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You highlight one of the most interesting (and perhaps less understood things) about the key Innovator's Dilemma insight. Even if the senior management have rea

You highlight one of the most interesting (and perhaps less understood things) about the key Innovator's Dilemma insight. Even if the senior management have read the Innovator's Dilemma books, know they are being catastrophically disrupted and desperately trying to respond - it's still incredibly difficult to actually do. Not only are virtually all organizational processes and incentives fundamentally aligned against effectively responding, the best practices, patterns and skill sets of most managers at virtually every level are also counter to what they must do to effectively respond. Having been a serial tech startup founder for a couple decades, I then sold one of my startups to a valley tech giant and ended up on the senior leadership team there for a decade. I'd read Innovator's Dilemma in the 90s and now I've now seen it play out from both sides, so I've thought about it a lot. My key takeaway is that an incumbent's lack of effective response to disruption isn't necessarily due to a lack of awareness, conviction or errors in execution. Sure, there are many examples where that's the case but the perverse thing about I.D. is that it can be nearly impossible for the incumbent to effectively respond - even if they recognize the challenge early, commit fully to responding and then do everything within their power perfectly. I've even spent time sort of "theory crafting" how a big incumbent could try to "harden" themselves in advance against potential disruption. The fundamental challenge is that you end up having to devote resources and create structures which actually make the big incumbent less good at being a big incumbent far in advance of the disruptive threat appearing. It's hard enough to start hardcore, destructive chemo treatment when you actually have cancer. Starting chemo while you're still perfectly healthy and there's literally no evidence of the threat seems crazy. It looks like management incompetence and could arguably be illegal in a publicly traded company ("best efforts to maximize/preserve shareholder value" etc).

