Yesterday, Sophie Cousineau, a business journalist from Montreal’s La Presse, offered her explanation as to why Barack Obama had to fire Rick Wagoner, the CEO of [praized subtype=”small” pid=”597ce70258167de10a3ead0ceea0179355″ type=”badge” dynamic=”true”] (GM). She talked about some of Wagoner’s past successes but also the fact that he hung on too long to his strategy that centered on SUVs and trucks.
It struck me that with the GM situation, we are facing a perfect example of the innovator’s dilemma. Coined by Clayton M. Christensen in the book of the same name, the innovator’s dilemma is “a theory about how large, outstanding firms can fail “by doing everything right.” The Innovator’s Dilemma, according to Christensen, describes companies whose successes and capabilities can actually become obstacles in the face of changing markets and technologies. ” (source: mit.edu) Christensen also talked about “disruptive technologies”.
In GM’s case, they were so focused on their high-profit margin products (SUVs, trucks, minivans) that they ended up being blindsided when the easy credit required to buy these expensive vehicles evaporated and the price of gas went through the roof. It also reminded me that sometimes you need to kill your cash cow before someone else does it for you (or said otherwise, it’s better to cannibalize yourself than have someone else do if to you).
Which brings me to traditional media (you knew I was going there, were you?).
Newspapers traditionally have been huge cash-generating vehicles but they now have clearly met disruptive technologies both on the reader and on the advertiser side. Basic news is a commodity and aggregators (like Google News) serve as destination site. On the advertiser front, classifieds revenue has been completely disrupted via the free model (pioneered by [praized subtype=”small” pid=”c51b8fbbdf9041e28ba547a1644985a2c4″ type=”badge” dynamic=”true”]) and online eyeballs do not monetize as well as print readers. That leaves an industry that’s questioning itself with many people wondering what will happen to it in the future.
Directory publishers have very good profit margins but, for most of them, 80%+ of their revenues still come from the print platform. The good news is there hasn’t been too many disruptive technologies yet but you always have to wonder what will blindside the industry. Social media and mobile should be top of mind IMHO.
TV networks and cable providers are still enjoying a successful ride with broadcast/cable television and are slowly starting to think of a post-broadcast world. Disruption there will clearly come from the ability for viewers to go à-la-carte on the Web (either through legit or pirated channels) and link back to their television set. A startup like Boxee is trying to crack that nut.
What it means: the GM and the newspaper industry examples definitely show us that smart people, doing what feels like the right thing, can lead whole industries to catastrophe. What should media companies do? As Clay Shirky said recently “If the old model is broken, what will work in its place?” The answer is: Nothing will work, but everything might. Now is the time for experiments, lots and lots of experiments, each of which will seem as minor at launch as craigslist did, as Wikipedia did…”
One thought on “The Innovator's Dilemma”
What you describe also refers to what has been described in the 1980s marketing literature as Marketing Myopia. The innovator’s dilemma could potentially affect any successful corporation. I mean, in the car industry, same situation could have happen to Honda and Toyota. The only difference is the vision and the courage of their leaders. They didn’t focus exclusively on short term financial objectives. If they had done so, the Insight and the Prius wouldn’t have been launched.
It takes courage to invest in R&D programs that would eventually make your existing products obsolete. That is the kind of courage and pro-activeness that Mr Wagoner did not have.