Expert answer:Summary Paper Meeting the Challenge of Disruptive
Solved by verified expert:What are the top 5 points the author is makeing? Write a suumary paper covering the 5 points a
meeting_the_challenge_of_disruptive_change.docx
Unformatted Attachment Preview
•
•
Clayton M. Christensen
Michael Overdorf
FROM THE MARCH–APRIL 2000 ISSUE
•
•
•
•
•
•
•
SAVE
SHARE
COMMENT
TEXT SIZE
PRINT
PDF
8.95 BUY COPIES
View more from the
March–April 2000 Issue
Explore the Archive
These are scary times for managers in big companies. Even before the Internet and globalization,
their track record for dealing with major, disruptive change was not good. Out of hundreds of
department stores, for example, only one—Dayton Hudson—became a leader in discount retailing.
Not one of the minicomputer companies succeeded in the personal computer business. Medical and
business schools are struggling—and failing—to change their curricula fast enough to train the types
of doctors and managers their markets need. The list could go on.
It’s not that managers in big companies can’t see disruptive changes coming. Usually they can. Nor
do they lack resources to confront them. Most big companies have talented managers and
specialists, strong product portfolios, first-rate technological know-how, and deep pockets. What
managers lack is a habit of thinking about their organization’s capabilities as carefully as they think
about individual people’s capabilities.
One of the hallmarks of a great manager is the ability to identify the right person for the right job
and to train employees to succeed at the jobs they’re given. But unfortunately, most managers
assume that if each person working on a project is well matched to the job, then the organization in
which they work will be, too. Often that is not the case. One could put two sets of identically
capable people to work in different organizations, and what they accomplished would be
significantly different. That’s because organizations themselves—independent of the people and
other resources in them—have capabilities. To succeed consistently, good managers need to be
skilled not just in assessing people but also in assessing the abilities and disabilities of their
organization as a whole.
This article offers managers a framework to help them understand what their organizations are
capable of accomplishing. It will show them how their company’s disabilities become more sharply
defined even as its core capabilities grow. It will give them a way to recognize different kinds of
change and make appropriate organizational responses to the opportunities that arise from each.
And it will offer some bottom-line advice that runs counter to much that’s assumed in our can-do
business culture: if an organization faces major change—a disruptive innovation, perhaps—the
worst possible approach may be to make drastic adjustments to the existing organization. In trying
to transform an enterprise, managers can destroy the very capabilities that sustain it.
Before rushing into the breach, managers must understand precisely what types of change the
existing organization is capable and incapable of handling. To help them do that, we’ll first take a
systematic look at how to recognize a company’s core capabilities on an organizational level and
then examine how those capabilities migrate as companies grow and mature.
Where Capabilities Reside
Our research suggests that three factors affect what an organization can and cannot do: its
resources, its processes, and its values. When thinking about what sorts of innovations their
organization will be able to embrace, managers need to assess how each of these factors might affect
their organization’s capacity to change.
Resources.
When they ask the question, “What can this company do?” the place most managers look for the
answer is in its resources—both the tangible ones like people, equipment, technologies, and cash,
and the less tangible ones like product designs, information, brands, and relationships with suppliers,
distributors, and customers. Without doubt, access to abundant, high-quality resources increases an
organization’s chances of coping with change. But resource analysis doesn’t come close to telling the
whole story.
Processes.
The second factor that affects what a company can and cannot do is its processes. By processes, we
mean the patterns of interaction, coordination, communication, and decision making employees use
to transform resources into products and services of greater worth. Such examples as the processes
that govern product development, manufacturing, and budgeting come immediately to mind. Some
processes are formal, in the sense that they are explicitly defined and documented. Others are
informal: they are routines or ways of working that evolve over time. The former tend to be more
visible, the latter less visible.
Further Reading
•
How Will You Measure Your Life?
ETHICS FEATURE
o
o
o
o
Clayton M. Christensen
How business and management theories can help people lead better lives.
