
Steve Jobs Solved the Innovator's Dilemma - 6ren
http://blogs.hbr.org/cs/2011/10/steve_jobs_solved_the_innovato.html
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pja
Apple is famously compartmentalised & secretive: People working on one product
don't even get to go into the building where another product is being
developed & the employees working on new products are pretty much forbidden
from discussing them outside of their own development team as I understand
things.

I would imagine that this makes it _very_ hard for managers of existing
products to kill off internal competitors. So long as the board is happy to
fund it, you can develop something new without having to play internal big
company politics.

~~~
salem
It's a slippery slope to have teams fire-walled and competing with each other.
We hear stories from the Dropbox guys that One Apple team invited them over to
ask how they hacked the finder, because they didn't have access to the
functionality that dropbox reverse engineered. As a recent grad at Motorola, I
once heard similar stories about Motorola's PCS and semiconductor groups 10
years ago.

~~~
pja
As I recall from interviews with the DropBox crowd, that's more because what
DropBox was doing wasn't even planned functionality in the first place; they
hooked into the Finder code at a fairly low level in order to get it to do
what they wanted. (Anyone got a link?)

Your general point is correct of course: the price of compartmentalisation is
the inability to benefit from the experience of other groups in the company.

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bostonpete
> It had 90 days working capital on hand when > he took over — in other words,
> Apple was only > three months away from bankruptcy.

Sorry for my finance ignorance -- but is that description correct? I'd assume
that having 90 days working capital means that you can run the company as-is
for 90 days with no additional revenue. Given that Apple presumably had some
stream of revenue at the time, that seems like a far cry from being "three
months away from bankruptcy".

~~~
refurb
Working capital is short-term assets minus short-term debts. So yes, you are
correct. A company could have a ton of long-term assets, but very low working-
capital. It's too much of a simplification to say low working-capital means
you are close to bankruptcy.

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gruseom
According to the article, Jobs' solution was to organize Apple around making
great products. This is enough to make Christensen himself call them "freaks".

Caring first about great products makes you a freak? Something seems deeply
wrong with that. (Edit: this was unclear. I agree that "freak" is accurate in
the sense that this is rare. My point is that it says something staggering
about our economy that it should be so rare.)

If Apple are the only ones who do this, I would sooner call everybody else the
freaks.

~~~
silvestrov
The definition of 'freak' for most people is "people who don't have sensible
regard to norms". The norm for almost all companies is that the bottom line is
the overriding factor.

So Jobs priorities made Apple a freak in the eyes of most managers. Apple
didn't get any respect from ordinary managers before the iPhone sales took off
and made the bottom line became impressive.

I have yet to work at/for a company that cared about its products.

~~~
gruseom
Sure, this is how most everyone does it. But sometimes a lightning bolt lights
up the night sky for a second and lets you see that it is the "freak" who is
right and everyone else who is the aberration. I think we should be grateful
to Steve Jobs for providing so spectacular a counterexample. He didn't just
not follow convention, he built the most valuable company in the world doing
it - something that, if the managerialists were right, ought to have been
impossible.

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ippisl
I have some doubts that's that the case. why?

1\. The IPAD might did some cannibalization to the mac market but in general,
it brought much more profits.It was a pretty good bet that this what it would
do(esp. considering apple's supply chain strengths, expected prices for
android and IPAD tablets, apple's marketing value and ecosystems, etc).

2\. The iPhone was launched when it was clear that mobile phone would
integrate MP3 functions, and the iPod market would die. But it was more
profitable than the iPod, so no dilemma here.

The real test for the innovator's dilemma is:you develop and sell a new
product that might HURT your profits ,but is the future of the industry
because it's better or cheaper, and you understand that having some some slice
of the(smaller) future is better than nothing.

~~~
lee
But you make these two arguments with hindsight.

1\. Creating the iPad was not a good bet that it would create profits.
Microsoft had tried pushing tablet computing for a decade, and they lost a lot
of money doing so. The iPad was a gamble. It was not obvious, people scoffed
when it was announced. "No keyboard? No SD slot? Why would I need that when I
have a laptop and an iphone?"

2\. Again, people scoffed when the iPhone was released. There were already
phones with MP3 functionality. It wasn't clear that the phones would kill off
the iPod as the iPod allowed you carry your entire music collection with you.
Smartphones back then couldn't do that, nor could the iPhone for that matter.
No one at the time wanted to use touch screens. The reaction was also a lot of
scoffing. "You want me to pay how much for a cell phone that doesn't even have
keys?!?". The iPhone was a huge gamble too.

~~~
ippisl
There are two kinds of bets we're talking about.

You're talking about the bet: will our products would be successful? That's
the kind of bet you have to take when you develop products, no way around it.
And apple is pretty good at those gambles.

I'm talking about the bet: if this product would be successful, will we make
more money , or less money(due to cannibalization) ?

Also , regarding MP3 phones. it was clear(due to moore's law), that mobile
phones would have good enough MP3 players in the future.

~~~
hype7
I'm the author of the article, I'm working with Clay at the moment. Thanks for
the comment.

