It is all too easy to look back at the companies that have bungled innovation and marveled at their apparent ineptitude.
Worse yet, examples abound of firms that not only mishandle disruptive innovation but that were the actual inventors of the disruptive technology.
- Take Kodak. It not only invented the digital camera in 1975, it filed over 1,000 patents relating to digital technology in the 1990s. Once a Fortune 500 company, Kodak filed for bankruptcy in early 2012.
- Take IBM. It invented the personal computer — not as we know it admittedly — in the late 1940s. Then, as Big Blue launched a PC war on Apple in the early 1980s, it needed an operating system. Two guys called Bill Gates and Paul Allen supplied it and founded Microsoft. Once a leader, IBM continued to stumble in the PC space until it eventually sold that business to Lenovo in 2004.
- Look at Microsoft, Still hugely profitable, it is now perceived as playing catch-up in key areas such as mobile computing.
However, Microsoft was visionary as recently as the year 2000. Bloomberg.com found some of the Redmond giant’s concept videos from that era where it correctly predicted the direction of computing over the next 13 years. As the Bloomberg headline demanded, “Microsoft’s Concept Videos from 2000 were Spot-On, so why didn’t Ballmer build any of it?”
Looking back, it is easy to adopt a superior or resigned air when looking at their missteps. The criticism appears deserved because these spectacular falls seem to be the result of executive hubris, greed, stupidity, or some weird combination of all three.
In my last blog post, The Efficiency Trap, it was noted that organizational efficiency and innovation are often incompatible. In his book, Thoughts from a Grumpy Innovator, Costas Papaikonomou warns of the dangers of operational efficiency. “The expertise required for operational excellence and the attitude required to successfully improvise are mutually exclusive,” he writes.
Others posit that large margins raked in by current products lead to a natural reluctance to divert resources to lower-margin and less-certain product lines, but fat and happy as market leaders, major companies are rudely awakened when they ignore disruption.
In one of their weekly Twitter “chats” on innovation, the Innochat group coined the term “kodaked” to describe those companies.
Kodak was hugely profitable selling film and related chemicals. Its margins were 60 percent. In his book, The Dark Side of Innovation, Ankush Chopra, looked at the dynamic inside Kodak. It beat its competitors because it was focused on meeting customer demand. “A successful company’s culture, information flow, incentive structure, and even the cognitive and perceptual structures of managers all converge towards the best way of filling customer needs,” he wrote.
Managers knew how to make money, how to grow the business and which capabilities to strengthen. “Organizations that function in this way are like F1 race cars going 200mph. At those speeds, focus and tunnel vision are necessary for victory,” Chopra wrote.
Nevertheless, disruptive innovation is a game changer. “It is almost as if in the middle of an F1 automobile race, the rules of the race are changed to those of dirt biking,” he said.
Moreover, the focus once necessary for beating competitors becomes an instrument in the company’s fall. At this point, executives are faced with two unpalatable options: retrench or bet the company on a lower-margin product where an upstart competitor already has an edge.
Chopra compared the situation to a man being told a menacing stranger is waiting with a gun and a sword. If the man chooses the gun, he must play Russian roulette. If he chooses the sword, he gets his arm chopped off.
“Faced with two unpleasant choices, the human reaction is to delay as long as possible”, said Chopra.
This is probably as good an explanation as any for the many miscues we see in handling disruptive innovation.
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