Category: Christensen, Clayton

Tom Watson, Jr. Managed IBM’s Rare and Successful Self-Disruption by “Transitioning the Firm to Electronic Computing”

(p. 9) Thomas J. Watson Jr. seemed, from a young age, to be destined for failure.

. . .

“He played with fire, shot animals in the nearby swamps and pilfered things from neighbors’ houses,” Ralph Watson McElvenny and Marc Wortman write in “The Greatest Capitalist Who Ever Lived,” a compelling new biography of Watson Jr.

. . .

This is far from the first book about IBM.

. . .

But this is probably the most theatrical book about IBM ever published. McElvenny, who happens to be Watson Jr.’s eldest grandson, is privy to “personal and corporate papers” and, as the endnotes mysteriously specify, many “family sources.”

. . .

“The Greatest Capitalist Who Ever Lived” is about the challenges of corporate and family succession, an essential topic given that IBM itself was the father figure to most of the computing and tech industry. Watson Sr., “the old man,” was a type familiar to our times: the tech titan who runs a large company as an extension of himself. (The IBM machine that beat the “Jeopardy!” champion Ken Jennings bears his name.) For four decades, IBM was Watson Sr.’s fief. The company “was run entirely out of one man’s breast pocket,” McElvenny and Wortman write. Watson Sr. “made all strategic decisions and most minor ones” and “delegated almost no authority.”

To his lasting credit, he did truly take care of his employees and their families in a manner that bred a strong loyalty. That said, Watson Sr. demanded conformity and could be erratic and cruel.

. . .

IBM faced a classic version of what the Harvard Business School professor Clayton Christensen has termed the “innovator’s dilemma” and what the Nobel Prize-winning economist Kenneth Arrow described as a monopoly’s disinclination to innovate. IBM was making plenty of profit on punched cards and accounting machines, its customers were happy, so why rock the boat?

Watson Jr.’s intense antipathy toward his father ended up saving IBM. Just before the United States entered World War II, Junior gained self-confidence the old-fashioned way: by joining the Army Air Corps and flying a B-24. When he eventually returned to IBM (pushed to do so by his commanding officer, Maj. Gen. Follett Bradley, who thought Watson would be wasted as an airline pilot), he became the internal champion of transitioning the firm to electronic computing. He was perhaps the only person who could oppose his father in a company built on yes men.

While the book’s title calls him “the greatest capitalist,” it might more accurately, if less ringingly, call him “the greatest manager,” for Watson Jr. was much better at delegating and using his employees’ talents.

For the full review, see:

Tim Wu. “Next-Gen.” The New York Times Book Review (Sunday, December 17, 2023): 9.

(Note: ellipses added.)

(Note: the online version of the review was updated Dec. 15, 2023, and has the title “The Father-Son Struggle That Helped Ensure IBM’s Success.”)

The book under review is:

McElvenny, Ralph Watson, and Marc Wortman. The Greatest Capitalist Who Ever Lived: Tom Watson Jr. and the Epic Story of How IBM Created the Digital Age. New York: PublicAffairs, 2023.

CEO Ackerman Sold Corning’s Cookware to Focus on Fiber Optics

(p. A8) When Roger Ackerman was named chairman and chief executive of Corning Inc. in 1996, the company depicted him as a technologically savvy leader who would guide the company into the internet age.

“I’m absolutely ready to take over at Corning, and have no fear or trepidation,” he told The Wall Street Journal.

Mr. Ackerman sold Corning’s housewares division, featuring cookware and such brands as Pyrex, to focus on making optical fibers, liquid-crystal-display glass and other high-tech marvels. Optical fibers were in hot demand as telecom companies rushed to lace the globe with voice and data networks.

For the full obituary, see:

James R. Hagerty. “Corning CEO Put Focus on Technology.” The Wall Street Journal (Saturday, Aug. 20, 2022): A8.

(Note: the online version of the obituary has the date August 18, 2022, and has the title “Corning CEO Shifted Focus From Cookware to Photonics.”)

Anderson Led NCR to Disrupt Its Own Cash Register Technology

I believe that Clayton Christensen (with Raynor) in The Innovator’s Solution, used the NCR transition from mechanical cash registers to electronic cash registers as an example of creative destruction that was NOT an example of his disruptive innovation. Alternatively, should this be considered a rare case where a firm succeeds in disrupting itself, especially rare because it was not implemented by the firm founders? (The usual case of rare self-disruption is HP disrupting its laser printer by developing the ink jet printer.)