Save
Share
One of the dilemmas of management is that processes, by their very nature, are set up so that
employees perform tasks in a consistent way, time after time. They are meant not to change or, if they
must change, to change through tightly controlled procedures. When people use a process to do the
task it was designed for, it is likely to perform efficiently. But when the same process is used to
tackle a very different task, it is likely to perform sluggishly. Companies focused on developing and
winning FDA approval for new drug compounds, for example, often prove inept at developing and
winning approval for medical devices because the second task entails very different ways of working.
In fact, a process that creates the capability to execute one task concurrently defines disabilities in
executing other tasks.1
The most important capabilities and concurrent disabilities aren’t necessarily embodied in the most
visible processes, like logistics, development, manufacturing, or customer service. In fact, they are
more likely to be in the less visible, background processes that support decisions about where to
invest resources—those that define how market research is habitually done, how such analysis is
translated into financial projections, how plans and budgets are negotiated internally, and so on. It is
in those processes that many organizations’ most serious disabilities in coping with change reside.
Values.
The third factor that affects what an organization can and cannot do is its values. Sometimes the
phrase “corporate values” carries an ethical connotation: one thinks of the principles that ensure
patient well-being for Johnson & Johnson or that guide decisions about employee safety at Alcoa.
But within our framework, “values” has a broader meaning. We define an organization’s values as
the standards by which employees set priorities that enable them to judge whether an order is
attractive or unattractive, whether a customer is more important or less important, whether an idea
for a new product is attractive or marginal, and so on. Prioritization decisions are made by
employees at every level. Among salespeople, they consist of on-the-spot, day-to-day decisions
about which products to push with customers and which to de-emphasize. At the executive tiers,
they often take the form of decisions to invest, or not, in new products, services, and processes.
The larger and more complex a company becomes, the more important it is for senior managers to
train employees throughout the organization to make independent decisions about priorities that are
consistent with the strategic direction and the business model of the company. A key metric of good
management, in fact, is whether such clear, consistent values have permeated the organization.
But consistent, broadly understood values also define what an organization cannot do. A company’s
values reflect its cost structure or its business model because those define the rules its employees
must follow for the company to prosper. If, for example, a company’s overhead costs require it to
achieve gross profit margins of 40%, then a value or decision rule will have evolved that encourages
middle managers to kill ideas that promise gross margins below 40%. Such an organization would be
incapable of commercializing projects targeting low-margin markets—such as those in ecommerce—even though another organization’s values, driven by a very different cost structure,
might facilitate the success of the same project.
Different companies, of course, embody different values. But we want to focus on two sets of
values in particular that tend to evolve in most companies in very predictable ways. The inexorable
evolution of these two values is what makes companies progressively less capable of addressing
disruptive change successfully.
As in the previous example, the first value dictates the way the company judges acceptable gross
margins. As companies add features and functions to their products and services, trying to capture
more attractive customers in premium tiers of their markets, they often add overhead cost. As a
result, gross margins that were once attractive become unattractive. For instance, Toyota entered the
North American market with the Corona model, which targeted the lower end of the market. As
that segment became crowded with look-alike models from Honda, Mazda, and Nissan, competition
drove down profit margins. To improve its margins, Toyota then developed more sophisticated cars
targeted at higher tiers. The process of developing cars like the Camry and the Lexus added costs to
Toyota’s operation. It subsequently decided to exit the lower end of the market; the margins had
become unacceptable because the company’s cost structure, and consequently its values, had
changed.
In a departure from that pattern, Toyota recently introduced the Echo model, hoping to rejoin the
entry-level tier with a $10,000 car. It is one thing for Toyota’s senior management to decide to
launch this new model. It’s another for the many people in the Toyota system—including its
dealers—to agree that selling more cars at lower margins is a better way to boost profits and equity
values than selling more Camrys, Avalons, and Lexuses. Only time will tell whether Toyota can
manage this down-market move. To be successful with the Echo, Toyota’s management will have to
swim against a very strong current—the current of its own corporate values.
