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Strategy in the media
Article Type: CEO advisory From: Strategy & Leadership, Volume 42, Issue 5
The disruption debate
In the June 23, 2014 New Yorker, historian Jill Lepore unleashed a wide-ranging critique of Clayton Christensen’s The Innovator’s Dilemma and the theory of disruptive innovation.
The eighteenth century embraced the idea of progress; the nineteenth century had evolution; the twentieth century had growth and then innovation. Our era has disruption, which, despite its futurism, is atavistic. It’s a theory of history founded on a profound anxiety about financial collapse, an apocalyptic fear of global devastation, and shaky evidence.
[…] Disruptive innovation as the explanation for how change happens has been subject to little serious criticism, partly because it’s headlong, while critical inquiry is unhurried; partly because disrupters ridicule doubters by charging them with fogyism, as if to criticize a theory of change were identical to decrying change; and partly because, in its modern usage, innovation is the idea of progress jammed into a criticism-proof jack-in-the-box […].
Christensen’s sources are often dubious and his logic questionable. His single citation for his investigation of the “disruptive transition from mechanical to electronic motor controls,” in which he identifies the Allen-Bradley Company as triumphing over four rivals, is a book called The Bradley Legacy, an account published by a foundation established by the company’s founders. This is akin to calling an actor the greatest talent in a generation after interviewing his publicist. “Use theory to help guide data collection,” Christensen advises […].
Jill Lepore, “The disruption machine,” The New Yorker, June 23, 2014.
The article sparked a considerable number of responses. A selection of the most thought provoking follow:
In fact, every one – every one – of those points that she attempted to make [about The Innovator’s Dilemma] has been addressed in a subsequent book or article. Every one! And if she was truly a scholar as she pretends, she would have read [those] […].
[Disruptive innovation] is not a theory about survivability. I’d ask [Lepore] to go see an integrated steel company operated by USA Steel. Seriously. And come back with data on, does USA Steel make rebar anymore? No, they’ve been taken out of rebar. Do the integrated steel companies like USA Steel make rail for the railroads? No. Do they make rod and angle iron, Jill? No. Do they make structural steel I-beams and H-beams that you use to make the massive skyscrapers downtown, does USA Steel make those beams? Come on, Jill, tell me! No!
So what do they make? Steel sheet at the high end of the market. The fact is that they make steel sheet at the high end of the market, but have been driven out everywhere else. This is a process, not an event.
Drake Bennet, “Clayton Christensen responds to New Yorker takedown of “Disruptive innovation,” BusinessWeek, June 20, 2014.
There are so many ways in which Christensen is an easy target. One is that the “theory of disruptive innovation” has been remarkably successful. The word “disruption” has gone from bad to good, from poor TV reception to happening everywhere. All of the noted tech leaders of the past two decades have been influenced by Christensen, including Steve Jobs who took the theory to heart in producing the iPhone and iPad even as Christensen, himself, decried the iPhone as doomed to fail. The word “disruption” is used too often which means that Christensen is an easy mark precisely because that mark has become so wide.
But for every theory that reaches too far, there is a nugget of truth lurking at the centre. For Christensen, it was always clearer when we broke it down to its constituent parts […]. At the heart of the theory is a type of technology – a disruptive technology. In my mind, this is a technology that satisfies two criteria. First, it initially performs worse than existing technologies […].
But that isn’t enough […]. To distinguish a disruptive technology from a mere bad idea or dead-end, you need a second criteria – the technology has a fast path of improvement on precisely those metrics the industry currently values. So your low powered drives get better performance and capacity. It is only then that the incumbents say “uh oh” and are facing disruption that may be too late to deal with.
Joshua Gans, “The easy target that is disruptive innovation,” Digitopoly, June 16, 2014, http://www.digitopoly.org/2014/06/16/the-easy-target-that-is-the-theory-of-disruptive-innovation/
I couldn’t help thinking that her [Lepore’s] thesis boils down to: “Disruptive innovation is a myth, and also please stop doing it to my industry.”
[Or] The “upstarts who work at startups” have large coffee machines and also no morals […].
