For use: Sunday, July 30, 2000 and thereafter

 

A Business Bestiary: "The Killer Shrew"

by Michael Finley

Copyright (c) 2000 by Michael Finley

It's 60 million BC. The world is the dinosaur's oyster. For millions of years they have evolved until they are the best dinosaurs money can buy. Big, sleek, and specialized. Slow but remarkable, dinosaurs are the cat's meow..

Then along comes the shrew. Or if it's not a shrew, then a rat, or a marmot, or a weasel, or some skinny little furry creature with warm blood and that births its young live instead of hatching them from eggs.

The shrew doesn’t look especially promising. A decent dinosaur could squash a dozen at a time with one foot. Yet it is a harbinger of a new age. This dinky little creature, on behalf of all future mammals, will inherit the earth, and feast on the eggs of the superior creatures towering above.

Now look at the big comfortable legacy companies of our own era. IBM, circa 1980, towered above all other companies. Its mainframe computers were big and powerful and feature-laden. Profit margins were to die for. But along came a shrew of a technology called the microprocessor, led by the pathetic 4k Altair chip, and a weasel of a software concept, which came to be called DOS. Twenty years later, IBM still lives, but in a world dominated and dictated by the little mammals, which grew into fierce gorillas.

Harvard business professor Clayton Christenson calls this shrew dynamic a disruptive technology -- a new idea that doesn’t look like much at first, but contains the seeds of destruction for its obvious "betters." Examples of disruptive technologies:

• E-commerce, where the Amazon.coms are deep-sixing conventional retailers.
• Automotives. When Toyota first rolled out its Coronas and Tercels, Detroit laughed. Honda entered the U.S. market selling road bikes. Who's laughing now?
• Airlines. People Express seemed like a joke in the 1970s. Today, Southwest Airlines, pursuing similar strategies, is the hottest thing flying.
• Discount brokerages. First Charles Schwab stole food off the plates of mainline brokerages. Now, e-Trade is going Schwab one better, making millions of investors into daytraders.
• PDAs. The tech world tittered at the underpowered Newton. But along comes the PalmPilot and now everyone wants one.
• Internet telephony. You may not admire the talk-and-wait technology of using the Internet for long distance calls. But at that price (free) you might be willing to wait a second or two.

What can you do if your company is a dinosaur? Christensen prescribed three steps:

• First, find the missile on your radar screen. Conventional means of detection useless. Customers won't tell you your advanced technology isn't worth what you are charging for it. Marketing and finance will be too stuck in their game to notice something outside it. Even senior management will be unaware of the disrupter, or shrug it off as an annoyance. You need a new process for spotting this new competition, and new people to do the spotting.
• Second, show respect. This is the emergence of a brand new market, one that values the fledgling technology and does not turn up its nose at it -- hearing aids for transistors. It won't emerge where you expect it to emerge, and it will happen in a downscale niche.
• Third, prepare for the battle of your life. Your competition is not a rumor anymore -- it's competing, and you must protect the low end of your market against nibbling. Assess your vulnerability: Do you provide too complete a solution to your customers? Is "good enough" all your customers need? This is war.

The bad news is, surviving a disrupter is extremely rare. Shrews almost always do the dinosaur in. But there is hope, for companies willing to do a difficult thing -- start a new company or division outside the current division, and have that new division compete against both the insurgent disrupter and the mother company. To fight a shrew, you must become a shrew yourself.

 

Order Clayton Christensen's The Innovator's Dilemma

Copyright (c) 2000 by Michael Finley