MIT Sloan Management Review

Conventional wisdom has it that new and better technologies replace old ones — and that companies whose markets are being transformed by disruptive new technologies thus need to figure out how to switch to the dominant new technology. And, of course, that’s often the case.  But, in a thought-provoking paper, two researchers argue that an alternative approach — one that involves rethinking opportunities for the old technology — can sometimes make sense. 

Ron Adner of Dartmouth’s Tuck School of Business and Daniel Snow of the Harvard Business School note in their paper “Old” Technology Responses to “New” Technology Threats, that the idea of new technologies always replacing old is incomplete; for example, pagers and fountain pens still persist long after the development of, respectively, cell phones and ball point pens.  What’s more, the authors point out, the option of a new technology can reveal niche markets where characteristics of the old technology still have value.

To be sure, the authors don’t argue that sticking with an older technology should be the response of most businesses to a new technology — just that, for some companies in some circumstances, it can be a rational response that is often overlooked.  They include an interesting case study of a company in the semiconductor lithography equipment industry that, because its resources were constrained by a restructuring, decided not to compete in the next generation of technology in its market. Instead, the company evaluated other options for its older technology — and found new markets for it in areas such as hard disk drive manufacturing and microprocessor packaging.

Most executives have probably, at one point or another, sat through a strategic planning session that focused on their organization’s position in the marketplace — its mission and objectives, its strengths and weaknesses, and the opportunities and threats it faces.

But what if there’s another way entirely of thinking about strategy?

I had an interesting conversation recently with MIT Sloan School professor Arnoldo C. Hax, a well-known strategy expert and one of the authors of the book The Delta Project.  We spoke about his approach to strategy, called “The Delta Model” (which, incidentally, is the title of an article he coauthored for MIT Sloan Management Review back in 1999).

Here are a few (edited) highlights of some of Hax’s current thinking about strategy.

Professor Hax, can you tell us a little bit about how the Delta Model differs from traditional strategic planning models?

Conventionally, all of the major frameworks of strategy start by recognizing that the essence of strategy is to achieve superior competitive advantage.  That is what everybody adheres to.  We found that that as a concept and as a mindset is extremely dangerous, because it puts competitors at the center. And if you do that, then there is a tendency to watch your competitors and try to imitate them. 

And that imitation creates sameness.  Sameness will never bring greatness, and, even worse, its final result is something which is the worst thing that could ever happen to a business: commoditization.  Commoditization means a business in which there is nothing that you can claim that differentiates your offering, and therefore, all you can do is to fight for price. That leads to a very aggressive rivalry.  In order for you to win, you have to beat somebody. 

It is like strategy as war, and that, as we know very well, is not really the most effective way to manage a business.  Wars just create complete devastation; they are the worst thing that could happen to mankind, yet we use that as a simile for management!  We felt it was the wrong simile.

Now, if competitors are not at the center of management, then who is at the center?  For us, the answer was obvious.  The customer is.  Therefore, the customer is the driving force.  You have to start deeply understanding what the customer’s requirements are and how you can help the customer in the most effective way. This changes completely the way you figure out what actions to do. 

Now, instead of trying to imitate somebody, you are trying to separate yourself from the rest of the pack.  You try to produce a value proposition which is unique, which is differentiated, which adds value to the customer and expresses a great deal of care and concern for the customer. That value proposition should be based on mutual trust, mutual learning, mutual benefits, and transparency.  And, incidentally, strategy now, with all of this advent of new technology, can be made one customer at a time, in what we call a granular way — understanding each individual and providing that individual with a creative value proposition.

Can you imagine the difference in mindset?  Instead of strategy as war, the Delta Model tells you to think about strategy as love.

In addition to that, in the concept of the Delta Model, you are not alone.  You have to play with what we call the extended enterprise.  What is that?  It is you.  It is your customers.  It is your suppliers, and a very important original player that we call the complementors.  Who are the complementors?  The complementors are firms that are engaged in the delivery of products and services that enhance the delivery of your products and services. 

So, that’s what it is, you see, in a nutshell.  Forget about imitation, congruency, rivalry.  Embrace the customer as a centerpiece of strategy, and play with the extended enterprise. And the Internet facilitates that.

How has your thinking about the Delta Model evolved over time?

