There was an awesome article in The Economist, US print edition, September 6-12th, 2014, entitled Free Exchange: Pardon the Disruption. The article sub title suggests that organization inflexibility is usually the reason behind the failure of a firm that succumbs to new forms of competition. Sound familiar? It should.
The article leads off with the views of Clayton Christiansen, a professor at Harvard Business School. I am sure you remember reading your copy of Innovators Dilemma. It remains a classic in my mind, though of late some folks have tried to pull it apart. The article suggests that most research looking at the size of firms and their capacity to innovate fail to detect a relationship between the two dimensions. This goes to one part of Christiansen’s point – the other being the metrics that guide behavior and dictate “success” for larger firms (which actually demotivates the desire for new, smaller, disruptive innovations). New research from Rebecca Henderson, also at Harvard Business School, suggests the return on investments in research by old firms in fast evolving industries is exceeded by the return invested in research by younger rivals.
Rebecca Henderson’s idea is that firms are nothing more than information processing systems. She suggests in her work, and other references sited in the article, that these information processing systems are organized in efficient ways, that over time tend to lead to a hard wiring that prevents the needed change to react to disruptive (not just normal new) threats. From reading the article I get the feeling that her ideas and work seems to suggest that Christensen is still very much correct in his ideas. Large firms get good at sensing stuff – just look at the amount spent on business intelligence. But do the sensors dull the mind and the organizational DNA from spotting a disruption that just does not make sense? That seems to be the case.
I love the idea that firms are information processing systems. Of course, so are we. And of course we all know that everything is based on information. Yet the theory of the firm, founded on the relationship between transaction costs and size, only goes so far in exploring the efficiency in processing certain kinds of information. If I can figure out a better way to understand a customer segment and fulfill a need than the competition, I might start up a firm and try to redraw the competitive boundaries. That is business-speak for “my ideas for information processing are different and I think I can make money on that idea”. That won’t help in selling a business cases, but the connection is implied.
And Rebecca Henderson’s point seems valid. The older we and our organizations get, the more likely we put into stone what had previously been fluid, dynamic, information flows. We start to budget for that acceptance. We tune our antenna to look for expected competitive signals – those that comply with our view of the world. We tend to avoid anything that changes or threatens to change that acceptance. And in that rigidity we create the perfect opportunity for a new thread, a new flexile competitor, a new disruptive threat.
View Free, Relevant Gartner Research
Gartner's research helps you cut through the complexity and deliver the knowledge you need to make the right decisions quickly, and with confidence.Read Free Gartner Research
Comments or opinions expressed on this blog are those of the individual contributors only, and do not necessarily represent the views of Gartner, Inc. or its management. Readers may copy and redistribute blog postings on other blogs, or otherwise for private, non-commercial or journalistic purposes, with attribution to Gartner. This content may not be used for any other purposes in any other formats or media. The content on this blog is provided on an "as-is" basis. Gartner shall not be liable for any damages whatsoever arising out of the content or use of this blog.