The Innovation Show

“No matter the industry, a corporation consists of business units with finite life spans: the technological and market bases of any business will eventually disappear. Disruptive technologies are part of that cycle. Companies that understand this process can create new businesses to replace the ones that must inevitably die. To do so, companies must give managers of disruptive innovation free rein to realise the technology’s full potential-even if it means ultimately killing the mainstream business. For the corporation to live, it must be willing to see business units die. If the corporation doesn’t kill them off itself, competitors will.” – Clayton Christensen and Joseph Bower “Disruptive Technologies: Catching the Wave, Harvard Business Review, 1995

There is more than 20 quadrillion (20 million billion) ants on earth. According to new Harvard University research, ants originated 140 million to 168 million years ago. To survive and flourish through times of radical change, ants evolved to optimise the colony’s survival over the survival of the self. In the Brazilian ant family forelius pusillus, worker ants close the nest entrance at sunset to conceal the colony. Knowing it’s a suicide mission, several ants must finish the job from the outside. By morning time, none survive. 

The most spectacular example of self-sacrifice comes from the aptly named colobopsis explodens or “exploding ants”. When attacked by a predator, these ants protect the colony by bloating their abdominal wall and exploding, thus releasing a toxic goo all over the threat. In doing so, they die for the greater good. This phenomenon of sacrificing the few for the good of the many also happens within the human organism.

In the human body, a process of programmed cell death called apoptosis occurs during early development to eliminate unwanted cells—for example, those cells between the fingers of a developing hand. In adults, apoptosis is used to rid the body of cells that have been damaged beyond repair. The average adult human loses between 50 and 70 billion cells each day due to apoptosis.

Apoptosis provides a fitting metaphor for what must happen in organisations to survive continuous cycles of change. Rather than letting the entire organisation die, the corporate body’s sectors, departments, and business units must regularly renew, just like a human body. Like any healthy process, the end of one cycle is the beginning of another, and it is better to embrace this law than to resist it. Easier said than done.

Corporate Apoptosis

“There will be times where we must be prepared to cut off things that have been good for us in the past, but may no longer be relevant today . . . it’s better to shift gears and move on.” – Wilson Tan, former CEO of SingPost (from “Dual Transformation”, by Clark Gilbert, Scott D. Anthony and Mark W. Johnson)

Every organisation consists of business units with finite life spans. According to the Boston Consulting Group (BCG) Group, the average life of a business model was once fifteen years. By their estimation, that number has drastically reduced to five years. Another study released by Innosight, the Corporate Longevity Forecast, predicts that the average tenure of companies on the S&P 500 list will continue to grow shorter and shorter over the next decade. Innosight reported that the 33-year average tenure of companies on the S&P 500 in 1964 narrowed to 24 years by 2016. Innosight forecasts it will shrink to only 12 years by 2027.

Further research conducted by Credit Suisse revealed that the average time a company spends in the Fortune 500 has diminished from 60 years to less than 20. Even when you become one of the most successful companies in the world, it may not last unless your organisation embraces permanent reinvention. However, as Peter Drucker noted, “If you want something new, you have to stop doing something old.” This makes perfect sense in theory, but when leaders attempt to implement the wisdom, they encounter staunch resistance.

One of Steve Jobs’ business rules was never to be afraid of cannibalising your business. In practice, this meant that even though the iPhone will cannibalise the iPod, or the iPad will cannibalise the Macbook, the sacrifice should be for the greater good of Apple, rather than the sales figures of distinct divisions within the organisation. 

Apple is not the only successful company to embrace this mindset. Former Amazon executive Steve Kessel developed Amazon’s paper book distribution on Amazon’s “Kindle” and brick-and-mortar store “Amazon Go”. Even though books generated more than half of Amazon’s cash flow, Jeff Bezos famously moved Kessel to the Kindle team and told him, “Your job is to kill your own business… I want you to proceed as if your goal is to put everyone selling physical books out of a job.” This apoptosis mindset enabled the e-book industry, the Kindle and eventually various new revenue streams for Amazon.

Whoever Loses, HP Wins

In “The Innovator’s Dilemma”, Clayton Christensen recounts a tale of Corporate Apoptosis he called “Survival by Suicide: Hewlett-Packard’s Laser Jet and Ink Jet Printers.” It illustrates how a company’s pursuit of disruptive technology by spinning out an independent organisation often means sacrificing another business unit for the greater good. 

In the mid-1980s, HP built a successful business around laser jet printing technology. The laser jet was a discontinuous improvement over the previously dominant personal computer printing technology, and HP built a commanding market lead.

When an alternative way of translating digital signals into images on paper (ink-jet technology) emerged, experts debated whether laser jet or ink jet would emerge as the printer of choice on the world’s desktops. According to Christensen’s definition, inkjet printing was a disruptive technology. It was slower than the laser jet, its resolution was worse, and its cost per printed page was higher. But the printer was smaller and potentially much less expensive than the laser jet. At these lower prices, it promised lower gross margin dollars per unit than the laser jet. Thus, the ink-jet printer had all the characteristics of a disruptive product relative to the laser jet business.

“It is very difficult for a company whose cost structure is tailored to compete in high-end markets to be profitable in low-end markets as well.” – Clayton Christensen

Christensen tells us that a disruptive innovation requires a different cost structure to be profitable and competitive. This is particularly the case when the initial opportunity is insignificant relative to the growth requirements of the mainstream organisation. In such cases, the mothership requires a spinout organisation. 

HP embraced this wisdom (and the same successful strategy followed by subsequent successful innovators such as our recent guest on undefined, Clark Gilbert, who successfully transformed Deseret News). Rather than place its bet exclusively with one or the other, and rather than attempt to commercialise the disruptive ink-jet from within the existing printer division in Idaho, HP created an autonomous unit, located far from the core, in Washington, with the sole responsibility for making the inkjet printer a success. 

It then let the two businesses compete against each other. Each behaved as per Christensen’s theories. The incumbent, dominant product, the laser jet, moved upmarket in a sustaining pattern: printing at higher speeds with superior resolution; handling hundreds of fonts and complicated graphics; printing on two sides of the page; all while increasing in physical size.

Meanwhile, the disruptive technology, the ink-jet printer, wasn’t as good as the laser jet. The resolution and speed of ink-jet printers – at the time – were inferior to those of laser jets but were good enough for many students, professionals, and other users of desktops. This group were non-consumers of the laser jets, and where there are non-consumers, there is often latent potential.

Today, we know how this played out. HP’s ink-jet printer business, as well as capturing non-consumers, captured many who would formerly have been laser jet consumers. Ultimately, the number of users at the highest-performance end of the market, toward which the laser jet division is headed, became small.

As Christensen concluded, “One of HP’s businesses may, in the end, have killed another. But had HP not set up its ink-jet business as a separate organisation, the ink-jet technology would probably have languished within the mainstream laser jet business, leaving one of the other companies now actively competing in the ink-jet printer business, such as Canon, as a serious threat to HP’s printer business.“

While it is easy to see how these theories play out in the rearview mirror, it is incredibly difficult to execute them by looking through the windscreen. It takes a brave leadership team who will sacrifice the old to enable the new and a strong willingness to embrace the many inevitable mistakes they will make as they fail their way towards success.

Thanks for Reading