28/09/2012

By Michael Baxter, economics writer

Steady change, that’s easy. Market leaders specialise, and their specialisation improves. And they seem unbeatable. Then a new kind of disruptive technology emerges, and, well… if they are not careful they go the way of the dinosaurs.

It’s called innovator’s dilemma. It probably explains why Kodak went from the star of chapter 1 in the story of photography to chapter 11. It may yet explain why RIM, the company behind the Blackberry, may go the same way. It may even explain why a certain Finnish company that once seemed so invincible in the mobile phone world is playing catch up with a company named after a fruit. And it’s a lesson that everyone who works in business needs to learn.

A study was produced by Clayton M Christensen. He called it the ‘technology mudslide hypothesis’, and he took the disc drive industry as his point of reference.

So in the days when mainframes ruled the computer world, disc drives came in 14 inches, and a few companies dominated the business. They were improving all the time, and were impervious to new opposition. But then mini computers took off, disc drives moved to 8 inches. The old super-powers of the industry failed to innovate, and a new generation emerged. The old owners went bust, while brave new companies emerged. The story repeated itself when we moved to desktops and 5.25 inches, and again with the move to laptops with their mighty 3.5 inches.

But what makes this story so very fascinating, is that the incumbents saw the changes, flirted with them, but their clients weren’t interested. So, obeying their research, as all good marketing focused companies do, they stayed clear, concentrated on what they were good at, so that today such companies are only fit to occupy the computer world’s answer to Jurassic Park.

Kodak was an early pioneer in the field of digital photography. It still failed to change with the times, though.

But here is a thought. Maybe no amount of clever research could have identified the change. Evolution works through the law of randomness; it tries lots of ideas, and only a hand full work. Why should an existing company survive when the industry in which it exists changes out of all recognition? You don’t expect to win the lottery twice; why expect to win the lottery of market change? That’s why the long run winners are the ones that experiment and try lots of ideas.

Alas, focus and specialisation, the very principles that are supposed to be sacrosanct, may be the biggest hurdles to long run survival.


Michael Baxter, mike@iabn.co.uk

Editor the investment and Business news newsletter , blog.share.com and author of the Blindfolded Masochist