(p. A9) The same self-belief that kept Mr. Anderson alive as a POW gave him confidence he could save NCR.

“The most important message I try to get across to our managers all over the world is that we are in trouble but we will overcome it,” he told Business Week, which reported that he had the “stance and mien of a middleweight boxer.”

Founded in 1884, NCR was comfortably entrenched as a dominant supplier of mechanical cash registers and machines used in accounting and banking. It underestimated the speed at which microelectronics and computers would wipe out its legacy product line. By the early 1970s, NCR was losing sales to more nimble rivals.

A factory complex covering 55 acres in Dayton made hundreds of exceedingly complicated machines rapidly becoming obsolete. Mr. Anderson found that NCR was using about 130,000 different parts, including more than 9,000 types and sizes of screws. For 1972, his first year as president, NCR took a $70 million charge, largely to write down the value of parts and inventory and replace outdated production equipment.

Mr. Anderson slashed the payroll and invested in new products, including automated teller machines and computers. Profitability recovered, and NCR reported record revenue of $4.07 billion for 1984, the year he retired as chairman.

For the full obituary, see:

James R. Hagerty. “Former POW Revived National Cash Register.” The Wall Street Journal (Saturday, July 10, 20211): A9.

(Note: the online version of the obituary has the date July 6, 2021, and has the title “Former Prisoner of War Saved NCR From Obsolescence.”)

The Christensen co-authored book mentioned above is:

Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

Apple Will Make Its Own Mac Processor Chips

In similar stories told in books by Grove and by Christensen and Raynor, technology firms work better when large, if components require careful design to work well together. When components become standardized and interchangeable, technology firms work better when smaller, buying components from specialized component suppliers. Deciding what is best at any moment requires uncertain judgement, and can change over time. In the passages quoted below, it appears that Apple thinks better performance can be achieved by integrating a key component back within the firm.

(p. B4) Apple Inc. built its gadget empire by outsourcing production to a vast ecosystem of chip makers and other component specialists. Under Chief Executive Tim Cook, it is taking a lot of that business back.

The company, which released its first iPhone processor in 2010, said Monday [June 22, 2020] it plans to ship Macs later this year with custom chips, a move that ends a 15-year technology partnership with Intel Corp. Apple said the custom-designed chips are more efficient and offer higher-performance graphics.

. . .

The strategy springs from Apple’s philosophy—fostered by its late co-founder Steve Jobs—that owning core technologies provides a competitive edge. Customized chips and sensors can help its iPhone, iPads and Macs leapfrog rivals in battery performance and features. It also can protect Apple from Chinese rivals that buy universally available parts.

. . .

The initiative—called insourcing by some suppliers and analysts—can give Apple a two-year jump on competitors in device performance because Apple can plan how multiple chips work together to limit power consumption and free up space inside iPhones and iPads for other components, analysts said.

It also reduces potential leaks of its product plans.

For the full story, see:

Tripp Mickle. “By Making Its Chips, Apple Gains Control.” The Wall Street Journal (Wednesday, June 24, 2020): B4.

(Note: ellipses, and bracketed date, added.)

(Note: the online version of the story was updated June 24, 2020, and has the title “Apple Is the Newest Chip Giant in Town.”)

The Grove book mentioned above is:

Grove, Andrew S. Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company. New York: Bantam Books, 1999.

The Christensen and Raynor book mentioned above is:

Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

At Netflix “Adequate Performance Gets a Generous Severance Package”

Note that Netflix practices what Clayton Christensen called “emergent” strategic planning. Experimental responding to opportunities; no five year plans.

(p. B5) As a founder and co-chief executive of Netflix Inc., Reed Hastings has reshaped both the way people watch television and how the entertainment industry operates.

. . .

In his new book “No Rules Rules: Netflix and the Culture of Reinvention,” Mr. Hastings likens being employed at the streaming giant to being part of a sports team: Getting cut is disappointing but carries no shame. “Unlike many companies, we practice: Adequate performance gets a generous severance package,” reads one of Netflix’s mottos.

. . .

WSJ: In the book you say, “It’s impossible to know where a business like ours will be in five years.” What kind of prognosticating do you do?

Mr. Hastings: We keep trying experiments. The business model will be pretty similar in five years. Can we figure out animation? Can we catch Disney in family animation?

WSJ: You’ve said you want Netflix to be able to pounce on unanticipated opportunities. What’s an example of one you didn’t see coming?

