Mastering the Dynamics of Innovation by Dr. James Utterback is an innovation classic. It describes how technologies and industries in the past have evolved over time, usually resulting in the large, established firm losing out to the smaller startups. Looking forward, I have no doubt his models and insights will be used to explain the evolution of firms and industries with us today. “A major work that will be cited for decades,” says Professor James Brian Quinn at Dartmouth. I predict a much longer time frame than decades.
Utterback is the David J. McGrath Jr. Professor of Management and Innovation and a Professor of Technological Innovation, Entrepreneurship, and Strategic Management at the MIT Sloan School of Management.
Here are selected quotes out of Dr. Utterback’s book. As you read these, try to relate these quotes to companies that face this situation. Keep in mind this book was first written in 1994.
“For established firms, getting off the path they are currently on in another, more difficult challenge. The impulse for firms to continue on the path of cash-generating technologies is powerful.”
“The most obvious explanation for the demise of established leaders in an industry would be that they have skills in the old product or process technology, while entrepreneurial firms have a base in the new one.”
“A highly focused set of competences concentrates a firm’s powers of knowledge, but in a narrow way range, making it vulnerable to radical innovation.”
“Simply becoming better and better with current technology will not, in the long run, keep new firms with new technology from absorbing markets and relegating unresponsive established firms to the scrap heap of industrial history.”
“As firms grow large, their top managers necessarily function more as conservators than as creators; they have income-producing products that must be nurtured and preserved to continue the benefits of shareholders and fellow employees.”
Who are some of the firms described by these quotes, nearly 20 years later?
Yahoo was making so much money in banner ads that it could not break away and invest in search revenues. Google took care of that.
Kodak invented digital photography, but was so stuck in its core competencies around chemical photography it could not break away and invest in digital. Fuji, Sony, and many others pounced.
Netflix tried to squeeze so much out of its business model that it alienated hundreds of thousands of customers. It gave people the reason they were looking for to switch.
RIM, maker of Blackberry had not one but two “conservators” of its business model as co-CEO’s. They are gone finally, but RIM is about to become R.I.P..
Is there hope for the established firms? Yes, according to Dr. Utterback:
“We have seen that the winners are often the ones that are the most experimental and flexible in matching the early forms of the product with unexpected demands and opportunities and that think through the development of their innovation in the most thorough and systematic way.”