Disruptive Management

by BILL WADDELL

There is an article on Financial Times called "Why Sony Did Not Invent the iPod".  If you don't have a FT account don't worry about it - the article is not particularly important.  It is like countless articles and books that have flowed from the professional management cult, citing a Harvard wizard by the name Clayton Christensen who reaps all sorts of awards for his managerial insights.  It preaches a famiar theme - game changing, innovative products wreak haoc on industries and some companies do a lousy job of recognizing and dealing with it.

Included in the article is the assertion, "Narratives of industry evolution often represent fairy tales constructed by corporate financiers, or ambitious chief executives."  I would add to that, 'fairly tales constructed by business school professors and other gurus'. 

The idea that business folks rationalize the status quo when challenged with game changing products is valid enough, but it is just as valid - even more so perhaps - that corporate financiers, ambitious (and otherwise) chief executives - and especially management gurus in institutions that have built their reputations, careers and bank accounts on the status quo construct fairly tales to rationalize the status quo when confronted with a different management paradigm.  How else are we to explain the Toyota versus General Motors domination swap?

Over the years, General Motors management proffered explanations for their eroding market share and profits ranging from Toyota 'buying market share', the Japanese government underwriting Toyota, GM's hourly wage agreements, their structural costs and their legacy costs ... everything but the idea that Toyota was managing by a completely different set of principles.  One by one all of those explanations were corrected, at no small expense to all of GM's stakeholders - employees, suppliers, customers, comunities and American taxpayers - yet GM is still the same struggling mess lurching from solution to solution it was twenty years ago.

The gist of the FT article is a theory concerning the failure of many mergers and acquisitions intended to counter the industry disruption new products have created.  It says, "Established companies in an industry are naturally resistant to disruptive  innovation, which threatens their existing capabilities and cannibalises their  existing products. A collection of all the businesses which might be transformed  by disruptive innovation might at first sight appear to be a means of assembling  the capabilities needed to manage change. In practice, it is a means of  gathering together everyone who has an incentive to resist change."

Take a look at this rogues gallery from the good professor's web site.  What is it if not a "gathering together everyone who has an incentive to resist change"?  What has this group done to challenge the long standing basic principles of management assumed to be irrefutable by their colleagues and decades of graduates from the schools paying their salaries?  The answer is nothing.  By and large, this group still believes that GM can put itself right with innovative products, and that its management methods and processes are just fine.

The 'fairy tales' told by the professional management cult wholly ignore the fact that, while Toyota did a lot of good things in the course of running roughshod over General Motors cranking out disruptive, game changing, industry redefining products is not one of them.

Get a load of the management disruptioin this video from a small company called Aluminum Trailers in an out of the way place in northern Indiana.  ATC is doing to the small trailer industry what Toyota to  the auto industry and, as the video shows, they are doing it by taking a fundamentally different approach to management.  I can imagine what sort of intellectual fairly tales the professional management cult would construct to rationalize ATC.

 The professional management experts break the fundamental rule of lean - they miss Dr Deming's essential point.  Failure is ascribed to personal failing, rather than flawed processes.  If the company is doing poorly, the problem is the CEO and his lack of vision, charisma, leadership skills, knowledge of strategy, inability to comprehend financial ratios, ignorance of brand management  essentials, etc..., etc..., etc...  How such idiots came to be CEO's - an extraordinary occurrence - is never explained.  Of course they are not idiots, they are very intelligent people, but they are executing incapable management processes.

 Of course innovative products can be very disruptive - the high tech world proves that routinely.  Of course supply chain innovation can be extremely disruptive - just look at P&G founder about to respond to Dollar Shave Club, and Walmart grapple with Amazon.  And of course the folks whose careers are vested in the old model often look foolish and go down hard.

Management innovation is just as disruptive - more so than products because most companies can catch up if they are behind the product curve while clinging to a failed management model is often a death sentence.  Those steeped in old management thinking sooner or later look just as foolish and go down just as hard, whether they are executives, financiers ... or award winning college professors.