It’s interesting.  We wrote our first book in 2001.  Incidentally, I’m about finished with a new book, where now I am the sole author.  In our first book we deliberately tried to just be conceptual.  We wanted to present these ideas.  We thought the ideas were important enough.  But now we have, through the process of consulting and research, developed a lot of phenomenal tools for managers to implement the concepts.

A final comment about a very important trap that many managers fall into: the dangers of commoditization.  At the beginning of my work on the Delta Model, I coined a silly statement, thinking it was a joke: “Commodities only exist in the minds of the inept.” It turns out it isn’t a joke.  Obviously a product could be a commodity. Take copper. The product cannot be differentiated, which makes it a commodity.  I cannot say that the Chilean copper is superior to the American copper. But copper as a business — the way that Siemens uses copper in their power plants, the way that GM uses copper in their cars, the way Carrier uses copper in their air conditioning units – is completely different. 

Therefore, commodities don’t really exist.  The customers are all different, and if you do not understand that, you are commoditizing something — and believe it, there is so much of that happening in business in America.  Typically, when I’m teaching these concepts, I ask the group of executives I teach, “Tell me, among all of you present, how many of you think that a significant percentage of your business comes from commodities?”  And invariably, 100 percent of the hands come up, and I know then that they have come to the right place — because they are not thinking correctly.

C.K. Prahalad offered an interesting perspective on the economic crisis when he spoke today at HSM’s World Innovation Forum conference in New York City. Prahalad, who is the author of the well-known book The Fortune at the Bottom of the Pyramid, said he thinks that, as a result of the economic crisis, every global industry will be restructured –and it’s not clear that the dominant players will remain dominant.

In particular, Prahalad sees us entering a period where a key challenge is managing volatility and discontinuities. Managing volatility, according to Prahalad, requires two very different skills: strategic clarity as well as operational agility and resilience. 

Prahalad suggested that companies need to learn to innovate within the constraints imposed by volatility – for example, with low capital-intensity businesses,  with continuous churning of business models and with the capacity for real-time reconfiguration of resources.

Prahalad identified four forces behind the new economic structure he sees emerging: sustainable development; global markets; connectivity and social networks; and inclusive development (i.e., economic development that includes the world’s poor.)

In an interesting new interview, Harvard Business School professor Lynda M. Applegate observes that in an economic downturn like this one, every company should — in some sense — think of itself as a new business. “This is a time of unprecedented opportunity to rethink offerings, markets, business processes, and organizational structure,” she notes in a Q&A interview published on the Harvard Business School Working Knowledge site.

One of Applegate’s suggestions? Look for opportunities that result from the disruption and change created by the downturn.

For more ideas about how to guide your business successfully through the recession, see the MIT Sloan Management Review’s special report on leading in a downturn.

Could mass customization work for your business?

The idea of mass customization — cost-effectively manufacturing products that nonetheless have enough variety that customers can get products tailored to their needs — may sound like an ideal only a few companies, such as Dell, have obtained. But a new article in MIT Sloan Management Review argues that, in fact, mass customization could make sense for most businesses.

Fabrizio Salvador, Pablo Martin de Holan and Frank Piller report that their research suggests that “mass customization is not some exotic approach with limited application. Instead, it is a strategic mechanism that is applicable to most businesses, provided that it is appropriately understood and deployed.” One key: Seeing mass customization as a process rather than as some “ideal state” that sounds impossible to obtain.

In their article in the Spring 2009 issue of MIT Sloan Management Review, the authors discuss the capabilities needed to make mass customization work –and they describe a variety of tactics that can be used to make mass customization practical. For example , in some cases “innovation tool kits”  can allow customers to use a software design tool to express their product preferences.

What in your organization needs fixing or rethinking? Here’s an interesting idea: Now may be an opportune time to perform repair work within your organization. Writes Pankaj Ghemawat in an update to his classic MIT Sloan Management Review article “The Risk of Not  Investing in a Recession”:

“Downturns are a good time to perform physical and organizational repair work that simply isn’t practical when a company is running flat out trying to meet demand. ”

Ghemawhat’s original article, republished with new annotations by the author, is part of MIT Sloan Management Review’s Downturn Manifesto special report.

“In an unpredictable world, trying to be right can lead managers terribly astray.” So write Rita Gunther McGrath and Ian C. MacMillan in their new article in MIT Sloan Management Review.

