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"Steven J. Sasson, an electrical engineer, created the first digital camera." Source of caption and photo: online version of the NYT article quoted and cited below.

Kodak's problems in detailed in the article below, fit very well Christensen's account about how difficult it is for incumbent firms to embrace major disruptive technologies.

(p. C1) ROCHESTER -- Steven J. Sasson, an electrical engineer who invented the first digital camera at Eastman Kodak in the 1970s, remembers well management's dismay at his feat.

"My prototype was big as a toaster, but the technical people loved it," Mr. Sasson said. "But it was filmless photography, so management's reaction was, 'that's cute -- but don't tell anyone about it.' "

. . .

(p. C2) The company now has digital techniques that can remove scratches and otherwise enhance old movies. It has found more efficient ways to make O.L.E.D.'s -- organic light-emitting diodes -- for displays in cameras, cellphones and televisions.

This month, Kodak will introduce Stream, a continuous inkjet printer that can churn out customized items like bill inserts at extremely high speeds. It is working on ways to capture and project three-dimensional movies.

. . .

Paradoxically, many of the new products are based on work Kodak began, but abandoned, years ago. The precursor technology to Stream, for example, pushed ink through a single nozzle. Stream has thousands of holes and uses a method called air deflection to separate drops of ink and control the speed and order in which they are deposited on a page.

"I remember wandering through the labs in 2003, and seeing the theoretical model that could become Stream," said Philip J. Faraci, Kodak's president. "The technology was half-baked, but it was a real breakthrough."

Other digital technologies languished as well, said Bill Lloyd, the chief technology officer. "I've been here five years, and I'm still learning about all the things they already have," he said. "It seems Kodak had developed antibodies against anything that might compete with film."

It took what many analysts say was a near-death experience to change that. Kodak, a film titan in the 20th century, entered the next one in danger of being mowed down by the digital juggernaut. Electronics companies like Sony were siphoning away the photography market, while giants like Hewlett-Packard and Xerox had a lock on printers.

"This was a supertanker that came close to capsizing," said Timothy M. Ghriskey, chief investment officer at Solaris Asset Management, which long ago sold its Kodak shares.

For the full story, see:

CLAUDIA H. DEUTSCH. "At Kodak, Some Old Things Are New Again." The New York Times (Fri., May 2, 2008): C1-C2.

(Note: ellipses added.)

"Allan Camp, a technician at Kodak's inkjet development center in Rochester, works on the development of print heads for printers." Source of caption and photo: online version of the NYT article quoted and cited above.

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"Neelie Kroes, the European Union's competition commissioner, has been an opponent of Microsoft's dominance for years." Source of caption and photo: online version of the NYT article quoted and cited below.

If open standards are always "a smart business decision" why do business managers need government bureaucrats to force that decision on them (through fining firms, like Microsoft, that sometimes favor proprietary standards)?

In fact, there are circumstances in which open standards are better for customers, and there are also circumstances in which proprietary standards are better.

To better understand these issues consult Shapiro and Varian's Information Rules and Christensen and Raynor's The Innovator's Solution.

(p. C8) BRUSSELS -- The European Union's competition commissioner, Neelie Kroes, delivered an unusually blunt rebuke to Microsoft on Tuesday by recommending that businesses and governments use software based on open standards.

Ms. Kroes has fought bitterly with Microsoft over the last four years, accusing the company of defying her orders and fining it nearly 1.7 billion euros, or $2.7 billion, on the grounds of violating European competition rules. But her comments were the strongest recommendation yet by Ms. Kroes to jettison Microsoft products, which are based on proprietary standards, and to use rival operating systems to run computers.

"I know a smart business decision when I see one -- choosing open standards is a very smart business decision indeed," Ms. Kroes told a conference in Brussels. "No citizen or company should be forced or encouraged to choose a closed technology over an open one."

For the full story, see:

JAMES KANTER. "Harsh Words for Microsoft Technology." The New York Times (Weds., June 11, 2008): C8.

References mentioned:

Christensen, Clayton M., and Michael E. Raynor. The Innovator's Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

Shapiro, Carl, and Hal R. Varian. Information Rules: A Strategic Guide to the Network Economy. Boston, MA: Harvard Business School Press, 1999.

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"Aurora Johnson, left, a dental therapist, filled cavities for Paul Towarak, 10, in the village of Unalakleet, Alaska. For more involved procedures, Ms. Johnson refers patients to a dentist." Source of caption and photo: online version of the NYT article quoted and cited below.

Clayton Christensen (and co-authors) have suggested that disruptive technologies could reduce the cost and improve the quality of health care. One pathway for this to occur is new technologies that permit effective treatment to be carried out by para-professionals with less education than MD's.

The article below illustrates Christensen's idea, and also highlights the main obstacle to its implementation: professional organizations asking the government to regulate and restrict competition from the lower-cost para-professionals.

(p. A1) UNALAKLEET, Alaska -- The dental clinic in this village on the edge of the Bering Sea looks like any other, with four chairs, a well-scrubbed floor and a waiting area filled with magazines.