throwaway4good 3y ago
Everyone has been reading that book since the late 90es. I remember a talk by Clayton Christensen talking specifically about Intel and how they setup the Celeron division to compete with themselves (based on his advice). A key property of tech in economics lingo is that it is “natural monopolies” - all fixed cost and no variable cost. This creates these winner takes all games. In this case both Intel, SGI plus others knew the rules and it just ended up with Intel taking the prize and it all becoming Wintel for a decade or so - basically until the smart phone allowed enough capital to be accrued to challenge the old monopoly.
bsder 3y ago
"Maximally efficient is minimally robust." A company that optimizes for efficiency will get stomped flat when the environment changes. The problem is that there are no incentives in business to optimize for robustness.
- roughly 3y ago
  Well, that’s partially because of the converse: a company that optimizes for robustness will get stomped flat before the environment changes to require robustness. Short term games are bad in the long term, but often good enough in the short term to win before the long term arrives.
rbanffy 3y ago
I think SGI failed to understand that there was a point where desktop PCs would be good enough to replace dedicated workstations. Continuing to make hardware that's much better than the best PCs wasn't going to save them after PCs crossed the good-enough line - whatever they had, would be relegated to increasingly rarefied niches - the same way IBM now only makes POWER and mainframes - there is no point of making PCs, or even POWER workstations anymore for them, as the margin would be too narrow. SGI could double down on their servers and supercomputers, which they did for a while, but without entry-level options, their product lines becomes the domain of legacy clients who are too afraid (or too smart) to port to cheaper platforms. And being legacy in a highly dynamic segment like HPC is a recipe for disaster. IBM survived because their IBMi (the descendant of the AS/400) and mainframe lines are very well defended by systems that are too risky to move tied to hardware that's not that much more expensive than a similarly capable cluster of generic and less capable machines. As the market was being disrupted from under them, they retreated up and still defend their hill very effectively. The other movement they could do was to shift downwards, towards the PC, and pull the rug from under their workstation line. By the time Microsoft acquired Softimage and had it ported to NT, it was already too late for SGI to even try that move, as NT was solidified as a viable competitor in the visual computing segment, running on good-enough machines much, much cheaper than anything SGI had.
- mrandish 3y ago
  I think your analysis of the shifting technology landscape is largely on target. However, I'm not convinced that the true root of SGI's failure was the technology. Clearly their tech did need to evolve significantly for them to remain competitive but that's a transition which many companies successfully make. Even though SGI chose not to evolve the tech soon enough, fast enough nor far enough, I suspect they still would have failed to survive that time period due to an even more fundamental root cause: their entire corporate structure wasn't suited to the new competitive environment. While the "desktop transition" was most obviously apparent in the technology, I think the worst part for SGI was that the desktop shift changed the fundamental economics to higher volumes at lower costs. SGI had invested in building significant strengths and competency in its sales and distribution structure. This was one of their key competitive moats. Unfortunately, not only did the shift in economics make this strength irrelevant, it turned it into a fundamental weakness. All that workstation-centric sales, distribution, service and support infrastructure dramatically weighed down their payroll and opex. This was fine as long as they could count on the higher margins of their existing business. While it's easy to say they should "just layoff all those people and relaunch as a desktop company" that can't be done in one quarter or even one year. It requires fundamentally different structures, processes, systems and skill sets. Hiring, training and integrating all that while paying for massive layoffs and shutting down offices, warehouses etc takes time and costs a lot of money. Worse, once their existing workstation customers saw them shutting down the SGI the customers had bought workstations and service contracts from to become a different kind of company entirely, sales revenue would have taken an overnight nosedive. SGI's stock would also have tanked far more immediately than it did as the fickle stock market investors sold stock they'd bought because SGI offered a specific risk/return expectation which just became much more "risk" and much less "return" (at least in the near-term). In making such a dramatic move SGI would have effectively dumped much of their current quarterly revenue and the value of one of their core strengths - all at the same moment. Thus turning them into one of their emerging startup competitors with all of a startup's disadvantages (no big ongoing revenue streams, no big cash pile (or high stock valuation to leverage for cash)) yet none of a startup's strengths (nimble, lower-paid staff and more patient venture investors). The point of my earlier post was mainly that a true disruptive market shift is nearly impossible for a large, established incumbent to successfully survive because they basically have to rapidly turn into someone else almost overnight. How can a champion sumo wrestler survive a shift so dramatic that their sport quickly turns into a track meet? Even seeing it coming doesn't help. How does one even prepare for such a shift since losing mass turns you into a bad sumo wrestler long before you even start being a viable sprinter? As Christiansen observed, such disruptions are often enabled by technology but the actual cause of incumbent death is often due to the shift turning an incumbent's own strengths into weaknesses almost overnight.
