Organisational Innovation
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
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
References: cited Capron, L., W. Mitchell. Selection capability: Internal and external strategic renewal through managerial assessment of capability gaps and internal social frictions. Organization Science, 2008. Christensen, C.M, R.S. Rosenbloom. Explaining the attacker’s advantage: technological paradigms, organizational dynamics and the value network. Research Policy. 1995;24(2):233257. Christensen, C.M. The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Boston, Mass: Harvard Business School Press; 1997. Dushnitsky G., M. Lenox. When do incumbents learn from entrepreneurial ventures? Corporate venture capital and incumbent firm innovation rates. Research Policy. 2005;34(5):615-639. Hansen, M.T. 1999. “The search-transfer problem: The role of weak ties in sharing knowledge across organization subunits.” Administrative Science Quarterly, 44, 82-111. Hansen, M.T. 2002. “Knowledge networks: Explaining effective knowledge sharing in multiunit companies.” Organization Science, 13: 232-250. Karim,. S., W. Mitchell. Path-dependent and path-breaking change: Reconfiguring business resources following acquisitions in the U.S. medical sector, 1978-1995 (with Samina Karim), Strategic Management Journal, Special Issue on the Evolution of Business Capabilities, 21 (1011), 1061-1081, 2000 Karim, S., W. Mitchell. Innovation through acquisition and internal development: A quartercentury of business reconfiguration at Johnson & Johnson, Long Range Planning, 37: 525-547, 2004. Mahmood, I., C.N. Chung, W. Mitchell. Innovation by Taiwanese business groups, 19812000: The impact of strategic scope and market development on local search arising from intragroup buyer-supplier ties. Duke University working paper, 2008. Tushman M.L., C.A. O’Reilly. Ambidextrous organizations: managing evolutionary and revolutionary change. California Management Review, 1996;38(4):8-30. Williams, F.C., W. Mitchell. Focusing firm evolution: The impact of information infrastructure on market entry by U.S. telecommunications companies, 1984-1998. Management Science, 50 (11), 1561-1575, 2004. 5