I’ve just attended a seminar by Professor Clayton Christensen. He has just published his third book entitled Seeing What’s Next. His content was extremely thought provoking and enjoyable to to listen to. I have his book and will be diving into this very soon.
He described how the pioneers of the Technology industry disappeared through bad management, lack of strategy and total short sightedness.
He used Digital Equipment Corp as a good example. Briefly, DEC were pioneers and innovated their products based on what their customers wanted. They provided a premium platform with a premium price and their customers paid for it because it was what they wanted. It did the job.
When the personal computer entered the market DEC’s customers had no need for this, although cheaper, it was less powerful and at first less functional. Apple for example sold their early products as toys not business productivity tools (yes Apple Computers are a Personal Computer). Now, because DEC’s customers were not interested in the personal computer, DEC continued to innovate their minis and stayed away from the PC business. The rest is history.
The PC was a disruptive technology. Professor Christensen defines a disruptive technology as one that simple and low cost that gains market share rapidly. It is not a technology that is new that changes the path of existing technologies.
The PC, whilst at the time less functional, was affordable and provided services for the masses; word processing and spreadsheets and therefore gained market share not by competing in the same segment but by exposing an existing market that was not seen as an opportunity by the DEC and WANGs of the era.
IBM however, were much smarter… for a while, hence the reason they are still around today. IBM created new ‘child’ businesses independent from the existing that eventually killed off the ‘parent’. Much like the framework in the product life-cycle, constantly evolving products and services before the existing mature products and services went into decline.
IBM then slipped up for a while and began to listen to the management consultants at the time and began to outsource the components to third party companies in a bid to capitalise on the value added service. Those components were the processor and operations systems and those third parties were Intel and Microsoft! IBM simply fed their suppliers success and eventually killed off their business.
The same happened with Compaq and Flextronics. Flextronics started out making small component chips for Compaq. As Wall Street began demanding increased profits from Compaq, cost cutting exercises went in to reduce cost and get rid of assets . Flextronics moved fast and with analyst advice Compaq handed over the manufacturing of the motherboards, the supply chain and eventually the design of the PC.
Soon Flextronics revenues grew whilst Compaq revenue stay static but managed to make profits. Flextronics then approached Best Buy and simply stated the obvious, why stock the Compaq badge when we can put any badge on the same technology for less cost?
Many more examples across other industries were explained and with this you can start to get a picture of what’s next. Toyota did it to the big US auto manufacturers and more recently Dell, the darling of the early noughties, a success story I studied in my MBA are now likely to be another casualty.
So where do companies innovate to survive or succeed? The message was clear,
Understanding the job will provide the key to understanding the customer. Don’t survey the customer. For example, the car is not right for the job, we simply buy it buy it because it helps to do a job. Some of us need cars\vans that are an office, an entertainment system, etc.
Where do we compromise or workaround with current tools/products? This is where the opportunity is!