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Leverage the Right Capabilities

Innovations fail when managers attempt to implement them within organizations that are incapable of succeeding. Managers can determine the innovation limits of their organizations quite precisely by asking three questions: (1) Do I have the resources to succeed? (2) Will my organization’s processes facilitate success in this new effort? (3) Will my organization’s values allow employees to prioritize this innovation, given their other responsibilities?

Beyond technology, the resources that drive innovative success are managers and money. Corporate executives often tap managers who have strong records of success in the mainstream to manage the creation of new growth businesses. Such choices can be the kiss of death, however, because the challenges confronting managers in a disruptive enterprise-and the skills required to overcome them-are different from those that prevail in the core business. Many innovations fail because managers do not know what they do not know as they make and implement their plans. That is, they assume that the same strategies and customer needs that apply in mature, stable markets will apply in disruptive ventures. But this is not the case, and by making such assumptions, managers close themselves off from opportunities to discover what customers really find useful in new, disruptive products.

Innovators must avoid two common misconceptions in managing the other key resource, money. The first is that deep corporate pockets are an advantage when growing new businesses. They are not. Too much cash allows those running a new venture to follow a flawed strategy for too long. Having barely enough money forces the venture’s managers to adapt to the desires of actual customers, rather than those of the corporate treasury, when looking for ways to get money-and forces them to uncover a viable strategy more quickly.

The second misconception is that patience is a virtue-that innovation entails large losses for sustained periods prior to reaping the huge upside that comes from disruptive technologies. Innovators should be patient about the new venture’s size but impatient for profits. The mandate to be profitable forces the venture to zero in on a valid strategy. But when new ventures are forced to get big fast, they end up placing huge bets at a time when the right strategy simply cannot be known. In particular, they tend to target large, obvious, existing markets-and this condemns them to failure. Most of today’s envisioned business opportunities for wireless Internet access, for example, involve big applications such as stock-trading and multiplayer gaming that have already found homes on wired, desktop computers. Billions are being sunk into new wireless ventures committed to taking over these markets before innovators have a chance to learn what applications wireless is really best at delivering.

Resources such as technology, cash and technical talent tend to be flexible, in that they can be used for a wide array of purposes. Processes, however-the central element in our second question-are typically inflexible. Their purpose is not to adapt quickly but to get the same job done reliably, again and again. The fact that a process facilitates certain tasks means that it will not work well for very different tasks. Failure is frequently rooted in the forced use of habitual but inappropriate processes for doing market research, strategic planning and budgeting.

Sony, for example, was history’s most successful disruptor. Between 1950 and 1980 it introduced 12 bona fide disruptive technologies that created exciting new markets and ultimately dethroned industry leaders-everything from radios and televisions to VCRs and the Walkman. Between 1980 and 1997, however, the company did not introduce a single disruptive innovation. Sony continued to produce sustaining innovations in its product businesses, of course. But even the new businesses that it created with its PlayStation and Vaio notebook computer were great but late entries into already established markets.

What drove Sony’s shift from a disruptive to a sustaining innovation strategy? Prior to 1980, all new product launch decisions were made by cofounder Akio Morita and a trusted team of associates. They never did market research, believing that if markets did not exist they could not be analyzed. Their process for assessing new opportunities relied on personal intuition. In the 1980s Morita withdrew from active management in order to be more involved in Japanese politics. The company consequently began hiring marketing and product-planning professionals who brought with them data-intensive, analytical processes of doing market research. Those processes were very good at uncovering unmet customer needs in existing product markets. But making the intuitive bets required to launch disruptive businesses became impossible.

A company’s values-the focus of question three-determine the necessity of spinning out separate organizations for new ventures. Values are even less flexible than resources. Everyone in an organization-executives to sales force-must put a premium on the type of business that helps the company make money given its existing cost structure. If a new venture doesn’t target order sizes, price points and margins that are more attractive than other opportunities on the organization’s plate, it won’t get priority resources; it will languish and ultimately fail.

Nor is it just the values of the innovating company that matter, because suppliers and distributors have values too, and they must put the highest priorities on opportunities that help them make money. This is why, with almost no exceptions, disruptive innovations take root in free-standing value networks-with new sales forces, distributors and retailing channels.

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