To show that these uppity youngsters are vicious as well as feckless, Lepore recruits venture capitalist Josh Linkner, who fills in admirably as a straw man whenever she can’t find Christensen making the particular outrageous claim she wants to debunk next. Startup types, she says, are taught by investors like Linkner to “forget rules, obligations, your conscience, loyalty, a sense of the commonweal.” She’s paraphrasing here, but again, the point is that disruptive innovators are not only mythical – they’re also dangerous and must be stopped […].
[…] her revisionist reading of Christensen’s book adds some important caveats to his model. Importantly, the “disruptors” don’t always win in the end, and in some cases established businesses might harm themselves more by overreacting than underreacting. It would also be a great service if Lepore’s story had the effect of making people stop and think before they throw around “disrupt” as a buzzword.
Will Oremus, “The New Yorker thinks disruptive innovation is a myth,” Slate, June 16, 2014, http://www.slate.com/articles/technology/technology/2014/06/clayton_christensen_and_disruptive_innovation_is_the_concept_a_myth.html
Lepore is right that the concept of disruptive innovation is often overused and even misused […].
Lepore’s nitpicking aside, Christensen’s theory has a lot of explanatory power. It’s impossible to talk about what’s happening to companies as diverse as Kodak, Microsoft, and the New York Times without the vocabulary and concepts Christensen developed. And while understanding the theory won’t solve all the problems these companies face, it will certainly allow them to make more thoughtful decisions than if they follow Lepore’s advice and write it off altogether.
Timothy B. Lee, “Disruption is a dumb buzzword. It’s also an important concept,” Vox, June 17, 2014.
One business school professor, who asked not to be identified because he sees Christensen regularly at meetings, explained […] “Clay’s writing is good for explaining how chaotic things can look on the ground, and, at least for my classroom, he usefully illustrates the mechanisms that betray MBAs at crucial moments – for instance, the flow charts and spread sheets that are interpreted without imagination. He helps characterize the issues, though not necessarily to resolve them.”
David Warsh, “Look both ways,” Economic Principals, July 20, 2014, http://www.economicprincipals.com/issues/2014.07.20/1632.html
Lone wolves and creativity
Where does creativity come from? For centuries, we’ve had a clear answer: the lone genius. The idea of the solitary creator is such a common feature of our cultural landscape (as with Newton and the falling apple) that we easily forget it’s an idea in the first place.
But the lone genius is a myth that has outlived its usefulness. Fortunately, a more truthful model is emerging: the creative network, as with the crowd-sourced Wikipedia or the writer’s room at “The Daily Show” or – the real heart of creativity – the intimate exchange of the creative pair, such as John Lennon and Paul McCartney and myriad other examples with which we’ve yet to fully reckon. […].
Consider what happens when 4-month-olds interact with their mothers: They mimic one another’s facial expressions and amplify them. A baby’s grin elicits a mother’s smile, which leads the baby to a full-on expression of joy – round mouth, big eyes. “Both parties,” writes the psychiatrist Susan C. Vaughan, “are processing an ongoing stream of stimuli and responding while the stimulation is still occurring.” The implication, Ms Vaughan argues, is that emotions are “peopled” from the start, centered in an interpersonal exchange rather than in an atomized self […].
The pair is the primary creative unit – not just because pairs produce such a staggering amount of work but also because they help us to grasp the concept of dialectical exchange. At its heart, the creative process itself is about a push and pull between two entities, two cultures or traditions, or two people, or even a single person and the voice inside her head. Indeed, thinking itself is a kind of download of dialogue between ourselves and others. And when we listen to creative people describe breakthrough moments that occur when they are alone, they often mention the sensation of having a conversation in their own minds.
Joshua Wolf Shenk, “The end of genius,” The New York Times, July 19, 2014.
Culling projects increases shareholder value
I have worked with new product development (NPD) professionals for many years, and during that time the executives with the best records of shareholder value creation are those who systematically kill NPD projects as early in their development lifecycle as possible. They objectively analyze the strategic fit and business case for a given project and without emotion eliminate those that don’t measure up. Often this work is done by empowering and actively encouraging decisiveness in their gatekeeper teams who have the responsibility to fund or stop projects at gate review meetings, or portfolio teams that holistically review all project activity […].
Executives can empower their decision making process by understanding the nuances of the process and how accurate and precise business case valuations are at every stage of your development process. Effective decision makers ask informed questions regarding the justification of whether a project truly addresses a customer need and acts on those findings. They learn how to pull the source business case data from analysis tools and build rigor into their market and business case justification process.
