Clayton Christensen’s book, The Innovator’s Dilemma, was first published in 1995 (and updated in 1997). In 1999 Christensen published the article “Putting Your Finger on Capability” for Harvard Business School Press. A recent column in the Wall Street Journal and a book reviewed in the August 28, 2010 edition of the magazine The Economist reinforce the wisdom of Christensen’s original ideas.
Both the Christensen book and his article describe the influence of resources, values, and processes on the organization’s ability to innovate.
• Resources are the tangible (real estate holdings, minerals in the ground, new factories, etc.) and intangible (brands, intellectual property, customer insights, etc.) resources of the organization along with the organization’s capabilities (accumulated tacit knowledge usually based in the informal interactions of a few key knowledge workers). For example, Starbuck’s retail locations plus its brand equity are unique resources that create competitive advantage. Wal-Mart’s highly integrated distribution system is a distinctive capability.
• Values are the consensus among the employees about what’s right for the organization and what’s right for each employee individually.
• Processes are the formal and informal way that works gets done within an organization. For example, the organization’s resource allocation process defines the actual priorities of the firm.
Christensen calls the above as the “RVP Framework.” His thesis is that the organization’s values and processes trump the organization’s resources, and that this fact discourages innovation. Organizations can acquire the resources required for innovation through a merger, by hiring new employees with the needed skills, or by investing in developing new skills for existing employees. But values and work processes are deeply embedded in the organization and are resistant to change. For example, the consensus of Kodak middle managers during George Fisher’s tenure as CEO was that transitioning rapidly to digital imaging was a bad idea for Kodak and a bad idea for them personally. This conflict between the organization’s values and Fisher’s desire to move aggressively into the digital market space frustrated Kodak’s digital strategy.
Christensen states that if an organization attempts to innovate in a way that challenges its embedded values or processes the innovation will almost always fail. To succeed the innovation must be managed in a separate organization empowered to create its own values and processes.
In the Saturday August 21, 2010 edition of the Wall Street Journal Managing Editor Alan Murray wrote a long column about “The End of Management.” Murray’s key point is that “In recent years…most of the greatest management stories have been not the triumph of the corporation, but triumphs over the corporation.” (emphasis in the original). He says that corporations are bureaucracies run by bureaucrats whose priority is self-preservation and resistance to change.
The sounds like the values and processes problem described by Christensen over 10 years ago.
Murray continues:
“We have both the need and an opportunity to devise a new form of economic organization, and a new science of management, that can deal with the breakneck realities of 21 century change….
The new model will have to instill in workers the kind of drive and creativity and innovative spirit more commonly found among entrepreneurs. It will have to push power and decision-making down the organization as much as possible…. Traditional bureaucratic structures will have to be replaced with something more like ad-hoc teams of peers who come together to tackle individual projects, and then disband.”
This sounds like Christensen’s idea that innovation often requires the creation of a separate organization that is allowed to create its own values and work processes.
As an aside, Murray mentions that the members of the WSJ CEO Council in their recent meeting selected The Innovator’s Dilemma as the most influential business book they have ever read.
On to The Economist review of a new book about innovation. The book is The Other Side of Innovation: Solving the Execution Challenge, by Vijay Govindarajan and Chris Trimble, professors at Dartmouth’s Tuck School of Business (hereinafter referred to as “the authors” for brevity sake). The review is in the Schumpeter column called “The innovation machine.”
The authors point out that innovation is unnatural because established businesses are built for efficiency. Established businesses emphasizes process improvements that increase productivity by focusing on the predictability and repeatability of work. By contrast, innovation is sloppy, unpredictable, uncertain, and often serendipitous.
The authors suggest that small independent units within the corporation, or corporate sponsored skunk works, isolate innovation and starve it of corporate resources that may be essential to the success of the innovation (funding, access to related technology, and marketing skills, for example). The solution is to “build dedicated innovation machines.” The authors suggest that:
“These machines need to be free to recruit people from outside (since big companies tend to attract company men rather than rule-breakers). They also need to be free from some of the measures that prevail in the rest of the company…. (T)hey must be tightly managed according to customized rather than generic rules.”
Let’s see: a separate organization empowered to hire its own people, freed from corporate bureaucracy and corporate processes, with a unique set of performance metrics. Sound familiar?
Innovation is a hot topic in both academic literature and the popular business press. On one fact there is agreement: innovation is absolutely key to America’s competitiveness in the 21st century. The US must develop innovations that create new industries and new high-paying jobs. The US will not recover the jobs in manufacturing, constructions, and financial services that created the boom of the “aughts” (the decade of the 2000’s). There are lots of ideas for jump-starting innovation in the US. There’s an important and consistent message here: most modern corporations are not built to innovate.