It's subtle, but I think that most people outside of companies assume that
decisions get made as you're describing above — separate questions of "will
this product be successful", and "will we make money out of it". In part, the
dilemma is borne out of the fact that for almost every company, those aren't
separate questions at all. Think about it; you're the CEO, and someone comes
along and says, "let's invest this money in new R&D for a product that may, or
may not, work. if, by chance, it does work... it will take out our existing
product, and we'll end up making less money on the new product than we do
right now on the old one".

very few CEOs will put money down on that. they're using money from their cash
cow to do what... to kill it?

the problem is one of perspective.

there's another famous example i love to quote when explaining: blockbuster
and netflix. when netflix came along, blockbuster was this huge organization
with massive margins and almost 100% name recognition. they looked at netflix,
saw a new business emerging with a fraction of the margins that they had...
why would they bother wasting their time on doing something like this? they
could invest to create a netflix competitor, but if they did, it was going to
cost them to do it, it may or may not be successful, and if it WAS successful,
it would cannibalize their existing, high-margin business with one that was
much less profitable. who would go for that?

the mistake that most companies make is that they assume that they're the only
ones that are capable of challenging their existing business with a disruptive
entrant. the problem is (and it sounds obvious, but so many successful
companies have fallen into this trap): if they don't challenge themselves,
then someone else will. from the perspective of blockbuster, with all these
profitable stores dotted all around the country, the "DVD by-mail market" was
not at all attractive. but to netflix, which was looking at the market from
the perspective of "we don't have any business at all, so any business is
great", the margins actually looked pretty good. blockbuster thought its
choices were "stick with high margin business, or move to low margin
business". but really, its choices were "move to low margin business, or go
bankrupt".

that's the perspective thing i'm talking about; successful businesses have
this tendency to view markets from the vantage point of where they stand right
now. what's so noticeable about apple is that they __never __do that. they
start from a fresh sheet of paper — what's best for the customer, not what's
best from our bottom line. it's a mighty hard trick to pull off.

hope this helps. thanks to everyone for voting up the article.

cheers

\-- james

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wtvanhest
James, I really appreciated the article and the additional explanation.

I tried to figure out a way to word this question, so forgive me if it isn't
clear but:

Did Steve Jobs even do the right thing? What I mean by that is that if you had
10 companies would you want all those CEOs making what seems to be illogical
decisions in the off chance you get an Apple?

Take Blockbuster for example, sure they obviously did the wrong thing in
hindsight, but no one, and I mean no one thought netflix was going to be as
successful as it was when it first started. I remember thinking, gosh, that is
a lot of mailing expense for $7/month.

How many ideas came along and went that were not worth replicating? I'm sure
there are tons.

There is probably some new network being worked on right now that will
displace facebook in 10 years. Should facebook radically change the way they
do business to adopt to that new basically unknown threat?

~~~
apenwarr
That's what makes it a _dilemma_. :) The book is well worth reading, and this
is what it talks about.

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teyc
No, I do not believe Apple had reason to worry about market cannibalization.

The iPod was a new product. The line was segmented well, with each having
clear differences in form factor, eg you wouldn't be confused between what a
nano might be useful for vs Touch. This is in contrast to electronic
manufacturers that flood the market with an entire spectrum of product
capability.

The iPhone and Ipad are again entirely different product lines that share the
same codebase. This is not very different to Windows everywhere espoused by
Ballmer. The difference is in how capable the entire organisation was in
execution. Although Apple is immensely profitable, it is because it focusses
on creating highly desirable products in niches that are only profitable
through vertical integration.

I recall Jobs lamenting the fact that they barely make any profit on their l
Laserwriterswhile HP makes all the money off toners. Apple today judiciously
avoids this type commodity computing markets.

The main take away is to sell clearly differentiated products. Give them
different names and use cases so that consumers cannot be confused over what
each product does.

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michaelpinto
By the way it's important to recall that one of the first things that Jobs
killed were the Apple clones -- an idea that HBR pushed in the 90s.

~~~
bwarp
The irony now being that the Mac is from a hardware level, a PC clone...

~~~
wmf
It is now, but in 1995 it wasn't. Apple designed custom chipsets (apparently
different ones for every model...) and then sold them to clone vendors at
prices that didn't recoup their R&D.

~~~
bwarp
Well that wasn't very clever was it.

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mehuln
To certain extent this analysis is right, but there's also one other company
that you must consider when thinking about this, and that's Google. They have
also not focused on profits, and at least, in theory, have tried to create
amazing products. Unfortunately, they neither have great products or great
profits. You can be like Apple and focus on building great products but keep
Google in mind and ask why their stock price is stagnant for last 5 years now.

Yes, Apple focuses on products but it also focuses on profits by optimizing
operations and pricing products correctly. Unfortunately, at Google, they
haven't done either well. They are still a search company which runs on the
grace of AdWords.

Yes, Android is successful but compared to iPhone platform it is significantly
behind in terms of profits - in fact, still loosing money considering Motorola
acquisition was essentially to stave off patent attacks on Android.

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jroseattle
This is a great take on it, although I might offer that Jobs never really
solved the innovator's dilemma -- he just managed it. (Solve implies the
problem goes away; not sure that applies here.)