Finally, the most successful executives ensure their process gate keepers and portfolio managers understand their responsibility to employ the same amount of rigor in their approach to the NPD process and are recognized for their efforts.
Michael Glessner, “Kill new product development projects faster,” Innovation Excellence, July 20, 2014, http://www.innovationexcellence.com/blog/2014/07/20/kill-new-product-development-projects-faster-2/
Breaking the rules to rescue an iconic brand
A few years ago, Tang, one of the world’s iconic products, had fallen hard to earth. The powdered drink rocketed to popularity in the 1960s as American astronauts took it into space. But over the years the excitement faded, and by 2007 USA sales were moribund. Tang still brought in $500 million, mainly in South America, but even there momentum had stalled. Parent company Kraft Foods (KRFT) worried that the historic drink would become a relic.
Five years later, Tang’s international sales had doubled. What accounted for the stunning turnaround? The answer violates basic business conventions: a blank check. Essentially that means giving unconstrained resources and authority to a select team that’s been handed a huge, must-succeed project.
In the case of Tang, Kraft gathered a handful of its savviest South American executives and delivered their new assignment: Double the product’s international business in five years. After the executives picked themselves up off the floor, management gave them good news: They’d be given a blank check to pull this off. Just fill in the amount needed. Eight weeks later the team returned with a plan, and Kraft wrote a check.
This approach goes against everything taught in business school. Budgets exist to impose discipline, to keep an enterprise on track. But budget restrictions can also hobble thinking. Remove the restrictions under the right circumstances, and creativity can blossom. It’s as if imaginations are suddenly set free. The impetus doesn’t come just from the size of the check. On the other side of the ledger, the staggering target forces the team to question assumptions and think in new dimensions. Simply improving on the familiar formulas won’t get there.
The blank check also breaks down another convention: the usual business hierarchy. The team with the blank check now owns the project and must turn into a band of entrepreneurs. Company leadership, trusting the team, steps aside […].
The blank check request included not just money, but also the freedom to enlist people and expertise from within and outside the company. And the money was to be invested in a phased manner, based on delivery of key milestones.
“It took a major management gamble to rescue tang,” BusinessWeek, July 30, 2014.
Big data: collecting versus hording
As organizations everywhere increasingly embrace analytics, it is tempting to think that additional data will provide the crucial insight, reveal the overlooked explanation, or crisply discern key solutions within a morass of muddled information.
But “more data” is not the answer to every problem […]. Calvin Smith, principal manager of global innovation at EMC Corporation, observes that “[…] it’s not easy or cheap to attempt to collect and store all the data out there.”
… The financial services analyst notes, “Even if data is free to store, high-priced data scientists will still waste time looking at it and try to find spurious patterns or incorporate the data into models to no avail. There is still an opportunity cost to looking at the wrong data and not having a strong sense for what questions are important to answer.”
Yet additional data can be valuable. What distinguishes collecting behavior from hoarding behavior? In the spirit of Isaac Asimov’s Three Laws of Robotics, I suggest Three Laws (plus a “Zeroth” Law) to guide your company’s approach to adding more data:
Law 1: “More data” should not obscure desirable information or, through distraction, allow ongoing analyses to come to harm.
Law 2: “More data” should be added only if other data will not suffice and its addition does not conflict with the First Law.
Law 3: “More data” should be added only if its addition does not exacerbate existing biases in the data, and its addition does not conflict with the First or Second Law.
Law 0: “More data” must not harm the overall analytical process.
Sam Ransbotham, “Does your company collect data – or hoard it?,” Sloan Management Review, Summer 2014.
American express looks to a cardless future
Leslie Berland has a curious job. She’s paid to think about all the ways to make her company’s flagship product obsolete.
Berland leads digital partnerships and development at American Express, the company that pioneered the notion that a piece of colored plastic could not only buy stuff but raise your social status. In the future that Berland anticipates, a black card or a gold card won’t mean any more than a purple card, because you won’t have a card at all. Even American Express believes the plastic in our wallets eventually will go away.
At a recent event, hosted by Andreessen-Horowitz, on the future of retail, Berland pointed out that there are two things you always have with you: a credit card and a smartphone. The day is coming when we combine them. “What we are hyper-focused on is how do we merge those two things,” she says. “Especially as one day the physical card will disappear.”
