established business vs. innovation

Luis Villa
09 Jan 2002 13:37:24 -0500

FWIW, if anyone is interested in doing some formal reading, Clay
Christensen (of the Harvard Business School) wrote 'The Innovator's
Dilemma' about exactly this- the tendency of innovation being a risk and
not a benefit for established businesses. There is an excerpt here:

On Wed, 2002-01-09 at 13:11, Dave Long wrote:
> > One more thing:  I will admit to a bit of bias in my argument:
> > established businesses are (usually) not innovators;  though I'm
> > far from having a convincing, general model of why this is so, it
> > seems clear to me that scale-up on other dimensions is inversely
> > proportional to ability to innovate.
> Bingo.  Much of my argument is based
> on the (observed) fact that dominant
> players are not innovators.
> Paraphrasing GKC, here is the general
> model of why this is so:
>   I believe what really happens in business is this: the old
>   firm is always wrong; and the new firms are always wrong
>   about what is wrong with it.  The practical form it takes
>   is this: that, while the old firm may stand by some stupid
>   business model, the new firm attacks it with some theory
>   that turns out to be equally stupid.
> Old firms are like bondholders.  They
> can usually make a small fortune, but
> every now and then discontinuity will
> wipe them out.
> New firms are like callholders.  They
> may usually end up with wallpaper, but
> every now and then discontinuity will
> give them fantastic returns.
> What is important is that scale-up on
> other dimensions does not affect the
> ability to innovate as much as it does
> the desire.  Basically:
> > the guys *with* the [existing business] are often considered to
> > "not be hungry enough" to make interesting things happen.
> The hungry guys try interesting things.
> The fat guys laugh at them.  (and do
> profitable things instead)
> Most of the time, the interesting
> thing fails, and LAUGH succeeds.
> Some of the time, the hungry guys
> LAUGH last.
> If this model is not consistent with
> both history and common sense, I will
> drop the entire argument, otherwise
> we can continue...
> -Dave
> ::::::::::::::::::::::::::::::::::::::
> quick summary
> =============
> established players are not innovators
> - establisheds play stable strategies
> - innovators play risky strategies
> so even in a transparent world, they
> will choose different niches
> (lions/hyenas)
> current objection
> =================
> 500 lb. gorillas will occupy both
> their own and innovators' niches.