Agile Strategy Institute

The Innovator’s Dilemma by Clayton Christensen

In The Innovator’s Dilemma, Clayton Christensen explains why established companies are ill-suited to innovation, particularly disruptive innovation that undermines the core business. Christensen describes three categories of institutional capabilities: resources (people, assets, customer and supplier relationships, etc.), processes (how inputs are transformed into outputs) and values (what is important to the organization).

He explains that these capabilities are typically developed in that order over time. First, the company has some good resources, then it evolves efficient processes, and then it develops its core values. When a new business starts up within an established company, it needs to go through the same sequence, but it is now battling the established company’s values and processes. 

Christensen explains that established companies have three broad options to build innovative business units with the right resources, processes and values. These are:

• Acquire a new company and keep it as a standalone entity with its own processes and values.

• Create new capabilities internally, which he demonstrates is difficult to do because these violate the fundamental purpose and success formula of the established business.

• Create capabilities through a spin-out. The question then becomes how separate versus integrated does the spin-out need to be? Christensen offers a useful framework to determine the nature of the spin-out based on its fit with established company values and processes.

10 Rules for Strategic Innovators by Vijay Govindarajan and Chris Trimble

In 10 Rules for Strategic Innovators, Vijay Govindarajan and Chris Trimble describe the fundamental difference between the organizational DNA of the established company (which they refer to as CoreCo), and the new innovative business unit (NewCo). CoreCo is all about planning, leveraging core assets, meeting customer needs, efficient processes and clear growth and ROI metrics. NewCo is about creativity, experimentation, learning, adaptation, flexibility and rapid response. They describe a powerful framework for how NewCo can survive and thrive in this environment.

Govindarajan and Trimble explain: ”(NewCo) must address the three unique challenges that arise from the unnatural coexistence of a new and mature business within the same corporation: a forgetting challenge, a borrowing challenge, and a learning challenge. NewCo must forget some of what made CoreCo successful. It must borrow some of CoreCo’s assets – the greatest advantage that NewCo has over independent start-ups. And it must be prepared to learn how to succeed in an emerging and uncertain market.

Govindarajan and Trimble present the four elements of organizational DNA as staff, structure, systems and culture. They explain that each of these elements need to be carefully considered to decide which of them should “forgotten” by NewCo and which should be “borrowed”, in order to maximize NewCo’s ability to “learn”.

Govindarajan and Trimble conclude that NewCo should have a distinct approach in most respects, and leverage CoreCo’s strengths and assets in one or two key areas. “The NewCo organization must be built from scratch, with new choices in staffing, structure, systems and culture. This is the only way to defeat the powerful forces of institutional memory.”

Organizing for innovation

Established corporations introducing new products, technologies or lines of business need to think carefully about how best to organize to succeed.

Extensive practical experience as well as a rapidly growing body of research indicates
that the established organization is ill-
equipped to support the successful development and launch of new products
and businesses.

Executives at established companies must recognize that the new venture will require the careful creation and development of a discrete organizational structure with its own resources, processes and values in order to incubate, cultivate, and harvest the business opportunities of the budding innovative enterprise.

In this article, we will review some of the leading research into organizing for innovation, and then summarize key guidelines for executives.

The Design of New Organizational Forms
by Jennifer Herber, Jitendra V Singh and Michael Useem

In their excellent chapter “The Design of New Organizational Forms” in Wharton On Managing Emerging Technologies, Jennifer Herber, Jitendra V Singh and Michael Useem explain: “Dominant players often fail to adapt because it means dismantling the very organizations that have led to their success. Past adaptations become inertial constraints, leading to a kind of “competency trap”. The organizational architectures that companies have built to propel their success can become as outmoded as feudal kingdoms in an age of democracy”.

Herber, Singh and Useem discuss six emerging organizational forms. These include virtual organizations, network firms, spinouts, ambidextrous firms, front-back designs and sense-and-respond firms. These are all examples of dynamic, adaptable organizations well suited to innovation.