pfdietz 3y ago
Arguably, the shareholders don't want the management to try to harden the company. If the shareholders wanted to invest in a new approach, they could do that on their own. Rather, the shareholders expect the company to squeeze what they can out of what they are, even if that means winding down the firm.
- Pet_Ant 3y ago
  Companies and management would rather a slow controlled descent into the ground than unexpected success. They balance their risk at the portfolio level not at the company level. During good times focus on your core and then peter out. Just follow a nice parabolic arc. A lot of success is just timing and attempting to fight all threats look foolish. A remember, for every up and comer that “we all saw coming” there were lots that didn’t make it. If you waste time fighting those you wasted money.
- ghaff 3y ago
  Right. It's not actually in anyone's interest most of the time to deliberately destroy the company in the short term to have a glimmer of hope of maybe successfully reinventing it in the longer term. Shareholders always have the option of moving on and employees/management can probably collect paychecks for more time while they possibly look elsewhere. Corporate legal continuity is probably overrated.
Kamq 3y ago
> and could arguably be illegal in a publicly traded company ("best efforts to maximize/preserve shareholder value" etc). There's no way the shareholders win this lawsuit. Violating fiduciary duty involves doing things you know won't provide value. Long term planning would be a defense for this. The shareholders could absolutely oust those executives, though. And they may very well do so.
duxup 3y ago
Even just changing simple behaviors across a large company can be impossible. I worked at a company with several thousand employees all required to attend mandatory training on "effective meetings", several hours long spread out across thousands of employees. Rule 1 was to have an agenda for the meeting. This was something nobody did at this company and you would regularly attend meetings unprepared. After all that training, still nobody did it (ok I did and one other guy). That company couldn't change anything. It was amazing. They had a project to change a department into more proactive than reactive. The solution was to create a lot of bureaucracy surrounding being proactive. As you can imagine bureaucracy about being proactive was really just institutionalizing ... not being proactive. I eventually left and work at a smaller company now. It's been refreshing for years now when we can decide "this process doesn't work, let's not do it anymore" and it just happens. Even just new coworker: "I won't be in tomorrow, who do I tell?", me: "you just did, have a great time off" seems revolutionary after being at a big company for so long. I'm convinced that as the sheer numbers of humans increases the friction to making real change in a company decreases and there's not much you can do. Fundamental change to respond to real disruption, nigh impossible.
datavirtue 3y ago
Does this apply to the US response to Chinas lead in battery and solar production? The Inflation Reduction Act is essentially a protectionist policy for manufacturing in response to Asian and Chinese tech manufacture. I feel like we are trying to fight our way out of one of these situations. I'm concerned because every time I see something happening that excites me (the massive policy shift from enacting the IRA and the surge in American manufacturing) it usually means something really bad is about to happen.
kjkjadksj 3y ago
I wonder if any major companies have experimented with an internal “red team” startup? It would be on level playing field with your upstart competitors, free from existing hierarchy and structure to develop disruptive tech like any other startup, only you are bankrolling them which gives them a head and shoulders boost relative to any other startup. Eventually you can let this startup grow to be more dominant than the old company and repeat the process with the next disruptive technology.
- JustLurking2022 3y ago
  As a thought experiment, let's say Facebook did this. The red team designs a new streamlined look with less click baity posts and fewer ads. Users flock to it, abandoning the existing platform. The new platform isn't monetized as effectively as the old one so revenue drops by billions per year - maybe an order of magnitude more than the new product brings in. Shareholders demand an answer as to what management are doing about it. There might be some golden path, but that typically relies on finding a new market that doesn't interfere with the existing business (e.g. AWS and Amazon). However, the far easier options are a) shutdown the new service or b) increase its monetization, thereby starting the enshitification cycle.
- telesilla 3y ago
  I've seen this in several mid-size companies but the trick to success is that you make a start-up in another vertical so your existing customers aren't dropping their contracts for the cheaper thing you disrupt yourself with. You're building a new business for the same market that already know you, so you can capitalize on your brand, using revenue from a dying but profitable model.
gregw2 3y ago
I agree. You might appreciate my elaboration on the SGI specifics of this elsewhere on this thread.

