l changeOrganization and Innovation: Organizational Strategies for Leading Discontinuous Change Will Mitchell Duke University, The Fuqua School of Business www.willmitchell.org September 2009
not at the margins of the profits and the outputs of existing firms, but at their foundations and their very lives.” Discontinuous innovation challenges firms to develop products or services that require transformations in core business skills, practices, and organizational structures. Such transformations are challenging for firms to navigate but offer the greatest opportunity for creating benefits for consumers, whether through reducing costs or improving quality of existing goods and services, or through creating new goods and services. Recent work by Clayton Christensen and colleagues highlights a common feature of discontinuous innovation. Christensen observes that many discontinuous innovations yield new goods and services with that are produced at dramatically lower costs than existing products but also initially offer lower initial quality or, at least, greater uncertainty about quality. Examples include inexpensive office-based photocopiers that displaced centralized professional printing centers and, similarly, personal computers that disrupted the mainframe computer industry. Such discontinuous innovations often expand markets to include new customers who could not afford earlier product offerings, so when established firms continue to market their current products, at current prices, to their loyal customers, they cede market growth to innovators. Christensen calls this the “innovator’s dilemma,” in which firms remain devoted to incumbent technologies, fail to capture the broader market that is now accessible through innovations, and are thus supplanted by new entrants. Firms in all industries have great difficulty changing their routines and implementing the new and unfamiliar structures that discontinuous innovations demand. As 1
Many of the economic and social benefits of competitive markets arise from organizational innovations that create and implement new goods, services, and business models. Commonly, such innovations arise from the entry of innovative new firms that displace established leaders. The recent failure of several established motor vehicle firms is an obvious example of such displacement. Nonetheless, displacement of traditional leaders is not inevitable. Instead, established firms can successfully lead major innovation in their industries and in the creation of new industries. This note outlines the idea of organizational innovation as a form of discontinuous innovation and describes several strategies that established firms can use to help them avoid being blind-sided by innovative new entrants. A. Organizational Innovation is Discontinuous Innovation Organizational innovation involves discontinuous changes in business practices. These innovations differ strikingly from incremental changes that respond to wellunderstood needs in the marketplace and impose few disruptions on personnel, systems, and inter-organizational relationships. In contrast, discontinuous innovation disrupts both organizations and markets. As Joseph Schumpeter put it, such discontinuous innovations “command a decisive cost or quality advantage that strike
firms develop, they build information filters and rigid structures that facilitate efficient practices but typically reduce the firm’s maneuverability. Thus, major changes in industries often are driven by entrants that lack path dependent rigidities. Of course, many entrants fail, but those that survive often transform industries and markets. Nonetheless, established firms do sometimes capture value from discontinuous innovation by instituting creative frameworks that can adjust to the demands of new technologies and markets. We now turn to four organizational strategies that can help established firms generate such creative frameworks. B. Organizational Strategies for...
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