But to the Alaska Dental Society and the American Dental Association, the clinic is a place where the rules of dentistry are flouted daily. The dental groups object not because of any evidence that the clinic provides substandard care, but because it is run by Aurora Johnson, who is not a dentist. After two years of training in a program unique to Alaska, Ms. Johnson performs basic dental work like drilling and filling cavities.

Some dentists who specialize in public health, noting that 100 million Americans cannot afford adequate dental care, say such training programs should be offered nationwide. But professional dental groups disagree, saying that only dentists, with four years of postcollegiate education, should do work like Ms. John-(p. A15)son's. And while such arrangements are common outside the United States, only one American dental school, in Anchorage, offers such a program.

. . .

(p. A15) In Alaska, the A.D.A. and the state's dental society had filed a lawsuit to block the program that trained people like Ms. Johnson, who are called dental therapists. The groups dropped the suit last summer after a state court judge issued a ruling critical of the dentists. But the A.D.A. continues to oppose allowing therapists to operate anywhere in the lower 49 states. Currently, therapists are allowed to practice only in Alaska, and only on Alaska Natives.

. . .

Therapists are a low-cost way to provide care to people who might not otherwise have access to it, according to Dr. Ron Nagel, a dentist and consultant for the Alaska Native Tribal Health Consortium, a nonprofit group financed mostly by federal money that provides medical and dental care to tribal communities. "There's a huge need for these basic services," Dr. Nagel said.

. . .

Since 1990, the number of private dentists has remained roughly flat, at 150,000, even as the United States population has increased 22 percent. As a result, dentists can easily fill their appointment books without seeing people who cannot meet their fees, and patients who have decayed teeth are suffering needlessly, said Tammy Guido, 50, who is one of seven students now training in Anchorage to become a therapist.

"We're meeting a need that is not being met," Ms. Guido said.

Alaskan tribal organizations sponsor Ms. Guido and the other students in Anchorage for the program. To be accepted, students must have a high school diploma or equivalency degree; for the newest class, 7 of 18 candidates were accepted.

In interviews, the students in this year's class all said they were enthusiastic about the chance to serve communities that have little access to care. All seven had quit full-time jobs and must now get by on a $750 monthly stipend during the two years of training.

"Anybody who's ever had a toothache can tell you it hurts," said Ben Steward, 24, the only man in this year's class. "But talk to someone who's had a toothache for a year."

For the full story, see:

ALEX BERENSON. "Dental Clinics, Meeting a Need With No Dentist." The New York Times (Mon., April 28, 2008): A1 & A15.

(Note: ellipses added.)

One source of Christensen's views on health care can be found in a chapter in:

Christensen, Clayton M., Scott D. Anthony, and Erik A. Roth. Seeing What's Next: Using Theories of Innovation to Predict Industry Change. Boston, MA: Harvard Business School Press, 2004.

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Bossidy and Charan's advice below on hiring managers fits with Christensen and Raynor's advice to hire managers who have had the right experiences, in preference to those who have the 'right stuff' (aka 'charisma').

(p. 119) In our experience, there's very little correlation between those who talk a good game and those who get things done come hell or high water. Too often the second kind are given short shrift. But if you want to build a company that has excellent discipline of execution, you have to select the doer.

Source:

Bossidy, Larry, Ram Charan, and Charles Burck. Execution: The Discipline of Getting Things Done. New York: Crown Business, 2002.

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Source of graphic: online version of the WSJ article quoted and cited below.

The top two business gurus in the WSJ's latest ranking, have each written major books that make substantial use of Schumpeter's concept of creative destruction. (The Hamel book is Leading the Revolution, and the Thomas Friedman book is The Lexus and the Olive Tree.)

Others among the top 20 gurus who have written favorably of the process of creative destruction, include Clayton Christensen, Jack Welch, and Tom Peters.

(p. B1) The guru game is changing.

Psychologists, journalists and celebrity chief executives crowd the top of a ranking of influential business thinkers compiled for The Wall Street Journal. The results, based on Google hits, media mentions and academic citations, ranked author and consultant Gary Hamel No. 1.

But Dr. Hamel is the only traditional business guru in the top five, which includes two journalists, Thomas Friedman and Malcolm Gladwell, and a former CEO, Bill Gates. Mr. Gladwell is among three thinkers in the top eight who focus on psychology. His 2005 book "Blink: The Power of Thinking Without Thinking" examined the role of snap judgments in decision-making. Howard Gardner, a professor of education at Harvard best known for the theory of "multiple intelligences," is No. 5, while Daniel Goleman, a psychologist who has written about "emotional intelligence," ranks eighth.

Thomas H. Davenport, a management professor at Babson College, compiled the ranking, employing the same methodology he used in a 2003 book, "What's the Big Idea?" Several well-known business gurus fell lower in the updated list, including Michael Porter and Tom Peters, who topped the 2003 ranking and dropped to Nos. 14 and 18, respectively. Harvard's Prof. Porter noted that his last book was on health care rather than general management, and that "I feel like my recent work continues to have an impact in my various fields."

