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“There is something about the way decisions get made in successful organizations that sows the seeds of eventual failure. ...There are times when it is right not to listen to customers, right to invest in developing lower-performance products that promise lower margins, and right to aggressively pursue small, rather than substantial, markets. ...These rules, which I call principles of disruptive innovation, show that when good companies fail, it often has been because their managers either ignored these principles or chose to fight them.”

As Clayton Christensen graphed technological changes in different industries, a set of recurring patterns emerged that overturned previous innovation theory and led to a shocking discovery: successful practices eventually lead to failure to innovate. From his research Prof. Christensen formed a new vocabulary and a new set of rules. To put the matter in terms of culture: organizations that want to remain innovative must create and properly resource a counter-culture for “disruptive technologies”, distinct from its “sustaining technologies.” Some examples of disruptive technology: hand-held digital appliances (vs. notebook computers); nurse practitioners (vs. medical doctors); distributed power generation, e.g. gas turbines, micro-turbines, fuel cells (vs. electric utility companies).

He observes that as companies go about the business of sustaining their successful products and processes, invariably something new arrives on the scene, flying under the radar because its price is too low and its market is too small--something Christensen calls “disruptive technology”. Over time, disruptive technology becomes the next innovation, but by then it’s too late to capture the opportunity. The significant market share goes to those who properly resourced the opportunity at the disruptive technology stage.

At first glance, Christensen’s five “principals of disruptive innovation” do not chart a course of action; rather they point to the cultural reason why successful organizations cannot continue to innovate. Our summary also includes Professor Christensen’s solutions as suggested by his research:

Principal #1: Companies Depend on Customers and Investors for Resources.

Problem: At the disruptive technology phase of an innovation, customers and investors do not yet know that they want it. Solution: “Set up an autonomous organization charged with building a new and independent business around the disruptive technology.”

Principal #2: Small Markets Don’t Solve the Growth Needs of Large Companies.

Problem: Successful companies must continue to grow on a particular economy of scale—a scale too large to enable emerging markets to fuel its growth. Solution: Give “responsibility to commercialize the disruptive technology to an organization whose size” matches the size of the targeted market.

Principal #3: Markets that Don’t Exist Can’t Be Analyzed.

Problem: It is impossible to demand market data when none exists and to make financial projections based on unknown revenues and costs. (An important corollary to this principal is: “It is in disruptive technologies, where we know the least about the market, that there is” strong first-mover advantage.) Solution: Use “discovery based planning”, which “drives managers to develop plans for learning what needs to be known.”

Principal #4: An Organization’s Capabilities Define its Disabilities.

Problem: Christensen observes that an organization’s capabilities reside in its processes and its values. Assumed processes and values constitute culture. While people are flexible, organizations’ processes and values are not. Solution: Assess the organization’s culture to determine whether its processes and values lend themselves to pursuing a disruptive technology. If so, change management may be possible. If not, an acquisition or “spin-out” may be required.

Principal #5: Technology Supply May Not Equal Market Demand.

Problem: “When the performance of two or more competing products has improved beyond what the market demands, customers can no longer base their choice upon which is the higher performing product. The basis of product choice often evolves from functionality to reliability, then to convenience, and, ultimately, to price.” Solution: “Only companies that carefully measure trends in how their mainstream customers use their products can catch the points at which the basis of competition will change in the markets they serve.” (Note that product use studies—not opinion surveys—are needed here.)

Do you and your organization:

--Understand your cultural “capabilities” and how they might become “disabilities” under changing competitive conditions?

--Use discovery based planning as a way of “learning what needs to be known”?

--Trend-spot competitive change by studying customers using your products?

CultureConnects can help. We offer culture assessment, strategic planning facilitation and qualitative research, including product use studies. Contact us.