An interesting idea — but what’s the alternative to trying to be right? According to McGrath and MacMillan it’s a “discovery-driven approach” that encourages managers to test assumptions and compare strategic alternatives. Read the full article: “How to Rethink Your Business During Uncertainty,”

Looking for new strategies for doing business in the recession? In the new edition of  Business Insight, our collaboration with The Wall Street Journal, Martin S. Roth and Richard Ettenson suggest that Western companies would do well to consider strategies employed by companies from emerging markets — where economic volatility and constraints on consumer disposable income are commonplace.  Note Roth and Ettenson:

“In Eastern Europe, South Africa and Latin America, managers look at tumultous times as a chance to implement bold, creative ideas, outflank rivals and boost their business.”
 
Another resource for recession-fighting ideas: MIT Sloan Management Review’s new special report on surviving – and thriving — during the downturn.

“If history is any guide, we can expect some significant industry shapers to emerge from the current crisis,” observes Bhaskar Chakravorti in a new interview about how companies can find opportunity in the economic downturn. Chakravorti, a senior lecturer at Harvard Business School, offers some helpful ideas about how to prosper in a recession. His suggestions include:

• Think in terms of “substitution effects.” In a downturn, consumers may substitute more car repairs for a new car — and thus business may be good for mechanics. Also in demand, according to Chakravorti: ”affordable luxuries” and products that provide good value for their price.
• One problem: ”Capital is in short supply,” Chakravorti says. However, if entrepreneurs can overcome that, there are opportunities.  ”Technologies and materials left unused due to the collapse of one industry can be creatively re-directed toward others than can take advantage of the low input costs,” he observes.
• “Think business model,” advises Chakavorti. With businesses cost-cutting, there may be opportunities for entrepreneurs to develop innovative business models, he notes.

You can read the interview at Harvard Business School Working Knowledge.

“Innovation arbitrage.” That’s a term John Kao uses in an article in the new issue of Harvard Business Review — to describe the way that companies can now parcel out their innovation activity around the globe, to locations with strengths in particular aspects of innovation. (HBR online subscription or article purchase required to read the full article, which is called “Tapping the World’s Innovation Hot Spots.”)

Kao’s analysis — and his description of various countries’ innovation strengths – is intriguing.  Readers who live in the U.S. may, however, be discouraged by his description of four trends that are eroding the U.S.’s historical leadership position in innovation — including the fact that numerous countries now have explicit and systematic national innovation strategies.

On the other hand, things can change — and economic downturns can sometimes be a catalyst for change. Kao, who was formerly on the Harvard Business School faculty and is the author of Innovation Nation, praises Finland’s national innovation strategy — and notes that it was born partly in response to a “economic near-death experience” following the breakup of the Soviet Union, which had been a major Finnish trading partner.

This is our second daily post covering this week’s TED conference. You can follow all our TED coverage.

For a conference that’s supposed to be about long-term ideas, those ideas sure get spread at record speed. Thanks to blogs and especially Twitter, reports from the first day of this year’s TED conference (here’s a TED primer for managers, if you need one) began flowing within seconds after a speaker noted something particularly noteworthy. As I write this post before dawn the following morning, I see that there is plenty of good, almost-instant coverage, particularly from Ethan Zuckerman, BoingBoing, and the official TED blog. Rather than deliver a blow-by-blow list of everything that happens, which can get tedious quickly and allows for hardly any reflection, the idea here is to identify the most important parts of the long day and night (with 48 speakers or performers, events started at 8:30 a.m. and ran past 11 p.m. — and that’s just the official events) and give a sense of what it is like to be here.

The two stars of the big morning session were Juan Enriquezand Bill Gates. Enriquez is the sort of polymath made for a diverse conference like TED: he’s done everything from run the Life Sciences Project at Harvard Business School to serve as a member of the peace commission in Mexico that negotiated the cease-fire in Chiapas’ Zapatista rebellion. He’s best-known, perhaps, as a presenter: I’ve witnessed him speak engagingly on everything from why schools in the Arabic world used to be the best in the planet but aren’t anymore to why being knowledgeable about genetics is just as important as being digitally literate.

