Building a new company with a sustaining innovation in mind is not necessarily a poor concept: Focused businesses occasionally can develop new items much more rapidly than larger firms simply because of the conflicts and distractions that broad scope often creates. The theory of disruption suggests, nevertheless, that as soon as they have created and set up the viability of their exceptional product, entrepreneurs who've entered on the sustaining trajectory should turn close to and market out to one of the industry leaders behind them. If executed effectively, obtaining ahead of the leaders on the sustaining curve and then promoting out rapidly can be a straightforward way to make an appealing financial return. This is common practice in the well being care business, called the well-chronicled mechanism by which Cisco Systems “outsourced” (and financed with equity capital, rather than expense money) a lot of its sustaining-product improvement in the 1990s.
A sustaining-technology strategy isn't a viable way to develop new-growth companies, nevertheless. In case you produce and attempt to sell a better item into an set up market to capture established competitors’ greatest customers, the competitors is going to be motivated to fight instead of to flee. This guidance holds even when the entrant is really a large corporation with ostensibly deeper pockets than the incumbent.
For instance, electronic cash registers had been a radical but sustaining innovation relative to electromechanical cash registers, whose marketplace was dominated by National Cash Register (NCR). NCR totally missed the advent of the new technologies within the 1970s—so badly, in fact, that NCR’s product product sales literally went to zero. Digital registers had been so superior that there was no reason to buy an electromechanical product except as an antique. Yet NCR survived on support revenues for more than a year, and when it lastly introduced its own electronic cash register, its extensive product sales organization quickly captured the exact same share from the market since the company experienced enjoyed in the electromechanical realm. The attempts that IBM and Kodak made within the 1970s and 1980s to beat Xerox within the high-speed photocopier company are one more example. These companies had been far larger, and however they failed to outmuscle Xerox inside a sustaining-technology competition. The firm that beat Xerox was Canon—and that victory began having a disruptive tabletop copier technique.
Similarly, corporate giants RCA, General Electric, and AT&T failed to outmuscle IBM on the sustaining-technology trajectory in mainframe computers. Despite the massive resources they threw at IBM, they couldn’t make a dent in IBM’s position. In the end, it was the disruptive individual computer makers, not the major corporations who picked a direct, sustaining-innovation fight, who bested IBM in computers. Airbus entered the commercial airframe business head-on against Boeing, but doing so required massive subsidies from European governments. In the future, the most profitable development in the airframe business will probably come from firms with disruptive strategies, such as Embraer and Bombardier’s Canadair, whose regional jets are aggressively stretching up-market from below.
This model explains quite clearly why the major airline companies in the United States are so chronically unprofitable. Southwest Airlines entered as a new-market disruptor, competing within Texas for clients who otherwise would not have flown at all, but would have used automobiles and buses. The airline has grown carefully into nonmajor airports, keeping away from head-on competition against the majors. It is the low-end disruptors to this industry—airlines with names such as Jet-Blue, AirTran, People Express, Florida Air, Reno Air, Midway, Spirit, Presidential, and many others—that produce the chronic unprofitability.
When leaders in most other industries get attacked by low-end disruptors, they can run away up-market and remain profitable (and often improve profitability) for some time. The integrated steel businesses fled up-market away from the minimills. The full-service department stores fled up-market into clothing, home furnishings, and cosmetics when the discount department stores attacked branded hard goods such as hardware, paint, toys, sporting goods, and kitchen utensils at the low-margin end of the merchandise mix. Today, the discount department stores such as Target and Wal-Mart are fleeing up-market into clothing, home furnishings, and cosmetics as hard goods discounters such as Circuit City, Toys ‘R Us, Staples, Home Depot, and Kitchens Etc. attack the low end; and so on.
The problem in airlines is that the majors cannot flee up-market. Their higher fixed-cost structure makes it impossible to abandon the low end. Hence, low-end disruptors easily enter and attack; as soon as one of them gets big enough, however, the major airlines declare that enough is enough, and they turn around and fight. This really is why no low-end disruptor to date has survived for longer than a few years. But simply because low-end disruption by new businesses is so easy to start, the majors can never raise low-end pricing up to levels of appealing profitability.
We would be foolish to claim that it is impossible to create new-growth companies with a sustaining, leap-beyond-the-competition strategy. It is much more accurate to say that the odds of success are very, very low. But some sustaining entrants have succeeded. For example, EMC Corporation took the high-end data storage business away from IBM in the 1990s having a different item architecture than IBM’s. But as best we can tell, EMC’s items had been much better than IBM’s in the very applications that IBM served. Hewlett-Packard’s laser jet printer business was a sustaining technology relative to the dot-matrix printer, a market dominated by Epson. Yet Epson missed it. The jet engine was a radical but sustaining innovation relative to the piston aircraft engine. Two of the piston engine manufacturers, Rolls-Royce and Pratt & Whitney, navigated the transition to jets effectively. Others, such as Ford, did not. Common Electric was an entrant in the jet revolution, and became very successful. These are anomalies that the theory of disruption cannot explain. Although our bias is to assume that most managers most of the time are on top of their companies and manage them in competent ways, it's also true that occasionally managers merely fall asleep at the switch.
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