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...
Creating a Spin-off
If the values of the mainstream organization are blocking resources meant for an innovation project, a spin-off may be necessary to meet the challenges of disruptive innovation. Often, large organizations do not allot critical financial and human resources meant for mainstream business to innovative projects. Assigning such resources to mainstream business is more important to them than trying to create a strong position in small and emerging markets. The cost-structure of these organizations is tuned to high-end markets and does not work for low-end markets. Hence, a new venture is more of a compulsion than a choice (refer to Exhibit 1.3 to learn when HP decides to created a spin-off).
Exhibit: 1.3
A Spin-off at HP
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Hewlett-Packard's printer division based at Boise, Idaho, is a very successful division. It has high profit margins and a reputation for superior product quality. This division also housed an ink-jet project that was promising a disruptive innovation. But the managers at the division were unwilling to divert the resources necessary to the ink-jet project from the mainstream HP printer business line. The process involved in developing the two types of printers was the same. But the managerial values necessary were different. To be successful in the ink-jet market, managers would have to adjust to lower gross margins, a small market, and lower performance standards, that were characteristic of the ink-jet market. They were unwilling to adjust or change their values and as a result the project languished. It succeeded only when it was transferred to a separate division in Vancouver, British Columbia. |
Adapted from "Meeting the challenge of disruptive change," By Christensen, Clayton M., Overdorf, Michael, Harvard Business Review, Mar/Apr2000, Vol.78, Issue 2.
When the project is relocated as in the example of Exhibit 15.3, there is no longer competition between the project developing a disruptive innovation, and those that are supporting the mainstream business. Creating and nurturing such a new project is often difficult for the top management of a running concern. They perceive the development of the disruptive new operation as bringing about the death of old operations that are still doing well and are profitable. They hate doing this. The managers at the top have to learn to be comfortable with two businesses, in cases like this. The CEO of the organization has to take particular care to allot the necessary resources, and ensure the freedom necessary to create new processes and values. Then only can the spin-off meet its intended purpose and address new challenges.