Back in October, just as the political and business leaders were starting to understand the ramifications of the financial crisis, Enriquez delivered a raw, whirlwind presentation at the Pop!Tech conference that focused on what the then-yet-to-be-elected new president needed to do, with an emphasis on austerity. I don’t know how long it will be until Enriquez’s talk yesterday is posted to TED.com, but those who want a taste of it can see an earlier iteration from Pop!Tech:

Juan Enriquez (2008) Pop!Tech Pop!Cast from PopTech on Vimeo.

Enriquez started his talk and the conference by jumping straight into the economy. TED is 25 years old this year, and Enriquez was the first of many speakers the first day to couch his analysis in terms of a 25-year cycle. He’s updated the talk substantially since its October debut; its tone is now more optimistic than its shell-shocked counterpart at Pop!Tech, with a persuasive argument that, in the long term, technology is more powerful than the current financial catastrophe. He identified our ability to engineer cells, tissues, and robots as the economic engines that will outlast the downturn. Among his most compelling examples was a realistic robot from Boston Dynamics that comes astonishingly close to moving like a human:

In a later presentation, coincidentally, another speaker cited the same robot in a talk about the future of war: most technology is neither inherently good nor evil. It’s all in how it’s used.

Bill Gates needs no introduction: he’s the most successful capitalist and philanthropist of his time. And, in keeping with the theme of the event, he stated “I am an optimist” (why shouldn’t he be?) and spoke fluently and passionately about two of the big questions his foundation is trying to answer: how do you stop deadly diseases spread by mosquitos?” and “how do you make a teacher great?” He spoke with both anger (”there’s more money put into treating baldness than malaria”) and disbelief (in some school districts, teacher contracts require that a principal can only enter a classroom once a year, with advance notice). But the blogosphere and twittersphere (there has to be a better word than this) were, er, buzzing with a stunt Gates pulled while discussing malaria, the deadly disease spread by mosquitos:

“Not only poor people should experience this,” Gates said as he opened the jar and let a pair of (malaria-free) mosquitoes into the room. Several prominent blogs referred to Gates “unleashing a swarm of mosquitoes on his audience” but I don’t think two counts as a swarm. The move did lead TED curator Chris Anderson, who’s got a background in publishing, to crack that a good headline for the talk would be “Bill Gates Releases More Bugs Into the World.” Anderson also said that Gates’s talk will be posted to the TED website later today. We’ll point to it.

The pick of the afternoon sessions included talks by co-chairman of Infosys, Nandan Nilekani, filmmaker Jake Eberts, MIT’s own Pattie Maes, and Interface CEO Ray Anderson. The morning sessions start soon, after a breakfast appointment, so for now let me offer some highlights (more detail coming later in the day):

• Nandan Nilekani spoke about his upcoming book, Imagining India, in which he endeavors to consider the wild disparities of India in terms of four types of ideas: ideas that have arrived, ideas in progress, ideas in conflict, and ideas in anticipation.
• Filmmaker Jake Eberts showed a nine-minute rough set of excerpts from Oceans, a new film from the team that made Winged Migration about the underwater world. It was jaw-droppingly beautiful and earned a standing ovation for its thrilling shots of jumping whales, forests of jellyfish, and (apparently) friendly sharks. There’s no link available yet for the video; the film isn’t coming out in the U.S. until April 2010.
• Pattie Maes, who runs the Fluid Interfaces Group at the MIT Media Lab, showed off an early version of “Where Ur World,” a multitouch system developed with Pranav Mistry that seeks to combine online information with real-world interaction in surprising ways. The example that left the audience smiling was one in which Pranav shook hands with someone and a tag cloud relating to that person was projected onto that person’s shirt. The website for the project is still under construction.
• Almost-president Al Gore offered an update of his Inconvenient Truth talk (summary: things are getting worse), but more compelling was Ray Anderson, founder and chairman of Interface, who spoke of how he’s turning the world’s largest manufacturer of modular carpet into a model of sustainability. Anderson had plenty of useful nuts-and-bolts information about how companies should think about sustainability, which we’ll spell out later, but his money quote came from Amory Lovins: “If something exists, it must be possible.”

The sun is up, the day is beginning. I have much more to pass on about Day 1 of TED (yes, I waited on line for food with stars; yes, the Long Beach experience is different from Monterey) and I will as the day progresses. But right now I’m interested in learning more from Ray Anderson, which is why I’m signing off and going to interview him.

