Innovator's Dilemma

In the spirit of writing "Richard Florida" and stepping back to watch the fireworks in the comments, this morning I might write "Clayton Christensen," who spoke yesterday at the PTC's "Innovation Day." The P-G ran a nice story on his talk. The Trib was there, too.

But I don't know whether Pittsburghers are as familiar with Christensen's work, since (unlike Rich Florida), he's a pretty modest, suburban guy. Years ago, when I lived in the Boston suburbs, I met him a couple of times -- he was the Cubmaster of my son's Cub Scout pack. If I were to write simply "Clayton Christensen," I might get comments that read, "He's a real Boy Scout." So I'll explain a bit.

Personalities aside, the important difference is that Christensen sees innovation and creativity in structural terms. He's talking about firms, not about regional development, so you have to do a bit of work to see whether any of the argument tracks in broad terms. But at the firm level, Christensen has some persuasive evidence showing that success over the long term requires giving up the notion that a firm should focus only on its core competencies. Over time, that focus tends to lead firms to neglect meaningful innovation in the commodity end of the business (tweaks OK; radical change bad) and to focus investment in up-market trends, in pursuit of higher margins. Internal innovations that compete with the existing commodity business tend to be ignored. To the firm, this is "disruptive" innovation, because it disrupts the firm's basic mission. Ignoring it is the rational thing to do. But along come lower-end, lower-margin competitors that are happy to rely on "disruptive" solutions, and they gobble up the commodity business. Poof -- there goes the company that rationally ignored the disruption.

Christensen's solution is to encourage firms to set innovation free, by separating it structurally from the "ordinary" operations of the company. This doesn't mean putting the creative minds in a conference room somewhere; it means taking a whole business unit, creative minds and accountants and all, and giving them independence from the day-to-day commodity business. In the book, his best example isn't Southwest Airlines (a disruptive company that captured a low-end market that the major carriers couldn't, or wouldn't, understand), though Southwest was part of yesterday's talk). His key example is Hewlett-Packard, which never would have gotten its printer business off the ground if the printer group had been housed at company HQ in Palo Alto. For many years, HP was an intrumentation company, and the printer business isn't instruments.

This isn't thinking outside the box. It's building different boxes, and putting them in different places. Successful innovation requires structural support for "disruptive" development. Sometimes, the firm needs to look for innovations that might cannibalize its existing core. Risk-taking, but risk-taking within a defined structure.

What does all of this mean, if anything, for regional development? I'll leave that mostly to you all -- though intuitively, it strikes me as reinforcement for the idea that central (regional economic) planning designed to find "the next big thing" for this or any other region is unlikely to score a home run. It also strikes me as sounding a note of caution about the reductionist version of Floridianism ("Find creative people and good things will happen."). Note to Pittsburgh Technology Council members, and to enterprises of all sizes and ages around Pittsburgh: Clay Christensen is more than willing to work with you one on one.