By the Same Author
Reinventing Your Business Model
•
•
•
•
BUSINESS MODELS FEATURE
Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann
Why did the iPod, rather than the Rio or Cabo, succeed?
Save
Share
The second value relates to how big a business opportunity has to be before it can be interesting.
Because a company’s stock price represents the discounted present value of its projected earnings
stream, most managers feel compelled not just to maintain growth but to maintain a constant rate of
growth. For a $40 million company to grow 25%, for instance, it needs to find $10 million in new
business the next year. But a $40 billion company needs to find $10 billion in new business the next
year to grow at that same rate. It follows that an opportunity that excites a small company isn’t big
enough to be interesting to a large company. One of the bittersweet results of success, in fact, is that
as companies become large, they lose the ability to enter small, emerging markets. This disability is
not caused by a change in the resources within the companies—their resources typically are vast.
Rather, it’s caused by an evolution in values.
The problem is magnified when companies suddenly become much bigger through mergers or
acquisitions. Executives and Wall Street financiers who engineer megamergers between already-huge
pharmaceutical companies, for example, need to take this effect into account. Although their merged
research organizations might have more resources to throw at new product development, their
commercial organizations will probably have lost their appetites for all but the biggest blockbuster
drugs. This constitutes a very real disability in managing innovation. The same problem crops up in
high-tech industries as well. In many ways, Hewlett-Packard’s recent decision to split itself into two
companies is rooted in its recognition of this problem.
The Migration of Capabilities
In the start-up stages of an organization, much of what gets done is attributable to resources—
people, in particular. The addition or departure of a few key people can profoundly influence its
success. Over time, however, the locus of the organization’s capabilities shifts toward its processes
and values. As people address recurrent tasks, processes become defined. And as the business model
takes shape and it becomes clear which types of business need to be accorded highest priority,
values coalesce. In fact, one reason that many soaring young companies flame out after an IPO
based on a single hot product is that their initial success is grounded in resources—often the
founding engineers—and they fail to develop processes that can create a sequence of hot products.
Avid Technology, a producer of digital-editing systems for television, is an apt case in point. Avid’s
well-received technology removed tedium from the video-editing process. On the back of its star
product, Avid’s stock rose from $16 a share at its 1993 IPO to $49 in mid-1995. However, the
strains of being a one-trick pony soon emerged as Avid faced a saturated market, rising inventories
and receivables, increased competition, and shareholder lawsuits. Customers loved the product, but
Avid’s lack of effective processes for consistently developing new products and for controlling
quality, delivery, and service ultimately tripped the company and sent its stock back down.
By contrast, at highly successful firms such as McKinsey & Company, the processes and values have
become so powerful that it almost doesn’t matter which people get assigned to which project teams.
Hundreds of MBAs join the firm every year, and almost as many leave. But the company is able to
crank out high-quality work year after year because its core capabilities are rooted in its processes
and values rather than in its resources.
When a company’s processes and values are being formed in its early and middle years, the founder
typically has a profound impact. The founder usually has strong opinions about how employees
should do their work and what the organization’s priorities need to be. If the founder’s judgments
are flawed, of course, the company will likely fail. But if they’re sound, employees will experience for
themselves the validity of the founder’s problem-solving and decision-making methods. Thus
processes become defined. Likewise, if the company becomes financially successful by allocating
resources according to criteria that reflect the founder’s priorities, the company’s values coalesce
around those criteria.
This article also appears in:
•
o
o
The Clayton M. Christensen Reader
STRATEGY & INNOVATION BOOK
Clayton M. Christensen and Harvard Business Review
24.95 Add to Cart
Save
Share
As successful companies mature, employees gradually come to assume that the processes and
priorities they’ve used so successfully so often are the right way to do their work. Once that happens
and employees begin to follow processes and decide priorities by assumption rather than by
conscious choice, those processes and values come to constitute the organization’s culture.2 As
companies grow from a few employees to hundreds and thousands of them, the challenge of getting
all employees to agree on what needs to be done and how can be daunting for even the best
managers. Culture is a powerful management tool in those situations. It enables employees to act
autonomously but causes them to act consistently.