Much more to come …

(Housekeeping note: someone has asked what the “#TED” in the headline means. It’s a hash tag, intended to make it easier for people to search for, in this case, blog and Twitter posts about TED.)

Think successful product or technological innovation is hard? Successful management innovation is even more difficult, according to Julian Birkinshaw, a professor at the London Business School and cofounder of MLab, that school’s Management Laboratory.

“It’s much harder to do management innovation, because with management innovation, what you’re doing is you’re starting with an old set of [mangement] structures and principles, which are often a hundred years old — which even the people who are running them today don’t understand the origins of,” Birkinshaw observed in a recent London Business School podcast interview. As a result, he explained, most successful management innovators are typically start-up companies — because they can start anew.

In an established company, the task of changing the way the organization does work is more challenging and risky than in start-ups. “Many people…are so sort of stuck in tradition; the whole language of top-down and bureaucracy and hierarchy is so much the world that we know that we can’t begin to experiment” and try other ways, Birkinshaw said.

To be sure, Birkinshaw is trying to change that. In an article in the Winter 2009 issue of MIT Sloan Management Review,  Birkinshaw and Jules Goddard present a framework for thinking about your organization’s management model — depending on how the company approaches managing objectives, enabling individual motivation, coordinating activities and making decisions.  An earlier MIT Sloan Management Review article, by Birkinshaw and Michael Mol, looked at how management innovation happens.

Want success for your radical innovation? Think like a community organizer.

That’s one of the messages of Market Rebels, a new book from Hayagreeva Rao, a professor at the Stanford Graduate School of Business. In his book, Rao takes a fascinating look at the role activist communities can play in the diffusion of radical innovations. According to Rao, radical innovations often get accepted — or rejected — when a group mobilizes around a cause they care about (which he calls a “hot cause”) through collective activities that built a sense of community or identity (which he calls “cool mobilization”).

Some examples: Rao describes the role that computer hobbyists and their clubs played in launching a personal computing movement in the 1960s and 1970s. He also details how automobile clubs helped legitimize the automobile in the U.S. in the late 19th and early 20th century — by organizing ”reliability contests” that allowed the public to see the capabilities of automobiles as a form of transportation.

Similarly, Rao traces the more recent rise of microbreweries in the U.S. to the emergence in the late 1970s of a home-brewing community that valued craft production of unique beers. Activist communities can also work against innovation, however: In one chapter, Rao describes how activists limited biotechnology research in Germany. 

You can get a taste of Rao’s arguments in an adaptation from Market Rebels, published in the January issue of The McKinsey Quarterly. But the book itself is definitely worth reading.

With its focus on how products or services are positioned, “traditional thinking about strategy is woefully incomplete,” write the authors of “Integrating Innovation Style and Knowledge into Strategy,” an article in the current issue of MIT Sloan Management Review. Authors Edward F. McDonough III, Michael H. Zack,  Hsing-Er Lin and Iris Berdrow argue that companies need to think not only in terms of how a company’s products and services are positioned but also what the company’s knowledge position and innovation position are — and whether all three are aligned.

The idea? In a dynamic, changing economy, the authors write, an organization’s competitive position is “based not only on what an organization makes or the services it provides but also what it knows and how it innovates.”

Executives from the Big Three U.S. automakers are in the news again for appearing before Congress once more this week, asking for financial assistance. But Michael Cusumano, a professor at the MIT Sloan School of Management who has studied the automotive industry, thinks a bailout is not what the automotive companies need. Instead, Cusumano, whose numerous publications in MIT Sloan Management Review include articles on platform leadership and how to achieve it,  observed recently  that U.S. automakers should file for Chapter 11 bankruptcy and reorganize.  (However, Cusumano added, the government could help the automakers by guaranteeing product warranties after a Chapter 11 filing.)  Cusumano noted that Chapter 11 would allow the Big Three to restructure too-generous labor contracts  – and that the companies also need new senior management.  As he put it,

They need to change the senior management teams and bring in people who anticipate the future rather than just try to change incrementally and react in a panic when things go bad. …We can’t rely on the managers in these companies to change the way they think and manage. It is best to force the companies to reorganize, change the management teams and labor leaders, and do it fast.

My biggest worry is that the U.S. automakers have a major problem attracting talent.