throwaway4good 3y ago

Everyone has been reading that book since the late 90es. I remember a talk by Clayton Christensen talking specifically about Intel and how they setup the Celeron division to compete with themselves (based on his advice). A key property of tech in economics lingo is that it is “natural monopolies” - all fixed cost and no variable cost. This creates these winner takes all games. In this case both Intel, SGI plus others knew the rules and it just ended up with Intel taking the prize and it all becoming Wintel for a decade or so - basically until the smart phone allowed enough capital to be accrued to challenge the old monopoly.

bsder 3y ago

"Maximally efficient is minimally robust." A company that optimizes for efficiency will get stomped flat when the environment changes. The problem is that there are no incentives in business to optimize for robustness.

roughly 3y ago
Well, that’s partially because of the converse: a company that optimizes for robustness will get stomped flat before the environment changes to require robustness. Short term games are bad in the long term, but often good enough in the short term to win before the long term arrives.

rbanffy 3y ago

I think SGI failed to understand that there was a point where desktop PCs would be good enough to replace dedicated workstations. Continuing to make hardware that's much better than the best PCs wasn't going to save them after PCs crossed the good-enough line - whatever they had, would be relegated to increasingly rarefied niches - the same way IBM now only makes POWER and mainframes - there is no point of making PCs, or even POWER workstations anymore for them, as the margin would be too narrow. SGI could double down on their servers and supercomputers, which they did for a while, but without entry-level options, their product lines becomes the domain of legacy clients who are too afraid (or too smart) to port to cheaper platforms. And being legacy in a highly dynamic segment like HPC is a recipe for disaster. IBM survived because their IBMi (the descendant of the AS/400) and mainframe lines are very well defended by systems that are too risky to move tied to hardware that's not that much more expensive than a similarly capable cluster of generic and less capable machines. As the market was being disrupted from under them, they retreated up and still defend their hill very effectively. The other movement they could do was to shift downwards, towards the PC, and pull the rug from under their workstation line. By the time Microsoft acquired Softimage and had it ported to NT, it was already too late for SGI to even try that move, as NT was solidified as a viable competitor in the visual computing segment, running on good-enough machines much, much cheaper than anything SGI had.

mrandish 3y ago
I think your analysis of the shifting technology landscape is largely on target. However, I'm not convinced that the true root of SGI's failure was the technology. Clearly their tech did need to evolve significantly for them to remain competitive but that's a transition which many companies successfully make. Even though SGI chose not to evolve the tech soon enough, fast enough nor far enough, I suspect they still would have failed to survive that time period due to an even more fundamental root cause: their entire corporate structure wasn't suited to the new competitive environment. While the "desktop transition" was most obviously apparent in the technology, I think the worst part for SGI was that the desktop shift changed the fundamental economics to higher volumes at lower costs. SGI had invested in building significant strengths and competency in its sales and distribution structure. This was one of their key competitive moats. Unfortunately, not only did the shift in economics make this strength irrelevant, it turned it into a fundamental weakness. All that workstation-centric sales, distribution, service and support infrastructure dramatically weighed down their payroll and opex. This was fine as long as they could count on the higher margins of their existing business. While it's easy to say they should "just layoff all those people and relaunch as a desktop company" that can't be done in one quarter or even one year. It requires fundamentally different structures, processes, systems and skill sets. Hiring, training and integrating all that while paying for massive layoffs and shutting down offices, warehouses etc takes time and costs a lot of money. Worse, once their existing workstation customers saw them shutting down the SGI the customers had bought workstations and service contracts from to become a different kind of company entirely, sales revenue would have taken an overnight nosedive. SGI's stock would also have tanked far more immediately than it did as the fickle stock market investors sold stock they'd bought because SGI offered a specific risk/return expectation which just became much more "risk" and much less "return" (at least in the near-term). In making such a dramatic move SGI would have effectively dumped much of their current quarterly revenue and the value of one of their core strengths - all at the same moment. Thus turning them into one of their emerging startup competitors with all of a startup's disadvantages (no big ongoing revenue streams, no big cash pile (or high stock valuation to leverage for cash)) yet none of a startup's strengths (nimble, lower-paid staff and more patient venture investors). The point of my earlier post was mainly that a true disruptive market shift is nearly impossible for a large, established incumbent to successfully survive because they basically have to rapidly turn into someone else almost overnight. How can a champion sumo wrestler survive a shift so dramatic that their sport quickly turns into a track meet? Even seeing it coming doesn't help. How does one even prepare for such a shift since losing mass turns you into a bad sumo wrestler long before you even start being a viable sprinter? As Christiansen observed, such disruptions are often enabled by technology but the actual cause of incumbent death is often due to the shift turning an incumbent's own strengths into weaknesses almost overnight.

pfdietz 3y ago

Arguably, the shareholders don't want the management to try to harden the company. If the shareholders wanted to invest in a new approach, they could do that on their own. Rather, the shareholders expect the company to squeeze what they can out of what they are, even if that means winding down the firm.