Original: http://idatix.com/manufacturing-leadership/disruptive-management/

Comments

[Renaud]

Christensen never said disruptive innovations are the only way for a small company to win against a big incumbent company. He just says it explains a lot of ups and downs across many industries, and he backs it up.
Actually, in his books he explains that an established company tends to over-shoot customer needs. In other words, they don't pay attention to what customers value (they are not lean) and they pay the price for it.
And he explains that younger companies (that often use much simpler processes and machinery, like the minimills that killed the big steel mills) that focus on overshot customers can end up killing big incumbents.
So I don't see any contradiction between lean thinking and disruptive innovation thinking.
Wasn't the Toyota Production System itself an innovation?

[Bill Waddell]

My point, Renaud, is that truly lean companies create as much disruption (often more0 in their industries not by innovative products or radical restructuring of supply chains but by simply managing their business in a different manner. If you look at the video and contemplate Toyota you will realize that both ATC and Toyota provide solid products in conventional supply chains, but are blowing the competition away by running their companies in a way the Harvard boys simply do not appreciate. They have different org structures; train, deploy and account for people differently; have a radically different approach to accounting – how it is done and its role in decision making; use non-ERP dependent supply chain processes; and have a completely different set of performance metrics. Their disruption is a management approach the power of which neither the good professor nor his colleagues understand or appreciate.

[Sean]

The first rule of strategy is that doing the same thing as your competitor in the same way will not get you anywhere.

So when everyone listens to the Harvard boys, then no one gets an edge from listening to the Harvard boys.

[Robert Drescher]

Hi Bill

You are right disruptive management is more important than disruptive technology. In every case I have seen disruptive technology is always coupled with disruptive management. The minimill steel companies not only utilize a technology that is disruptive, but their whole business model including marketing and management is disruptive.

I look around and just about every company that is growing steadily over the last decade is a comapny that operates on disruptive management and marketing. They simply do little things better and because of that they win. LG and Samsung have few technolgies in their appliance businesses that are not avialable to every competitor, yet they have carved out large shares in an established marketplace, by just being different in the way they market and manage their businesses. Technology is not their winning focus instead it is being focussed on their customer first instead on on their stocks' performance.

And think whether you like Apple or not their disruptive technology would not exist if they did not have a disruptive management and marketing system that promoted its development.

[Daniel Markovitz]

Bill -- one of your best pieces yet.

[Bill Waddell]

Thanks Dan. Coming from you I take that as high praise indeed.

[Chris Coleridge]

Clay's theory is aimed at explaining why large companies don't respond to certain types of innovation, and it certainly doesn't ignore the role of what Dorothy Leonard-Barton calls 'core rigidities' in the big firms in stopping them from believing fundamental change is ever called for.

As a strategy teacher, I have read the work of maybe 40 of the people you call out as 'rogues'. If by that you mean, telling CEOs what they want to hear and MBA students how to fit in, rather than how to make things better, there are a few on the list. Just like top management consultants, some of them are engaged in 'the discourse of seduction'-- telling a beautiful girl she ain't so great so as to get into a privileged relationship but not really interested in the truth.

But at least 20 of those people are just as concerned with management innovation as you are Bill...and a big part of the reason they do the work they do is so they can tell the truth as they see it outside a corporate structure. Choose a more specific straw man for the argument Bill, some of us academic types are not so bad...

[Brian Werneke]

Great piece Bill, I will be sharing this with many people I know that have struggled to internalize the need to be disruptive with all of their management systems - production, marketing, innovation - so as to create more value and solve customer problems in a meaningful way. A way that really matters to the customer, and isn't just new or different for the sake of being new and different. The ATC video is simple and easy to understand - very well done.

As the saying goes - "if you keep doing what you've always done, you'll keep getting what you've always got." Or more crudely - don't just put lipstick on pig.

[Jan Fischbach]

There is the illusion that there are quick and easy solution for complex problems. (Change vision, change persons, change markets, change tools ...) But as Dr. Deming said: there is no instant pudding.

Inspect and adapt your processes is the easiest way (not the shortest way) "out of the crisis". So, readers of this post will find good points in Deming’s books.

A very good example is the red bead experiment, which shows how ridiculous are certain management practices. Search at youtube for vids of the user FluorHanfordCleanup (http://www.youtube.com/user/FluorHanfordCleanup). It’s about an hour.