Disruptive Innovation

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Pardon the Disruption, The Economist, 6th September 2014

The Free Exchange column of The Economist of 6th September covers the subject of innovation, particularly disruptive innovation.  This topic has been the focus of many sessions for our clients over the past few years, as well as a popular module on our Learning Effectiveness Network, a series of complimentary virtual classroom sessions that we offer a couple of times a year. 
The article draws heavily on the work of Rebecca Henderson of Harvard Business School.  The main thrust of her message is that the corporate culture and inflexible organisation of established firms result in a failure to respond to disruptive innovations, a point that is well made.  However we feel that this message is taken too far and the examples are not fully convincing. For instance this inflexibility is put forward as the main reason why IBM was not successful in the Personal Computer business, whereas our analysis suggests different causes.  We believe that the failure was primarily due to the effective outsourcing, by IBM, of the Research and Development in PCs – the software to Microsoft and the hardware to Intel.  This allowed small start-ups such as Compaq and Dell, along with many others, to access the research and then compete on equal terms.  IBM had allowed these smaller competitors to treat R&D as a variable cost, negating the benefits of economies of scale that would normally have been achieved by a massive organisation like IBM.
Henderson’s work is interesting but, in our view, a more powerful analysis of disruptive innovation – how it occurs and how to manage it – is contained in the book ‘Fast Second’ by Markides and Geroski.  It is one of the best texts on any topic in Business Strategy and also highly readable; we strongly recommend it to anyone who is keen to develop a culture of innovation in their business.  

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