Pet_Ant 3y ago
Companies and management would rather a slow controlled descent into the ground than unexpected success. They balance their risk at the portfolio level not at the company level. During good times focus on your core and then peter out. Just follow a nice parabolic arc. A lot of success is just timing and attempting to fight all threats look foolish. A remember, for every up and comer that “we all saw coming” there were lots that didn’t make it. If you waste time fighting those you wasted money.
ghaff 3y ago
Right. It's not actually in anyone's interest most of the time to deliberately destroy the company in the short term to have a glimmer of hope of maybe successfully reinventing it in the longer term. Shareholders always have the option of moving on and employees/management can probably collect paychecks for more time while they possibly look elsewhere. Corporate legal continuity is probably overrated.

Kamq 3y ago

> and could arguably be illegal in a publicly traded company ("best efforts to maximize/preserve shareholder value" etc). There's no way the shareholders win this lawsuit. Violating fiduciary duty involves doing things you know won't provide value. Long term planning would be a defense for this. The shareholders could absolutely oust those executives, though. And they may very well do so.

duxup 3y ago

Even just changing simple behaviors across a large company can be impossible. I worked at a company with several thousand employees all required to attend mandatory training on "effective meetings", several hours long spread out across thousands of employees. Rule 1 was to have an agenda for the meeting. This was something nobody did at this company and you would regularly attend meetings unprepared. After all that training, still nobody did it (ok I did and one other guy). That company couldn't change anything. It was amazing. They had a project to change a department into more proactive than reactive. The solution was to create a lot of bureaucracy surrounding being proactive. As you can imagine bureaucracy about being proactive was really just institutionalizing ... not being proactive. I eventually left and work at a smaller company now. It's been refreshing for years now when we can decide "this process doesn't work, let's not do it anymore" and it just happens. Even just new coworker: "I won't be in tomorrow, who do I tell?", me: "you just did, have a great time off" seems revolutionary after being at a big company for so long. I'm convinced that as the sheer numbers of humans increases the friction to making real change in a company decreases and there's not much you can do. Fundamental change to respond to real disruption, nigh impossible.

datavirtue 3y ago

Does this apply to the US response to Chinas lead in battery and solar production? The Inflation Reduction Act is essentially a protectionist policy for manufacturing in response to Asian and Chinese tech manufacture. I feel like we are trying to fight our way out of one of these situations. I'm concerned because every time I see something happening that excites me (the massive policy shift from enacting the IRA and the surge in American manufacturing) it usually means something really bad is about to happen.

kjkjadksj 3y ago

I wonder if any major companies have experimented with an internal “red team” startup? It would be on level playing field with your upstart competitors, free from existing hierarchy and structure to develop disruptive tech like any other startup, only you are bankrolling them which gives them a head and shoulders boost relative to any other startup. Eventually you can let this startup grow to be more dominant than the old company and repeat the process with the next disruptive technology.

JustLurking2022 3y ago
As a thought experiment, let's say Facebook did this. The red team designs a new streamlined look with less click baity posts and fewer ads. Users flock to it, abandoning the existing platform. The new platform isn't monetized as effectively as the old one so revenue drops by billions per year - maybe an order of magnitude more than the new product brings in. Shareholders demand an answer as to what management are doing about it. There might be some golden path, but that typically relies on finding a new market that doesn't interfere with the existing business (e.g. AWS and Amazon). However, the far easier options are a) shutdown the new service or b) increase its monetization, thereby starting the enshitification cycle.
telesilla 3y ago
I've seen this in several mid-size companies but the trick to success is that you make a start-up in another vertical so your existing customers aren't dropping their contracts for the cheaper thing you disrupt yourself with. You're building a new business for the same market that already know you, so you can capitalize on your brand, using revenue from a dying but profitable model.

gregw2 3y ago

I agree. You might appreciate my elaboration on the SGI specifics of this elsewhere on this thread.