Dr. Davenport says the changes show that time-strapped managers are hungry for easily digestible advice wherever they can find it. Today, the most pressing themes include globalization, motivation and innovation. Traditional business gurus writing "weighty tomes" are in decline, he says.

For the full story, see:

ERIN WHITE. "New Breed of Business Gurus Rises; Psychologists, CEOs Climb in Influence, Draw Hits, Big Fees." Wall Street Journal (Mon., May 5, 2008): B1.

Source of table:

ERIN WHITE. "What Influential Business Thinkers Focus On; Top Gurus Ponder Manager's Worries, New Approaches." Wall Street Journal (Mon., May 5, 2008): B6.

(Note: the online version of the article has the title: "Quest for Innovation, Motivation Inspires the Gurus; Leading Thinkers Apply Varied Skills For Global Solutions.")

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   Source of book image:  http://www.bigbadbookblog.com/wp-content/uploads/Blink.jpg

In my classes I sometimes comment on the failure of much marketing research, sometimes quoting the founder of Sony on using his own judgment on what is useful to customers.

There's some useful insight into this issue in Malcolm Gladwell's stimulating Blink book.  He argues, and presents examples, that marketing research can provide useful information when the product being evaluated is familiar to the customers being surveyed.  But when the product is new and unfamiliar, it may take awhile for the customer to figure out what they think of it.  There initial reaction will usually be negative, simply as a reaction to the unfamiliarity.  But with time, the product may grow on them as they figure out what "jobs" the product might be able to do for them in the full context of their lives.  (The "jobs" formulation is Christensen's, not Gladwell's.)

What is worse, it is precisely those innovations that are most innovative, and ultimately prove most useful, that are most unfamiliar, and hence are most likely to be panned by customers in initial evaluations. 

This has implications for why an entrepreneur-friendly economy is so important for innovations.  Incumbent firms are apt to rely on some formal (a.k.a. marketing research) methods to evaluate new innovations.  So if innovations are to be introduced, it is crucial that there be entrepreneurs with the courage, passion, knowledge, and financial means to pursue the innovation through the period of skepticism.

The reference for the Blink book, is: 

Gladwell, Malcolm.  Blink: The Power of Thinking without Thinking.  Back Bay Books, 2005.

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    Source of graph:  online version of the NYT article quoted and cited below.

The article quoted below suggests that an important new "disruptive" memory technology may be on the horizon.  It sounds as though it would be what economists call a "general purpose technology" that would be useful in generating a large number of innovative applications. 

(My guess is that in Christensen's terminology, this technology would be more sustaining, than disruptive, since the technology seems as though it would be of immediate interest to the mainstream market.)

(p. C1)  SAN JOSE, Calif. -- The ability to cram more data into less space on a memory chip or a hard drive has been the crucial force propelling consumer electronics companies to make ever smaller devices.

It shrank the mainframe computer to fit on the desktop, shrank it again to fit on our laps and again to fit into our shirt pockets.

. . .  

Mr. Parkin thinks he is poised to bring about another breakthrough that could increase the amount of data stored on a chip or a hard drive by a factor of a hundred. If he proves successful in his quest, he will create a "universal" computer memory, one that can potentially replace dynamic random access memory, or DRAM, and flash memory chips, and even make a "disk drive on a chip" possible.

. . .

(p. C8)  Mr. Parkin's new approach, referred to as "racetrack memory," could outpace both solid-state flash memory chips as well as computer hard disks, making it a technology that could transform not only the storage business but the entire computing industry.

"Finally, after all these years, we're reaching fundamental physics limits," he said. "Racetrack says we're going to break those scaling rules by going into the third dimension."

His idea is to stand billions of ultrafine wire loops around the edge of a silicon chip -- hence the name racetrack -- and use electric current to slide infinitesimally small magnets up and down along each of the wires to be read and written as digital ones and zeros.

. . .

Mr. Parkin said he had recently shifted his focus and now thought that his racetracks might be competitive with other storage technologies even if they were laid horizontally on a silicon chip.

I.B.M. executives are cautious about the timing of the commercial introduction of the technology. But ultimately, the technology may have even more dramatic implications than just smaller music players or wristwatch TVs, said Mark Dean, vice president for systems at I.B.M. Research.

"Something along these lines will be very disruptive," he said. "It will not only change the way we look at storage, but it could change the way we look at processing information. We're moving into a world that is more data-centric than computing-centric."

This is just a hint, but it suggests that I.B.M. may think that racetrack memory could blur the line between storage and computing, providing a key to a new way to search for data, as well as store and retrieve data.

And if it is, Mr. Parkin's experimental physics lab will have transformed the computing world yet again.

For the full story, see: 

JOHN MARKOFF.  "Redefining the Architecture of Memory."  The New York Times   (Tues., September 11, 2007):  C1 & C8.

(Note:  ellipses added.)

     Of the two photos at the bottom of the entry, the first is of Stuart S. P. Parkin's lab at I.B.M, and the second is of Parkin in the lab.  Source of photos:  online version of the NYT article quoted and cited above.

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   Source of image:  edited scan from page 21 of Levathes's book cited below.

