Disruptive Innovation - Making it happen in Organizations
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Authors
Authors: Sanjib Dutta, Anil Kumar Kartham
Senior Faculty Member, Faculty Associate
ICMR (IBS Center for Management Research).
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Coping With Disruptive Innovation Contd...
Acquiring an Organization
An organization thinking of creating capabilities through acquisition must first conduct a thorough assessment of its own capabilities, disabilities, resources, processes, and values. Then only it will know what to look for in the company it seeks to acquire. When the organization is acquiring a particular company for its processes and values, then the organization must not try to integrate the acquired company with its own company. Rather, it should allow that company to exist as a separate unit and support that company's processes and values with its resources. Then only can the acquired company try to meet the challenge of disruptive innovation. But most often, the acquired company is slowly integrated with the acquiring company. This can mar the purpose for which the company was acquired (refer to Exhibit 1.4 for one such example).
Exhibit: 1.4
IBM and botched-up integration
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In 1984, IBM acquired Rolm, a telecommunications company, not for its resources but for its processes and values. IBM had resources. Rolm had the processes for developing and finding new markets for PBX products. Rolm had an informal and unconventional culture. This was in direct contrast with IBM's methodical style. Everything was going fine until IBM integrated Rolm into its corporate structure. Rolm was no longer a separate entity. This turned out to be a disaster. IBM tried to use the processes it had developed for large computer business to make full use of Rolm's products. The result was disastrous for Rolm. IBM had 18% returns in its businesses. The returns from Rolm's products were nowhere near that level. As a result, the corporate managers at IBM showed little interest in the success of Rolm. The company, its products and its processes slowly slid into insignificance. The integration destroyed the very purpose for which Rolm was acquired. |
Adapted from "Meeting the challenge of disruptive change," By Christensen, Clayton M., Overdorf, Michael, Harvard Business Review, Mar/Apr2000, Vol.78, Issue 2.
On the other hand, Cisco Systems was quite successful in its acquisition process that lasted between 1993 and 1997. Most often, it acquired small companies which were less than two years old. The prime motivation for the acquisition was the resources these companies had. The resources were the engineers working in these companies, and the products these companies were selling. Cisco took all these resources and bolstered their logistics, manufacturing, and marketing processes, while ignoring the nascent processes and values of these companies. This was possible because these companies were very young and their processes and values were not strong enough to create any disruptions in Cisco itself. When it acquired StrataCom, a mature company, it let it continue as a separate entity. Cisco inducted its resources into the company and helped it grow as an individual company. Thus, managers need to be clear about what their organization needs. This is of utmost importance.