Meeting Clay Christensen and My Innovator's Dilemma

Communitech is an organization devoted to promote the Waterloo Region (Region = County in Canada) as a technology hub, which it is, with over 700 tech companies including RIM, Open Text or the Perimeter Institute for Theoretical Physics. Once a year, Communitech puts on a fabulous Technology Leadership Conference which I got to attend yesterday. The keynote speakers were Fast Company's founder Bill Taylor, Avid Life Media CEO Noel Biderman, and the Harvard Business School professor Clayton Christensen, author of the renowned Innovator's Dilemma book and one of my gurus.

Having seen that Clay Christensen was on the agenda, it took me only about 5 sec to decide that I had to clear my day and attend. And so, I got to see him speaking about the innovator's dilemma which is so acute for so many high tech companies today. The long and the short of the story is that established vendors are often being challenged by bottom feeders who take over the unattractive, low-margin business that the established vendors are more than happy to give up. But as they get good at it, the disruptive innovators start moving up the stack, getting better and better at addressing more complex problems while leveraging the disruptive innovation that challenges the incumbent's pricing and business model.

In the subsequent roundtable discussion, Prof. Christensen explained that there are only two solutions for the dilemma. One of them is to make yourself obsolete by either acquiring or organically building a new business and keeping it separate from the old business. Over time, the new business makes the old one obsolete which is bad for the particular business unit but good for the company. Because, as Clay Christensen said, “…while the business units cannot evolve, the company can”. Failing to do this can only mean a demise as the company is driven into obsolescence by new entrants.

The second way to counter the innovator's dilemma is moving up the stack. The incumbent company has to keep innovating on the top tier, creating more sophisticated capabilities, as it surrenders the bottom to the new arrivals. This is of course only delaying the inevitable but this strategy can work for many years.

We see this happening all the time in the software world. For example, Microsoft Office is being attacked from the bottom by new, lower-cost entrants such as Google Apps or Open Office. And Microsoft keeps countering with innovations on top of the stack, such as the Office infrastructure provided by SharePoint. But as Google or Open Office keep adding features, Microsoft needs to consider disrupting itself with an innovation that would make Office obsolete. Otherwise, Office will become history.

Even my industry, enterprise content management, is not immune to this problem. Established vendors such as Open Text or IBM are being challenged by new entrants coming up with new business models from the bottom. Google Wave or Box.net are examples of disruptive innovations – free and based on a SaaS model – that could become competitors in the long term. So far, they don’t address the kinds of problems that our customers buy our software for and we have been successfully moving up the stack by adding new capabilities along with horizontal and vertical solutions. We, at Open Text, have plenty of ideas to keep doing that for several years. But we are also working on technologies that may completely change the way content is managed. Stay tuned for that.

Meeting Clay Christensen was inspiring and it made me think about his Innovator's Dilemma model again. And that's what is so great about the Communitech Leadership Conference in Waterloo. I saw Seth Godin there last year and I can't wait to see who comes next year. In the mean time, I will be working on the Innovator's Solution...