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Of course, the two extreme cases are just that, and companies like the ones profiled in this issue fall at all places on the spectrum. In fact, the authors argue that successful companies are likely to move from one end to the other in their lifetime. The histories of two very different industries illustrate the common trajectory.

Two types of enterprise can be identified in this early period of the new [semiconductor] industry–established units that came into semiconductors from vested positions in vacuum tube markets, and new entries such as Fairchild Semiconductor, I.B.M., and Texas Instruments, Inc. The established units responded to competition from the newcomers by emphasizing process innovations. Meanwhile, the latter sought entry and strength through product innovation. … Since 1968, however, the basis of competition in the industry has changed; as costs and productivity have become more important, the rate of major product innovation has decreased, and effective process innovation has become an important factor … .

Like the transistor in the electronics industry, [Douglas Aircraft’s] DC-3 stands out as a major change in the aircraft and airlines industries. … Just as the transistor put the electronics industry on a new plateau, so the DC-3 changed the character of innovation in the aircraft industry for the next 15 years. No major innovations were introduced into commercial aircraft design from 1936 until new jet-powered aircraft appeared in the 1950s. Instead, there were simply many refinements to the DC-3 concept–stretching the design and adding appointments; and during the period of these incremental changes airline operating cost per passenger-mile dropped an additional 50 percent.*

The way companies manage this transition from the initial “fluid” phase to the later “specific” stage is vitally important.

*For a review of Boeing’s new 787 Dreamliner, see “Reinventing the Commercial Jet”.

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