It is an enduring puzzle why the West has been so much more succesful than China in achieving economic growth over the past several centuries.  The puzzle arises because there is considerable evidence of early Chinese acheivements in technology.

One example would be the exploratory voyages of Zheng He.  As can be seen in the image above, the Chinese ships were much, much larger than those of Christopher Columbus.  But as Clayton Christensen has shown in a more modern context, size does not always matter as much as nimbleness and motivation. 

(And another part of the story involves culture and institutions.)

The reference for the Levathes book, is:

Levathes, Louise. When China Ruled the Seas: The Treasure Fleet of the Dragon Throne, 1405-1433. Oxford, UK: Oxford University Press, 1996.

The most complete account of Christensen's thinking, so far, is his book with Raynor:

Christensen, Clayton M., and Michael E. Raynor.  The Innovator's Solution:  Creating and Sustaining Successful Growth.  Boston, MA: Harvard Business School Press, 2003.

(Note:  I am grateful to Prof. Yu-sheng Lin for first showing me the image at the top of this post.  I am also grateful to Prof. Salim Rashid, and Liberty Fund's Mr. Leonidas Zelmanovitz, for my having the opportunity to encounter Prof. Lin.)

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   "Eve Linney, 5, who had an infected finger, went with her family last week to a walk-in clinic at a Duane Reade drugstore on Broadway in Manhattan. Her father, John, is at the counter."  Source of caption and photo:  online version of the NYT article quoted and cited below.  

Clayton Christensen and co-authors in Seeing What's Next, make a plausible case for the improvement of health care through disruptive innovation.  A key aspect of their vision is the increasing role of nurse-practitioners in taking on increasingly routinized tasks, a development they see as generally both effective, and cost-efficient.

The article excerpted below suggests that this trend is promising, if it does not get killed by the government, and by organized medical doctors protecting their turf from competition.

(p. A1)  The concept has been called urgent care “lite”:  Patients who are tired of waiting days to see a doctor for bronchitis, pinkeye or a sprained ankle can instead walk into a nearby drugstore and, at lower cost, with brief waits, see a doctor or a nurse and then fill a prescription on the spot.

With demand for primary care doctors surpassing the supply in many parts of the country, the number of these retail clinics in drugstores has exploded over the past two years, and several companies operating them are now aggressively seeking to open clinics in New York City. 

. . .

More than 700 clinics are operating across the country at chain stores including Wal-Mart, CVS, Walgreens and Duane Reade.

New York State regulators are investigating the business relationships between drugstore companies and medical providers to determine whether the clinics are being used improperly to increase business or steer patients to the pharmacies in which the clinics are located.

And doctors’ groups, whose members stand to lose business from the clinics, are citing concerns about standards of care, safety and hygiene, and they have urged the federal and state governments to step in to more rigorously regulate the new businesses.

. . .

(p. A16)  Patients, however, have flocked to the clinics, according to a new industry group, the Convenient Care Association.

“I think it’s great you don’t have to make an appointment. That could take weeks,” said Ezequiel Strachan, 33, who lives in Manhattan and walked into the clinic at the Duane Reade store at 50th Street and Broadway on a recent morning for treatment of a sore throat. “People here value their time a lot.”

The average waiting time for an exam at such clinics nationwide is 15 to 25 minutes, according to the Convenient Care Association.

The association estimated that 70 percent of clinic patients have health insurance and are using the clinics because of convenience. For them, costs may not be much different from those at doctors’ offices, because the same insurance co-payments apply. But uninsured patients could reap substantial savings.

In New York City, one in five residents lacks a regular doctor and one in six is uninsured, according to a recent survey by the city’s Department of Health and Mental Hygiene, and overcrowded emergency rooms are often their first resort for routine care.

. . .

MinuteClinic officials insisted that there was nothing improper in the relationships between providers and the drugstores and that medical care is not being compromised.

“We are transparent with regulators,” said Michael C. Howe, the chief executive of MinuteClinic, which is based in Minneapolis and operates more than 200 clinics nationwide. using the motto “You’re Sick, We’re Quick.”

Mr. Howe said the concerns of doctors’ groups and other critics “are being raised by voices of people who have not really studied the model.”

Preliminary data from a two-year study of claims from MinuteClinic by a Minnesota health maintenance organization, HealthPartners, which was released to The Minneapolis Star Tribune in July, showed that each visit to the retail clinic cost an average of $18 less than a visit to other primary-care clinics, but that pharmacy costs were $4 higher per patient.

Duane Reade, New York City’s largest drugstore chain, which opened four clinics in Manhattan in May, plans to open as many as 60 more across the city in the next 18 months. A key difference at the Duane Reade clinics is that they use doctors, while nurse practitioners and physician assistants typically provide the care at most retail clinics.

For the full story, see:

SARAH KERSHAW.  "Tired of Waiting for a Doctor?  Try the Drugstore."  The New York Times  (Thurs., . August 23, 2007):  A1 & A16.

(Note:  the title of the online version is "Drugstore Clinics Spread, and Scrutiny Grows."  Ellipses added.)

   "Dr. Maggie Bertisch saw Eve while her mother, Claire, waited."  Source of caption and photo:  online version of the NYT article quoted and cited above.  