[…]. A company like American Express has every reason to want things to stay as they are. But if it’s willing to concede its core product’s days are numbered, it has a chance of beating the Apples and Googles of the world in the race to redefine payment tech. That’s because it’s got a key advantage over Silicon Valley: Amex already is in people’s wallets.
Marcus Wohlsen, “Why American express wants to kill credit cards,” Wired, June 5, 2014.
Taking marketing research beyond the average
What do Porsche fanatics, a video game hater, and a person who cooked two weeks’ worth of meals in a rice cooker have in common? They are all “extreme consumers” – those whose tastes are so out there that mainstream market researchers tend to dismiss them as “noise” when trying to figure out how typical consumers think.
That’s fine if you only want to keep making incremental improvements to your products, says Jill Avery, senior lecturer at Harvard Business School and a former brand manager at Gillette, Samuel Adams and AT&T. “Traditional market research is all about studying the average consumer, which gets rid of the noise in an effort to study the majority of customers, but also gets rid of people who are potentially leading the category,” she says.
[…] Avery has studied extreme Porsche fanatics-men who might keep four Porsches in the garage and who join online brand communities to share in their love for the brand. When Porsche tried to appeal to female consumers with its Porsche Cayenne SUV, these fanatics howled in protest about the “feminizing” of the brand.
Such protest risks endangering the brand identity if it spills over to general consumers. “Often the lovers or haters of a product can be the canary in the coal mine – an early warning system that can alert managers to problems or identify areas where a competitor could come in and take away the bulk of the market,” says Avery.
By investigating what extreme adherents of a brand like about a product, designers can identify features to emphasize for all consumers. “A lover of a product can help identify aspects that are providing value, helping managers understand what’s working and what’s not,” says Norton. At the same time, designers can gain valuable insights into a product by talking to those who hate it – or even don’t use it at all.
Michael Blanding, “Pay attention to your ‘extreme consumers,’” Working Knowledge, July 14, 2014, http://hbswk.hbs.edu/item/7570.html
Reshoring gains momentum
For decades, the USA economy shed manufacturing jobs as production of goods from tennis shoes to electronics went overseas. Today, the status of China and Southeast Asia as the “go-to” place for manufacturing is changing.
“A number of macroeconomic factors have definitely tipped the balance in favor of domestic manufacturing, at least for some industry sectors,” says Patrick Van den Bossche, partner and Americas operations practice leader, A.T. Kearney, Inc.
Among them, he says, are the appreciation of China’s currency versus western currencies, China’s labor rate inflation, increased concerns about supply interruption, lower USA energy costs as a result of shale gas exploration, and a general push from federal and state governments to reduce the costs and administrative barriers to attract manufacturing companies […].
The Boston Consulting Group (BCG) estimates that as companies doing business overseas reconfigure their production capacity, USA manufacturing could bring back $70 billion to $115 billion of export business by 2020. The group’s analysts project that within five years, the total cost of production for many products will be only 10 percent to 15 percent less in coastal regions of China, than in some parts of the USA where factories are likely to be built or expanded.
While cost efficiency is one of the key reasons executives cited for opting to repatriate their production, it’s not the only motivation.
How this is actually playing out in the marketplace can be seen in Pennsylvania where a leading, multinational medical products manufacturer is gaining a competitive edge by expanding production closer to its USA customer base.
[…] explains Rex Boland, vice president and general manager of Allentown operations, B. Braun Medical Inc […] “When we looked at the numbers involving the cost of capital, material, freight and shipping charges, and then started accounting for language barriers, time differences and shipping delays, it absolutely started making sense for us to bring the product into the USA and manufacture it here.”
“Also, whenever your point of manufacture is closer to the customer, you shorten the supply chain and get more immediate feedback and communication, which makes for a much faster and better customer experience,” Boland continues.
“Reshoring: the supply chain returns,” GCX Mag, June 27, 2014, http://gcxmag.com/2014/06/reshoring-supply-chain-returns/
Craig Henry, Strategy & Leadership's intrepid media explorer, collected these examples of novel strategic management concepts and practices and impending environmental discontinuity from various news media. A marketing and strategy consultant based in Carlisle, Pennsylvania, he welcomes your contributions and suggestions (firstname.lastname@example.org)