FOOL ON THE HILL: An Investment Opinion
The Innovator's Dilemma

The tension between business commandos and police, as taken from author Robert X. Cringely's three waves of business development, is very much the same tension between disruptive and sustaining technologies described in Clayton Christensen's brilliant business book The Innovator's Dilemma. Cringely's theory gives fresh insight that can be used to more fully understand the lessons from Dilemma, especially for businesses that try to put them into practice.

By Rob Landley (TMF Oak)
October 2, 2000

This is Part 7 of an ongoing series. Part 6, Microsoft's Split Personality, ran Thursday in the Rule Maker column space. Part 5, The Power of Business Commandos -- along with the previous four installments -- have run as Fool on the Hill columns.

Clayton Christensen's brilliant book The Innovator's Dilemma is all about disruptive technological innovation. Some new technologies naturally create new market niches, attracting new customers who use the new technology in unprecedented ways. These market niches are often adjacent to large, established markets, where the new technology is dismissed as useless and insufficiently powerful.

Sure, a mainframe computer wasn't affordable for college students writing term papers or middle managers running spreadsheets. A Harley-Davidson (NYSE: HDI) "hog" wasn't a good choice for dirt biking. You couldn't take a vacuum-tube based home stereo system to a ball game to listen to the announcer call the plays. Apple Computer's (Nasdaq: AAPL) Apple II, Honda's (NYSE: HMC) Supercub, and Sony's (NYSE: SNE) portable transistor radio all had new applications for which the old technology simply could not be used -- and protected market niches in which to grow and develop.

Over time, new disruptive technologies become more efficient and more powerful, expanding into the adjacent market niche and unseating the old technology. It starts with the least-profitable niche in the old market -- where a "cheap plastic solution" is acceptable if it works well enough and costs less than the alternative -- and continues to strike up-market into more profitable niches until, gradually, the new technology completely displaces the old.

The problem with disruptive technologies is that large, established companies have a horrible track record of dealing with them. The new products seem to require new companies to drive them to success, and the startling part is that the more well-managed the existing company is, the worse it deals with the disruptive technology.

Christensen's book is about disruptive technologies and about how businesses use and respond to them. What it's not directly about is the kind of people who can successfully work with disruptive technologies. I'll tell you who they are: "Commandos" (for an introduction to commandos and Robert Cringely's "three waves" theory, see this Fool on the Hill from September 13: How Companies Grow Up.)

Only a commando employee can really make a disruptive technology succeed. When Christensen talks about matching the size of the organization to the size of the opportunity, he's really saying only a first-wave organization is capable of incubating this kind of innovation.

When he talks about resource dependence in larger organizations diverting assets away from developing the disruptive technology in favor of the existing one, in part he's talking about the way third-wave middle management is fundamentally incapable of comprehending the value of a commando's vision for the future before that future has been established as market reality.

Christensen's notion of creating geographically isolated business divisions to nurture disruptive technologies without interference from the rest of the organization is similar to the concept of think tanks full of commandos. In this case, instead of performing undirected basic research, they're given a specific commando-friendly project to work on, and left alone to figure out how to accomplish it. (Yes, managing commandos is like herding cats -- but all you need to do it is the sound of a can opener. Create the right environment and they will come to you.)

Christensen's The Innovator's Dilemma is a wonderful book. Robert X. Cringely's waves theory gives fresh insight that can be used to more fully understand the lessons from Dilemma, especially for businesses that try to put them into practice. Commandos are attracted to disruptive technologies like moths to a flame, eager to unleash the hidden potential. A company that wishes to profit from disruptive technologies -- or simply survive them -- must know how to attract and manage commandos in order to succeed.

- Oak