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   Source of graphic:  online version of the WSJ article cited below.

The innovation described in the article excerpted below is credited as arising from a 'skunk works' project.  There's a neat book called Skunk Works that describes how Lockheed set up an autonomous unit to develop the first stealth air force technology.  (Their plant was in a smelly part of town, so it was dubbed the 'Skunk Works.')

Clayton Christensen has recommended that established incumbent companies set up skunk works operations in order to develop disruptive technologies that would not survive if they were developed within the main corporate culture and infrastructure. 

(In the article excerpted below, it is puzzling to read that Alaska Air went to the trouble to take out a patent, even though they apparently have no intention of enforcing it.) 

(p. B1)  ANCHORAGE, Alaska -- When the Ted Stevens Anchorage International Airport was planning a new concourse, prime tenant Alaska Airlines insisted on a counterintuitive design: "The one thing we don't want is a ticket counter," said Ed White, the airline's vice president of corporate real estate.

So the 447,000-square-foot Concourse C, which opened in 2004, has only one small, traditional ticket counter, even though the carrier's 1.2 million Anchorage passengers checked in through that area last year. This unconventional approach -- which uses self-service check-in machines and manned "bag drop" stations in a spacious hall that looks nothing like a typical airport -- has doubled Alaska's capacity here, halved its staffing needs and cut costs, while speeding travelers through the building in far less time.

. . .

(p. B4)  Alaska's design in Anchorage has turned heads in the industry, and in 2006 the airline was awarded a U.S. patent for the check-in process, something it calls the two-step flow-through. Mr. White says his company isn't trying to keep competitors from going down the same path, but pursued the patent more to reward the many employees who helped to bring the idea to fruition.

Other airlines quickly sent scouts up to Anchorage to check out the new concourse, including a team from Delta Air Lines Inc., Mr. White says. A few months ago, Delta completed a $26 million renovation of its check-in hall at Hartsfield-Jackson Atlanta International Airport, and the finished product looks remarkably similar to that of Alaska Airlines. Greg Kennedy, Delta's vice president for customer service there, says the new layout has enabled the airline to process passengers checking in during the peak spring break travel period in 20 to 30 minutes at most, compared with two or three hours three years ago -- and all in the same amount of square footage but 50% more usable space. Mr. Kennedy says he isn't aware of a visit to Anchorage but doesn't dispute it.

. . .  

Alaska, the nation's ninth-largest carrier by traffic, started a "skunk works" lab a decade ago to figure out how to use technology to make air travel less of a hassle for passengers. Out of that effort came the airline's ground-breaking ability to sell tickets on the Internet and allow fliers to check in online, developments other carriers quickly followed.

For the full story, see: 

SUSAN CAREY.  "Case of the Vanishing Airport Lines; Alaska Air Speeds Up Flow Of Passengers by Jettisoning Traditional Ticket Counters."  The Wall Street Journal  (Thurs., August 9, 2007):  B1 & B4.

  Source of graphic:  online version of the WSJ article cited above.

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   Source of graph:  online version of the WSJ article cited below. 

The key to business success is usually thought to be to beat the competition.  An alternative sketched by Clayton Christensen, and in the book Blue Ocean Strategy, is to do something that the competition isn't doing.  As a once-famous, old-time baseball player once said:  "Hit 'em where they ain't." 

MILPITAS, Calif. -- Erik Soule had been waiting 15 months for this moment. The semiconductor engineer was about to launch a new chip, and he needed his pricing approved. In a conference room at Linear Technology Corp., Mr. Soule anxiously explained why his amplifier chip is so advanced that it should sell for $1.68, a third more than its rivals.

His bosses' reaction: Charge even more. The chip is 30 times better than the competition, they asserted, and high-end customers will crave it on any terms. Why not boost the $1.68 list price by 10 cents? Mr. Soule was nervous. "I can live with that," he guardedly replied, "but what does that accomplish?"

"It's a dime!" declared Linear's chairman and founder, Robert Swanson. "And those dimes add up."

For many U.S. companies, such exuberant pricing power vanished long ago. They now struggle to deliver more at lower prices, amid intense global competition. But Linear has built one of the world's strongest profit fortresses by staying strictly at the fringes, where competition is low and margins are still high.

Away from the semiconductor industry's frenzied center stage, this midsize company makes 7,500 arcane, unglamorous products that solve real-world problems for a long list of customers. Instead of the better-known digital chips that power the brains of the world's computers and bring in 85% of the industry's revenue, Linear makes so-called analog chips that are too cheap for customers to haggle over, but perform chores too important to ignore.

Pick apart a medical ultrasound machine, a hybrid car battery or thousands of other costly devices, and somewhere inside is a Linear chip that helps monitor power consumption or guard against voltage surges. It's a backwater of high tech well-suited to Linear's engineer-driven culture, where quirky developers shop for old part testers at flea markets to keep costs down. Many of Linear's chips cost less than 50 cents to build and sell for three to four times as much, but customers seldom complain about the markup.

