, or to begin to shift and change direction and slowly pivot away from the part of the company that up until now has been a huge percentage of its revenue.
The easiest thing to do would be to please shareholders today and simply keep forging ahead, blind to the changes in the market around you, but you don’t have to be a rocket scientist to see that PC sales are dropping every year and that while they continue to drive huge profits for Microsoft today, it’s not a sustainable model in the long term. That is a textbook Innovator’s Dilemma.
IBM has clearly recognized it in its shift to the cloud in recent years, and their agreement with Apple further solidifies its attempts to change the company’s directions. Nadella too knows that he must fundamentally change how his company does business for the sake of the long term health of the organization. That is precisely the type of vision a CEO must have today.
What all of these companies are doing, regardless of what you call it, is reacting to colossal market shifts in order to remain relevant. Any company that fails to make the necessary adjustments is doomed to follow Kodak into eventual irrelevance. If you had asked anyone in 1998 if Kodak would no longer exist by 2014, most people would have said, of course it would,
But the market changed and Kodak didn’t react. Today, in the face of lower and lower barriers to entry to start companies and experiment with different market models, companies face intense pressure. The only way to beat this pressure is to make sure you are experimenting too and paying attention to the changes that are going on around you.
The Innovator’s Dilemma is real enough, but it’s how you react to disruptive pressure that defines leadership and organizations, not the pressure itself. If companies can find ways to make use of their expertise and the smart people working within their organization they can find ways to survive and thrive and fight the Innovator’s Dilemma.