strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
 / Fourth Quarter 2001 / Issue 25(originally published by Booz & Company)


Clayton M. Christensen, The Thought Leader Interview

It wasn’t apparent to them — it was just becoming apparent to me — that I had discovered a much more robust classification system. What I mean by robust is that whether it’s an excavator or a disk drive doesn’t matter. The important distinction, for purposes of predicting the winners and losers, or where there’s growth and where there isn’t, is whether the innovation is sustaining versus disruptive.

S+B: And you found that established companies are actually rather good at embracing technological change if it sustains their current business model and delivers an improved product for their customers. The innovator’s dilemma arises with technological change that disrupts the model.

CHRISTENSEN: Yes. And as I started to understand this, I remembered that the company I had founded, the Ceramics Process Systems Corporation, had Chaparral Steel, a big minimill, as a major customer. The minimills had a huge cost advantage, and I wondered why the big integrated steel mills like U.S. Steel hadn’t adopted minimill technology.

So I asked U.S. Steel if we could write a case study about why they didn’t invest in minimill technology for rolling sheet steel. It became clear through this that the theory built upon the distinction between sustaining and disruptive technologies was generally useful. There was no grand vision or understanding at the outset. I’m just lucky that I ran around the track a few times, after some really smart scholars had run their laps.

S+B: That brings to mind Hewlett-Packard, which was much like Digital back then. HP made a proprietary minicomputer, ran its own software, made its own processor, and somehow it didn’t get stuck in the mire; HP jumped on the RISC/Unix bandwagon and had a good run with it. Is HP an anomaly?

CHRISTENSEN: This is a wonderful question to which I think there is a very interesting answer. If you ask the average guy on the street to name five companies that have truly transformed themselves over the last 20 years, Hewlett-Packard would be on everybody’s list. You’d also put on this list GE and Johnson & Johnson.

In each of these instances, the transformation at the corporate level was achieved by selling off business units in old markets and by creating new business units to pursue the new opportunities. But the individual business units themselves within those transformed corporations were almost inert to change.

It’s like in biological evolution: The population will evolve, even though individuals can’t. The same thing happens in the corporate world: The population of business units within corporations evolves, even though individual business units can’t. That’s because the capabilities of business units reside in their processes and their values, and by their very nature, processes and values are inflexible and meant not to change.

At Hewlett-Packard, Dick Hackborn just seemed to have an intuition that you couldn’t do disruptive and sustaining things in the same organization. He was responsible for many of HP’s moves into printers, workstations, scanners, and so on.

I fear that Carly Fiorina’s intuition is exactly opposite: To cut costs, she’s combining all of HP’s computer businesses within one organization — all the printer businesses in one, and so on. This might make short-term financial sense, but in the long run it undoes the architecture that enabled HP to dodge so many disruptive bullets.

S+B: Hackborn saw the bullets coming, time after time, but most managers don’t. Why is that?

CHRISTENSEN: That gets back to your previous question. How could Digital’s collapse be so precipitous? It’s because, in many ways, financial performance data is misleading. As you move up to the top of the market, you’re getting rid of the less profitable products at the low end and adding business with more attractive margins at the high end. The rate of unit volume growth might be tapering off as you pursue these smaller markets, but your margins actually look better. So Wall Street rewards your stock price until you hit the ceiling.

Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store


Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.