Linear made a 39% profit on its $1.1 billion in sales in calendar 2006 -- more than five times the average for U.S. industrial companies. Linear easily outpaced even the tech industry's best-known profit powerhouses, Microsoft Corp. and Google Inc., which earned profits of 26% and 24% of sales for the same period.

For the full story, see: 

GEORGE ANDERS.  "PRICING POWER; In a Tech Backwater, A Profit Fortress Rises; Maker of Arcane Chips Earns Better Margins Than Google, Microsoft."  The Wall Street Journal   (Tues., July 10, 2007):  A1 & A19. 

   CEO of Linear Technology Corp.  Source of image:  online version of the WSJ article cited above.

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   Source of graph:  online version of the WSJ article cited below.

Clayton Christensen, in a series of books, has highlighted why it is difficult for a successful incumbent to prepare a successor for its own winning product.  The Motorola case below is another example.

Note, though, that Motorola's failure is not the understandable one of failing to prepare what Christensen calls a "disruptive innovation."  If the story below is right, it is a case of the less understandable failure to continue to deliver with what Christensen calls "sustaining innovation."

(p. A1)  A year ago, Motorola Inc. appeared headed for a third straight year of rich profits under Chief Executive Ed Zander, driven by its hit cellphone the Razr. "A lot of you are always asking what is after the Razr," Mr. Zander said in an April 2006 conference call after another quarter of 30%-plus growth. "I say more Razrs."

But behind the scenes, Motorola was working furiously to get a successor phone to market by the second half of 2006, according to people familiar with the matter. When it failed to do so, profit margins on handsets narrowed and the company swung to a loss. Key executives left. And as the stock slid, activist investor Carl Icahn built up a position and began campaigning for a board seat to address what he called Motorola's "operational problems."

Motorola's travails illustrate the risks for a company that rides high with a big consumer hit. Amid its success with the Razr, it fell behind on developing a phone with the next generation of technology. Missing a beat is especially hazardous in cellphones, where it can take two to three years to develop a new line.

. . .

(p. A14)  As the Razr grew hot, some former designers and engineers say Motorola repeated mistakes it had made a decade earlier with another big hit, the compact flip-top phone known as the StarTAC. That phone was a huge seller, but it also was an analog phone, and its popularity blinded the company to an industry shift to digital technology. Similarly, while Motorola was selling countless Razrs, competitors were hard at work on more sophisticated products for 3G networks.

Motorola put engineers and designers who could have been working on new products on the Razr and its derivatives, some former executives say. "All resources went to feeding the beast," says a former Motorola designer. "Suddenly, you created this thing that requires a lot of energy and attention." Other former executives dispute that the focus on the Razr diverted work from other products and contend Motorola was right to ride the still-popular Razr as long as possible.

For the full story, see: 

CHRISTOPHER RHOADS and LI YUAN.  "DROPPED CALL; How Motorola Fell A Giant Step Behind; As It Milked Thin Phone, Rivals Sneaked Ahead On the Next Generation."   The Wall Street Journal  (Fri., April 27, 2007):  A1  & A14. 

(Note:  ellipsis added.)

The most complete source of Christensen's theory and examples is:  

Christensen, Clayton M., and Michael E. Raynor. The Innovator's Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

  Motorola CEO.  Source of image:  online version of the WSJ article cited above.

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  Is it Glacier Creek, or Big Thompson River?  Source of photo:  me. 

On May 17, 2007, in Estes Park, Colorado, I was the co-leader of a "two hour" hike with 15 Montessori middle-schoolers from Omaha, Nebraska.  At some point what we were seeing didn't seem to correspond with what our roughly drawn YMCA map told us we should be seeing--we worried that we had taken a wrong turn and were lost.

II we were on course, then the water beside us should be Glacier Creek.  If we were lost, then it was probably Big Thompson River.  (It's appearance didn't help--it looked a bit larger than a creek, but a lot smaller than a 'big river.')

The first person I found to ask was a tourist who admitted upfront that she was extremely uncertain about where we were.  She pulled out a modest map, and pointed to where she thought we might be, which was along the Big Thompson River.

Seeking confirmation, I apologetically interrupted a fellow teaching his girl-friend how to fly fish.  This fellow was dressed as an outdoors-man, and exuded confidence.  He talked about hiking on a glacier the day before.  He helpfully strode back to his SUV with me and pulled a detailed, authoritative-looking map.  With no doubt, he pointed on the map to where we were, on Glacier Creek, as I had hoped.  As we walked back to where he had been fishing, he pointed in the direction that we had been hiking, and said that without question, we should continue to hike in that direction.

The scenery was fantastic, but Cindy began to worry whether we were going in the right direction, pointing out that there didn't seem to be any opening in the mountains in the direction in which we were supposing the YMCA camp should be.  I agreed with her observation, but said that there must be some non-obvious route, because the fellow who pointed us in this direction had exuded credibility.

We finally got to a small museum.  There, an old park service employee asked where we were from.  When I said "Omaha" he jokingly asked if knew his old friend Warren Buffet?  He told us that he had lived in this area all his life, and that we were definitely walking along Big Thompson River.  Then he tried to draw a map to show us how to get back.  He scratched his head, discarded his first attempt, and started trying again.  Then he asked us (again) where we were from?  At this point, I was really worried.

