Sunday, October 6, 2013

Sunday Night Scotch: Disruption Is So... Well... Disruptive

The reason that God was able to create the world in seven days is He didn't have to worry about the installed base.  - Enzo Torresi

Maybe it's a sad testament to the human condition, but the technology industry does not seem to lend itself to attracting individuals with humility or self awareness. Since my very early days as a junior software engineer, I have noted that it is only a matter of time before many archetypical tech nerds, having achieved a modicum of monetary success, start to behave erratically. Before long, you see them standing on top of the roof at corporate headquarters, laughing maniacally. In a thunderstorm. Waiving a five-iron in the air. I'll grant that this happens in other professions as well, but there's something about the rags-to-riches nature of tech that makes it all the more poignant.

If you are an executive in a leadership position at any firm, it therefore follows that you need to go through the history of other people's mistakes obsessively so you learn from them. (I recommend doing so very clinically - like the NTSB examining the wreckage of an airplane crash.) What you inevitably find, tragically, is that history really does rhyme even if it doesn't repeat. With that thought in mind, I present to you the scariest part of my reading list from last week: The Globe and Mail's investigative piece on the failure of Blackberry:

In it, you'll find a freakish retelling of pretty much every clich√© of every tech downfall you can imagine. If you are a technology leader, and you'd like to engage in some negative reinforcement therapy, I recommend it highly. Likewise, if you need an excuse to have a strong drink, you'll find all you need there. Here are some of my thoughts:

Disruption Is Never Evident Until After The Fact

In her book entitled Being Wrong: Adventures In The Margin Of Error, Katherine Schulz states that being wrong feels exactly like being right. What we remember most painfully is the moment when we realize we are wrong. What will make you cringe, therefore, is the fact that much of the investigative narrative does not occur in the months after the iPhone's market success in 2007 and 2008. It is a story set in events of 2012 and maybe late 2011. It wasn't until then that the mobile phone market had been disrupted to the point where Blackberry sales were beginning a secular, irreversible decline. That is a long time. Friends, that is what disruption looks like.

The point here is that you can't advertise a sea change. Smart people do not screw up this badly unless they are completely unprepared. By definition, a technology market can't be disrupted if all the players were anticipating the change. So, all you Storage Geeks take note: Things like flash technology are really more evolutionary. Everyone knows about them and they are all making bets. It is unlikely that anyone will go out of business. In fact, recent failed IPO's are testament to that. True disruption sneaks up on you.

Listening To Your Customers Can Kill You Too

Conventional business wisdom would have executives in a bear-hug with customers, listening and catering intently to their every whim. In a disruptive situation, the customers you are listening to aren't the ones that are going to rock your world. It is the early adopters and the rebels that are driving the change. A large, established technology company cannot pay attention to these people because they do not represent a viably large market. When it would have mattered to do otherwise, Blackberry was clearly making decisions based on the needs of their huge revenue base: the one that was paying them for physical keyboards on their phones. They were doing precisely the correct thing. They were wrong to do so.

Just hiring a CTO to go watch these people wont work either. I know exactly what it feels like to point out that a fringe minority has a better idea about how to do things. In a publicly held company, the business worships at the "church of what's happening now". There is no accounting gimmick or spreadsheet that you can conjure, which makes an ROI case for investing in a disruptive technology. You will lose your case every time. When the return is 4 years into the future, no one will care. This is why there are venture capitalists.

Finally, we can see what can go wrong when you send off  a bunch of rebels to "do the right thing" as Blackberry did with the touch screen products. They can easily lose touch with your customer base, and build something that your existing customers wont transition to. At the same time, they may not get any new customers either, unless they are truly brilliant in their execution.

No One Can Explain the Ten Year Run Apple Has Had

When the history books are written for business over the last decade, I am not sure how they will be able to distill the moves Apple made into a real repeatable formula. It is not lost on me the hypocrisy of criticizing the seemingly stupid, calcified, large incumbent technology organizations, when the player bringing the disruption is actually a big company, too. The ability to attack huge, seemingly unrelated markets from a position of financial strength helped. Not having to drag an existing user base along also seemed to go a long way. So did the organizational structure that protected the development of these new products from the vicissitudes brought forth by the markets. ...But getting it right every time on these giant bets? That is pure genius or pure luck.



  1. You say: ' In a publicly held company, the business worships at the "church of what's happening now". There is no accounting gimmick or spreadsheet that you can conjure, which makes an ROI case for investing in a disruptive technology. '

    That's a pretty good summary of "The Innovator's Dilemma".

    I would also summarize your statements as "when all you have is a hammer, everything looks like a nail". I've seen this behavior time and again in hardware based companies. They fail to realize that the true intellectual property and the true economic value comes from their software and architecture (the MSFT Exchange sync engine in Blackberry's case).

    Apple realized years ago that it was really a consumer electronics company, not a computer or hardware company. Brand loyalty and form over function are the key indicators here. It has since changed to viewing itself as a media platform company.

    Blackberry still views itself as a hardware company, and more specifically, a messaging device company. That's 2 (r)evolutions old.

  2. Thanks, Jack.

    I actually had The Innovator's Dilemma in mind when I wrote this, because if you read the referenced piece, it appears that they were taking some of the advice from that book by building a separate team to deliver a new product. It looks like it didn't work very well.

    I think you have a bigger point: Being able to change who you are is what companies are really bad at in scale. Yet another thing about Apple...