Rather, what Jobs did was willingly accept potential cannibalization of some
products in favor of others. Normally, in a large company, you have teams
representing core products that morph into influential forces of nature inside
their organization and spend a decent amount of time and resources protecting
their turf. Jobs was the central decision-making authority, and he simply
wouldn't tolerate that type of environment. So, territorial fiefdoms had no
chance of surviving in Jobs's pressure cooker.

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mhartl
_They can do it because Apple hasn't optimized its organization to maximize
profit. Instead, it has made the creation of value for customers its
priority._

Apple's market cap would suggest that this presents a false dichotomy.

~~~
mrb
The point of the article is that Apple's profits (and, indirectly, market cap)
could be _even higher_ (at least in the short term) if they decided to focus
only on this instead of great products. (That would be the wrong thing to do,
of course, since a more innovative company would disrupt Apple.)

Apple's strategy, the strategy to solve the Innovator's Dilemma, shows that
creating disruptive products leads to profits that are _large enough_ to be
considered a successful company, even if profits are not your primary goal.

~~~
mhartl
It's really just an abuse of language. When the financial press (or, worse,
the general press) writes of "profits", they often implicitly mean "short-term
profits", but that's not the same thing. In particular, Apple doesn't ignore
profit; they just recognize that maximizing profit is not the same as
maximizing short-term profit.

The market cap of a company reflects the market's opinion on the discounted
value of future cashflow. This means that a company can't generally boost its
market cap any way other than increasing its profits.

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_k
I'm looking at Corning's Day of Glass video
<http://www.youtube.com/watch?v=6Cf7IL_eZ38> and once again, I'm being
reminded of Apple's biggest weakness. There's no cross-platform functionality
and that's going to be Apple's biggest problem within a decade.

Any idea how Apple might handle a dilemma like that ?

~~~
joezydeco
I'm sorry, what does Corning make? Glass. And, apparently, expensive concept
videos.

Check out this article about why Apple doesn't bother with expensive
distracting public concept products.

<http://counternotions.com/2008/08/12/concept-products/>

Apple's products have a bit more cross-platform functionality than Corning's
at this point in time. Unless you consider transparency a cross-platform
feature.

~~~
_k
I didn't mean to imply that Apple competes with Corning.

My question is how will Apple deal with the disruptive potential of cross-
platform ? It's hard to believe Apple will not be challenged by it.

And somewhat related. What's the input language going to be? Or will it be a
tool that converts to one language?

~~~
Anechoic
_My question is how will Apple deal with the disruptive potential of cross-
platform ?_

The web. That's why Apple has been working to make sure that Safari was
standards-compliant, if "cross-platform" is going to be the future, it will
more than likely happen via the web. So long as Apple can maintain a
standards-compliant browser, then can compete on the web and spend their
energies making sure the other aspects of their products (design, battery
life, etc) are competitive.

~~~
joezydeco
Funny thing.

Isn't that how iPhone development was supposed to happen? Then everyone whined
and complained that they wanted a native development system. Now that they
have it (and it's a pretty solid one), we're supposed to whine that it's not
cross-platform?

I'm guessing HTML5 and etc will help solve that problem, correct?

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wslh
No. If in the future a new kind of printer can "print" (chip, shape, et al)
iPhones, Samsungs, etc even if Apple can catch up with this new technology
it's probable that the market size of the current hardware industry will go
down.

Can we say that many times the dilemma is about shrink or perish?

~~~
SoftwareMaven
The point of the article (and of solving e Innovators Dilema) is that Apple
would be the company selling the printers because that's what it's customers
want and how it can make them happy. They wouldn't prohibit entering the new
printer market because it is bad for the iPhone's profits, which is what just
about every other company would do.

 _Can we say that many times the dilemma is about shrink or perish?_

That's not what this article is about, so, while you can say it, it is pretty
meaningless to TFA. If your company gets caught up in the middle of a war,
it's not the innovator's dilema that could kill your company, either.

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gaius
Remind me what companies Christiansen has run? He has been an
academic/consultant his whole career.

~~~
rythie
He literally wrote _the_ book on disruption, which I expect, from your
comment, you haven't read. [http://www.amazon.com/Innovators-Dilemma-
Revolutionary-Busin...](http://www.amazon.com/Innovators-Dilemma-
Revolutionary-Business-Essentials/dp/0060521996) He doesn't need to start a
company to prove his point because it's not really about startups, it's about
the problems big companies have. He wouldn't be the founder or employee number
1, he would be employee 10,000, the one they get when everything starts going
wrong.

~~~
gaius
I didn't say start, I said _run_. The dilemma he speaks of (yes I have read
the book) sounds good on paper but doesn't play out in the real world, there
are plenty of examples, is Coca Cola afraid of launching a new soft drink, or
does Tricorn worry KFC is eroding the market of Taco Bell? Like most economics
or sociology it's an elegant model that has little basis in reality.

~~~
damoncali
Go read it again. I don't think you're grasping the idea of disruption as
Christensen defines it. The examples you give are not disruptive products -
they're just new products.