But his second attempt at a map was a good one--it got us back to the YMCA camp.

Maybe we should look for advice from those who are self-critical, as the old man was, rather than from those who exude undoubting self-confidence, as the fly fisherman did?  (Or maybe the key was local credentials?)

Maybe, I made a mistake that Christensen and Raynor warn against in their The Innovator's Solution:  looking at charisma and confidence as signs of who to follow.  (In fairness to myself, at the time, I didn't have much else to go on.)

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(p. 210)  Schumpeter argues that innovation can happen endogenously and that its main source is the creative entrepreneur.  Schumpeterian innovation is still black-boxed, however, because it is the product of the ingenuity of entrepreneurs and cannot be reproduced systematically.

. . .

The reconstructionist view takes off where the new growth theory left off.  Building on the new growth theory, the reconstructionist view suggests how knowledge and ideas are deployed in the process of creation to produce endogenous growth for the firm.  In particular, it proposes that such a process of creation can occur in any organization at any time by the cognitive reconstruction of existing data and market elements in a fundamentally new way.

Source:

Kim, W. Chan, and Renée Mauborgne. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Boston: Harvard Business School Press, 2005.

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   A Kodak digital production printer.  Source of photo:  online version of the NYT article cited below. 

Digital photography replacing film technology is an example of Schumpeter's process of creative destruction, and maybe also of the gradual growth of a disruptive technology.  Leading incumbent firms frequently have trouble prospering, or even surviving, during such a change.  Both the Wall Street Journal and the New York Times had articles on the latest news from Kodak.  Here is an excerpt from the New York Times version:  

On Tuesday, as the Eastman Kodak Company unveiled its long-anticipated consumer inkjet printer in New York, the mood at the company’s Rochester headquarters could not have been more positive.

“People know we are back on the offensive,” said Frank Sklarsky, Kodak’s chief financial officer.  “And that’s making them a lot more charged up about coming to work.”

But yesterday, Kodak gave them reason again to feel depressed.  The company said it would cut 3,000 more jobs this year, on top of the 25,000 to 27,000 it had already said would be gone by the end of 2007.  At that rate, Kodak will end the year with about 30,000 employees, half the number of just three years ago and a fraction of the 145,000 people it employed in 1988, when its brand was synonymous with photography.

Kodak executives insist that the new cuts do not indicate any snags in the continuing struggle to transform itself from a film-based company into a major competitor in digital imagery.  And analysts, too, say the cuts are inevitable, and probably healthy.

For the full NYT story, see: 

CLAUDIA H. DEUTSCH.  "Shrinking Pains at Kodak."  The New York Times   (Fri., February 9, 2007): C1 & C4.

For the related WSJ story, see: 

WILLIAM M. BULKELEY and ANGELA PRUITT.  "Kodak Sees More Job Cuts, Higher Restructuring Costs."  The Wall Street Journal  (Fri., February 9, 2007):  B4.

     Source of the first and third graphic:  the WSJ article cited above.  Source of the second graphic:  the NYT article cited above.

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  Source of book image:  http://images.barnesandnoble.com/images/7770000/7775266.jpg

When Ameritrade founder Joe Ricketts spoke to my Executive MBA class a few years ago, I mentioned to him that I had heard from Bob Slezak that Ricketts was a fan of Clayton Christensen's The Innovator's Dilemma.  Ricketts said that was true, but that the recent business book that he was most enthused about was Jim Collin's Good to Great.

Ricketts is not alone.  Good to Great has become a business classic since it came out.  Recently I finally got around to reading it.

Well, I think it's good, but not quite great.  I like the empirical, inductive methodology mapped out at the beginning.  And some of the conclusions ring true.  For example the importance of facing the "brutal facts."  And the importance of developing a thought-out "hedgehog" concept.  And the importance of getting the right people on the bus.  And the importance of slowly, consistently building momentum.

But I've got some big bones to pick, too. 

Maybe the biggest "bone" is Collins' assumption that our goal should be the survival and greatness of a firm.  Instead of almost viewing firms as ends in themselves, why can't we view firms as vehicles for getting great things done? 

Maybe great things can be done through firms that last and are lastingly great.  Or maybe great things can be done by shooting star firms, that are glorious while they last, but don't last long.  Collins says it must be the former.  But either way works for me.

A smaller "bone" is the conclusion that "level 5" leaders tend to be modest.  Well maybe.  But some of that conclusion is derived from Collins' defining "great" in terms of high growth of stock value.  A modest leader will be unappreciated by Wall Street, and her company's stock value will show higher growth when she succeeds.  But has she thereby accomplished more than if she had built exactly the same company, but been more transparent and enthused about the company's future prospects, and hence generated more realistic expectations from Wall Street?  Remember, the value of a stock grows, not by the company doing well, but by it doing better than investors expected.  (On this issue, Collins should read the first couple of chapters of Christensen and Raynor's The Innovator's Solution.)

But don't get me wrong:  this is a very good book.  Those interested in how the capitalist system works, should read it, as should those who want to manage well.