Hence, the factors that define an organization’s capabilities and disabilities evolve over time—they
start in resources; then move to visible, articulated processes and values; and migrate finally to
culture. As long as the organization continues to face the same sorts of problems that its processes
and values were designed to address, managing the organization can be straightforward. But because
those factors also define what an organization cannot do, they constitute disabilities when the
problems facing the company change fundamentally. When the organization’s capabilities reside
primarily in its people, changing capabilities to address the new problems is relatively simple. But
when the capabilities have come to reside in processes and values, and especially when they have
become embedded in culture, change can be extraordinarily difficult. (See the sidebar “Digital’s
Dilemma.”)
Digital’s Dilemma
A lot of business thinkers have analyzed Digital Equipment Corporation’s abrupt fall from grace.
Most have concluded that Digital simply read the market very badly. But if we look at the company’s
fate through the lens of our framework, a different picture emerges.
Digital was a spectacularly successful maker of minicomputers from the 1960s through the 1980s.
One might have been tempted to assert, when personal computers first appeared in the market
around 1980, that Digital’s core capability was in building computers. But if that were the case, why
did the company stumble?
Clearly, Digital had the resources to succeed in personal computers. Its engineers routinely designed
computers that were far more sophisticated than PCs. The company had plenty of cash, a great
brand, good technology, and so on. But it did not have the processes to succeed in the personal
computer business. Minicomputer companies designed most of the key components of their
computers internally and then integrated those components into proprietary configurations.
Designing a new product platform took two to three years. Digital manufactured most of its own
components and assembled them in a batch mode. It sold directly to corporate engineering
organizations. Those processes worked extremely well in the minicomputer business.
PC makers, by contrast, outsourced most components from the best suppliers around the globe.
New computer designs, made up of modular components, had to be completed in six to 12 months.
The computers were manufactured in high-volume assembly lines and sold through retailers to
consumers and businesses. None of these processes existed within Digital. In other words, although
the people working at the company had the ability to design, build, and sell personal computers
profitably, they were working in an organization that was incapable of doing so because its processes
had been designed and had evolved to do other tasks well.
Similarly, because of its overhead costs, Digital had to adopt a set of values that dictated, “If it
generates 50% gross margins or more, it’s good business. If it generates less than 40% margins, it’s
not worth doing.” Management had to ensure that all employees gave priority to projects according
to these criteria or the company couldn’t make money. Because PCs generated lower margins, they
did not fit with Digital’s values. The company’s criteria for setting priorities always placed higherperformance minicomputers ahead of personal computers in the resource-allocation process.
Digital could have created a different organization that would have honed the different processes
and values required to succeed in PCs—as IBM did. But Digital’s mainstream organization simply
was incapable of succeeding at the job.
READ MORE
Sustaining Versus Disruptive Innovation
Successful companies, no matter what the source of their capabilities, are pretty good at responding
to evolutionary changes in their markets—what in The Innovator’s Dilemma (Harvard Business School,
1997), Clayton Christensen referred to as sustaining innovation. Where they run into trouble is in
handling or initiating revolutionary changes in their markets, or deali …
Purchase answer to see full
attachment
How it works
- Paste your instructions in the instructions box. You can also attach an instructions file
- Select the writer category, deadline, education level and review the instructions
- Make a payment for the order to be assignment to a writer
- Download the paper after the writer uploads it
Will the writer plagiarize my essay?
You will get a plagiarism-free paper and you can get an originality report upon request.
Is this service safe?
All the personal information is confidential and we have 100% safe payment methods. We also guarantee good grades