Why great companies fail: The Innovator's Dilemma by Clayton Christensen and Living on the Fault Line by Geoffrey Moore

Both these books are excellent as explanations of failure and questionable as blueprints for success.

The basic problem is how to cope with rapidly changing and discontinously changing business conditions.

The Innovator's Dilemma by Clayton Christensen deals in particular with instances of "disruptive" technological change. Large successful companies organize to optimize the success they were built on -- focusing on the technology that gave them an important competitive edge, developing improvements in that technology ("sustaining technology"), and setting up all functions to meet the expressed needs of the customers they have attracted. As a result they set themselves up to be blindsided by new technology that takes a very different approach than what their customers are asking for. The new technology, typically, enters the marketplace in a no frills form -- low cost, with very little functionality -- that doesn't appeal to the megacompany's customers. But if it finds a niche where it can thrive -- typically, a new application that the megacompany is ignoring because the market is too small -- by the ordinary evolution of computer technology, later generations of this same product/service will become ever more powerful and ever more feature rich, and pre-existing applications and customers will migrate to it in hordes.

"... in the cases of well-managed firms such as those cited above [Sears, Digital, Xerox, IBM, Apple], good management was the most powerful reason they failed to stay atop their industries. precisely because these firms listened to their customers, invested aggressively in new technologies that would provide their customers more and better products of the sort they wanted, and because they carefully studied market trends and systematically allocated investment capital to innovations that promised the best returns, they lost their positions of leadership." (p. xv)

The post mortem diagnosis is truly excellent, providing historical insight for those of us who used to work for those companies (I was at Digital for 19 years). The irony is reassuring -- the more successful and better managed the company was, the more vulnerable it was to unexpected threats of this kind.

But this book is far less convincing as a predictive tool for investors and as a guide for managers who wish to avoid the collapse of a large successful company or who wish to take advantage of a new disruptive technology to build a new large successful company. There are simply too many variables to try to control. And so much of what is recommended runs counter to human nature.

In Living on the Fault Line, Geoffrey Moore frequently refers to The Innovators Dilemma and tries to deal with the practical question of how companies can survive and thrive in such a bizarre environment. He begins with the intriguing proposition that in the past most instances of disruptive technological change affected high tech industries, and meant nothing to managers in traditional industries. (Christiensen's examples from the retail and construction equipment industries were exceptions, and took a far longer time to play out than the high tech examples. And the fruit fly example -- the one where change was fastest and easiest to study and understand -- was the computer storage industry.) Moore points out that today, the disruptive technology of the Internet is rapidly impacting all industries, and hence everyone needs to become familiar with the dangers and the possible cures of this dilemma.

He does a great job of explaining the stock market's valuation of Internet companies, making it seem quite reasonable that startups that have never made a profit should have multi-billion-dollar market caps. But this book was published early in 2000, before the dot-com crash; and the author would probably write that chapter very differently today.

In other words, like Christensen, Moore is great at analyzing the past, and making sense out of what seems random or even insane. But the manager or investor who relies on this analysis to make predictions or course corrections is at great risk, because in the normal swirling flow of complex events, it is quite difficult to perceive which of the eddies and currents will prove to be important later. Also, as the book progresses, rather than providing fresh analysis of the bizarre new phenomena of Internet business, Moore keeps falling back on the models that he described in his earlier books -- Crossing the Chasm and Inside the Tornado, as if his concepts have greater longevity than the business world he applies them to.

So I come away from these books not with a greater ability to predict the unpredictable or to manage the unmanageable, but rather with a tragic image of today's business world. Managers and workers at all levels are faced with rapidly changing and bewildering business conditions. You spend much of your life at work, but because of the rapidity of change and the likelihood that the companies for which you work won't last long, that work sometimes feels stripped of meaning.

To be motivated and to feel proud of what you do, you need to shift your perspective -- to no longer invest your sense of personal worth in the success or failure of the companies you work for. You need to focus on what you can understand and control -- the projects you work on, the teams you work with. And you need to realize that if you meet your daily challenges, accomplishing what you set out to do, despite the odds against you, you should feel proud, regardless of whether the projects you work on ever reach the marketplace or the company succeeds or fails with it. You are what you do, and that remains, regardless of long-range consequences beyond your control.

I also come away with a curiosity regarding the history of nations. The concept of corporate culture derived from that of national and ethnic culture. Now it would be interesting to take what has been learned about corporate culture and apply those principles to the understanding of national culture. What happens to nations when they are faced with disruptive technological change -- comparing Japan and China (as Jonathan Spense does to some degree in his book The Search for Modern China, and as Ruth Benedict touches upon in her brilliant WWII-era The Chrysanthemum and the Sword), and also looking at Russia both at the end of the 19th century and the end of the 20th century. What enables the people of one country to adapt and thrive, while the people of another country seem to collapse in bewilderment when faced with rapid, unexpected change? And how and why does that capability change over time?
 

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