The book is:

Collins, Jim. Good to Great: Why Some Companies Make the Leap. And Others Don't. New York: HarperCollins Publishers, Inc., 2001.

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   Source of book image:   http://www.inbubblewrap.com/2006/08/should_i_do_it_should_i.php

According to Mr. Apgar, managing director of the Corporate Executive Board and a former McKinsey consultant, the problem is that our traditional tool set deals only with random risk.  Equity prices, interest rates, natural catastrophes -- all operate, more or less, as perfect markets, distributing risk with equal probability among all the players.  No one consistently knows more about what drives these phenomena than anyone else.  We can bear or hedge these risks in the secure sense that competitors don't have an inside lead on the future.

. . .

In real business, though, many of the risks that can potentially wipe us out are non-random -- what Mr. Apgar calls "learnable risks" -- involving customers, technologies, marketing strategies, supplier relationships and so on.  The challenge is not just to learn, quickly, enough about them to survive but to determine whether someone else can learn about them even faster and thus put us out of business.

. . .

. . .   Mr. Apgar also explains how to perform a "risk audit," judging a company's current projects by how they diversify total risk or demonstrate risk intelligence.  Here is where his program differs most widely from conventional wisdom -- because, as he notes, risk diversification is no virtue if the risks are non-random and we have little intelligence of any of them.  If you don't know much about poisonous snakes, keeping several different species won't make you any safer.

Like liberty, risk intelligence demands eternal vigilance -- and for the same reason:  threats evolve.  Mr. Apgar's analysis of the life cycle of a business risk is particularly fruitful.  He notes that a successful company needs to maintain a risk pipeline, constantly probing into areas where it has higher risk intelligence and opportunities for real diversification -- just as technology and pharmaceutical companies need a proportion of blue-sky research to innovate into the future.

For the full review, see: 

MICHAEL KAPLAN.  "BOOKS; The Hazards of Fortune."  Wall Street Journal  (Fri., December 8, 2006):  W6.

(Note:  ellipses added.) 

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   Evan Williams (on left) with Noah Glass, co-founded Odeo.  Source of photo:  http://www.nytimes.com/2005/02/25/technology/25podcast.html?ex=1267419600&en=b80f1d3808f556cc&ei=5088

Evan Williams' story illustrates Christensen and Raynor's advice that disruptive innovators need to seek good money, and spurn bad money.  Good money is patient for growth, but impatient for profit.  Bad money is the opposite. 

EVAN WILLIAMS recently bought his freedom.  It cost him a bit more than $2 million, and he says it was worth every penny.

I'm not talking about paying off a big debt to one of Tony Soprano's loan-shark underlings.  Mr. Williams is a serial entrepreneur, one of those Silicon Valley characters who start company after company.  And he purchased his freedom from the venture capitalists and others who financed his company, Odeo.  Mr. Williams dug into his pockets and gave them back their money.  He got to keep his struggling podcast company and renamed it the Obvious Corporation.

In the process, Mr. Williams, who is 34, has become something of a cause célèbre among a small group of mostly young entrepreneurs who seem determined to turn their back on venture capitalists.  They say they yearn for a new entrepreneurship model.  They talk about building ''sustainable companies'' suggesting something idealistic in their quest.  With comments on blogs urging Mr. Williams to ''keep up the goodness,'' it feels a bit like the birth of a mini-movement in the Valley.

. . .

In candid posts on his blog, Mr. Williams chronicled Odeo's story, warts and all. He admitted to making mistakes.  Getting too much venture money too early was one of them.  It made it harder to persuade the board and the company's 14 employees to change course when, for example, Apple Computer introduced a competing product that cut into Odeo's prospects.  ''It's a bigger ship to turn,'' Mr. Williams said.

For the full story, see: 

MIGUEL HELFT.  "STREET SCENE: VC NATION; Yearning for Freedom From Venture Capital Overlords."   The New York Times  (Fri., November 24, 2006):  C5.

(Note:  ellipsis added.)

The reference for the Christensen and Raynor book is:

Christensen, Clayton M., and Michael E. Raynor. The Innovator's Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

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There's a great passage in The New, New Thing about Jim Clark trying to convince Silicon Graphics to produce a PC.  Clark talks about how hard it is for a company to create a product that competes with itself. 

Shades of Clayton Christensen:

Clark thought that Silicon Graphics had to "cannibalize" itself.  For a technology company to succeed, he argued, it needed always to be looking to destroy itself.  If it didn't, someone else would.  "It's the hardest thing in business to do," he would say.  "Even creating a lower-cost product runs against the grain, because the low-cost products undercut the high-cost, more profitable products."  Everyone in a successful company, from the CEO on down, has a stake in whatever the company is currently selling.  It does not naturally occur to anyone to find a way to undermine that creative destruction, and he was prepared to do the deed.  He wanted Silicon Graphics to operate in the same self-corrosive spirit.  (p. 66 of hb edition)

The reference to The New, New Thing is:

Lewis, Michael. The New New Thing: A Silicon Valley Story. New York: W. W. Norton & Company, 2000.

Christensen's most important book is: