Tim Harford writes, [link added]
The message of Henderson’s work with Kim Clark and others is that when companies or institutions are faced with an organisationally disruptive innovation, there is no simple solution. There may be no solution at all. “I’m sorry it’s not more management guru-ish,” she tells me, laughing. “But anybody who’s really any good at this will tell you that this is hard.”
The story is that if you are the market leader in widgets and someone inside your firm comes across a better widget, then you can adopt the innovation without any organizational stress. But if you are, say, a copier company and someone inside your firm comes across the components for a personal computer, you have no organizational mechanism for paying attention to the innovation and nurturing it along.
Read the whole thing (Harford is entertaining, as always), but be skeptical. Swiss watchmakers were in the watch business, so you wouldn’t think that digital watches would require total re-thinking from an organizational standpoint. But digital watches still eluded them.
I think you forgot to link the article…
All innovations are “organizationally disruptive” to some degree. Of course, companies are better able to cope with less disruptive innovations: indeed, I think this is true by definition, since we should measure disruptiveness by how easily companies that were operating under the *status quo ante* can adapt. So the digital innovation in watches was simply more disruptive “than you would think,” as we see from the fact that traditional watchmakers did not well adapt to it.
Banks are doing well with fintech. They have an active trade press explaining the opportunities and risks.
Swiss watchmakers were in the watch business, so you wouldn’t think that digital watches would require total re-thinking from an organizational standpoint. But digital watches still eluded them.
I guess that I would expect that. All the capital invested in designing and manufacturing tiny, precision mechanical movements really has no relevance for digital. Look at the camera business — Canon and Nikon made the transition to digital successfully while Kodak did not. Was that because Kodak was hidebound and clueless about digital technology? Nope — Kodak entered the digital sensor and camera market very early and with some early successes. What killed them, though, was that Kodak hadn’t really been a *camera* company for a long time, it was primarily a film, photo paper, and chemical company. To make the transition to digital, Kodak realized it had to become a true camera company, but they weren’t able to execute over the long haul.
Bingo. From a consumer’s perspective, an analog watch and a digital watch are pretty similar. From a manufacturer’s perspective, they’re totally different. Switching means firing all your gears-and-springs guys, selling their equipment, and building a whole new little-computers-with-liquid-crystal-displays factory. That’s like trying to give someone an everything-but-the-tonsils-ectomy.
I will stay skeptical. I agree with her that it’s really hard.
Part of the story may be organizational. But, I think a bigger part is that foresight is not 20/20, which means that innovations are 2-3 orders of magnitude, or more, riskier than sticking to your bread-and-butter.
It’s the same reason most of us stick to our day jobs rather than pursuing the potential million dollar ideas we’ve all had.
Take a look at The Innovator’s Dilemma, by Clayton Christensen, which explores this topic quite a bit. It argues that if an innovation is a) useful in an application where the old technology was overkill and b) is not useful to the best (highest-value) customers of the old technology, then the incumbent companies will rarely be successful in making the transition. The reason is that not only is the incumbent’s capital base tied to the old technology, but so also are its human capital (it is full of experts on the old technology and its best users) and career advancement opportunities (you make your career working on the biggest, most important projects with the best users, not by exploring niche applications of a new tech, that don’t “move the needle” for the company). This is true even if the company’s leadership can see the danger – they can’t and don’t move their top people away from the projects that have real near-term value, to pursue opportunities that may not pay off. Even if the leadership does assign the best people to the project, they tend to “bleed away” from it, back to the best customers of the current technology.
Even if the technology IS useful to the best users of the old technology, if the incumbent’s human capital base is too heavily tied to the old tech., it may still fail to make the transition. Kodak may have been an example.