Mr. Hastings: Nonfiction programming is a pretty good one. We started as superpremium TV, and the expansion into nonfiction has been a huge success. The whole sharing of content around the world has been a huge success. Prior to that, people thought Americans won’t watch content that’s produced outside the U.S.

For the full interview, see:

Joe Flint, interviewer. “BOSS TALK; Netflix’s Hastings Isn’t Fan of Remote Work.” The Wall Street Journal (Tuesday, September 8, 2020): B5.

(Note: ellipses added. “WSJ” and “MR. HASTINGS” were bolded in original.)

(Note: the online version of the interview has the date Sep. 7, 2020, and has the title “BOSS TALK; Netflix’s Reed Hastings Deems Remote Work ‘a Pure Negative’.”)

Hastings, Reed, and Erin Meyer. No Rules Rules: Netflix and the Culture of Reinvention. New York: Penguin Press, 2020.

Houghton Shifted Corning from Cookware to Fiber Optics

(p. A13) When Amory Houghton became chief executive of Corning Glass Works in 1964, the company founded by his great-great grandfather was thriving. Known to the general public for Pyrex measuring cups and Corning Ware casseroles, it dominated the U.S. market for the glass used to encase TV tubes.

But the company, now known as Corning Inc., proved too reliant on those tubes, which accounted for as much as 75% of profit. In the mid-1970s, the company faced a recession and the loss of TV-related business as Japanese imports captured the U.S. market. Profits collapsed, and Mr. Houghton had to chop costs, including at the headquarters in Corning, N.Y. The global workforce dropped by more than one-third.

. . .

“It was tough making these cuts,” he said, “particularly when you lived in a small town where you knew a lot of these people.”

Corning bounced back, unlike many other U.S. manufacturing giants. That was partly because Mr. Houghton made a long-term commitment to development of fiber optics. He correctly saw that hair-thin strands of glass would replace copper wire in transmissions of voice and data. “It’s our turf, with our patents,” he said.

By the late 1990s, optical fiber and related telecommunications products accounted for more than half of Corning’s operating profits.

For the full obituary, see:

James R. Hagerty. “Executive Lifted Corning With Bet on Fiber Optics.” The Wall Street Journal (Saturday, March 14, 2020): A13.

(Note: ellipsis added.)

(Note: the online version of the obituary has the date March 13, 2020, and the title “Amory Houghton’s Bet on Fiber Optics Helped Save Corning.”)

Clayton Christensen Wrote Well on Innovation

Clayton Christensen’s The Innovator’s Solution (co-authored with Michael Raynor) was packed with insights and examples on how entrepreneurs and incumbent firms innovate. He wrote several other thought-provoking and useful books, starting with his now-famous The Innovator’s Dilemma. Just a few days ago, I told one of my students from Africa that he should read Christensen’s latest book, which gives wonderful examples of how entrepreneurial innovation in developing countries can help them prosper.

This evening (Thurs., Jan. 24, 2020) I was discouraged to receive an email alert from the Wall Street Journal saying that Christensen died today.

A year or so ago, I sent him a late draft of my Openness to Creative Destruction, which references his work several times. He never responded. Maybe he already was too ill to look at it, or maybe he didn’t like it. I’ll never know. But either way, I thank him for all that his books taught me about innovation.

Christensen’s best book is:

Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

Christensen’s best-known book is:

Christensen, Clayton M. The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business. New York: Harper Books, 2000.

Christensen’s most recent book is:

Christensen, Clayton M., Efosa Ojomo, and Karen Dillon. The Prosperity Paradox: How Innovation Can Lift Nations out of Poverty. New York: HarperBusiness Press, 2019.

Founding Entrepreneur Still Runs FedEx

Clayton Christensen plausibly argues that in the rare cases where an incumbent firm has been able to disrupt itself, it is almost always a firm where the founding entrepreneur is still running the firm.

(p. A1) MEMPHIS, Tenn.— Fred Smith bristles at any hint that FedEx Corp., the global delivery giant he built over four decades, could be disrupted by a player such as Amazon.com Inc.

. . .

FedEx’s 75-year-old chairman and chief executive, the man who pioneered the business of moving packages around the world at lightning speed, is confronting some of the greatest threats to the company he founded.

Global trade is slowing and tariff (p. A9) fights have companies rethinking supply chains. A key partner, the U.S. Postal Service, is struggling. Amazon has morphed from a customer into a competitor.

. . .

Mr. Smith, a former Marine officer and decorated Vietnam War veteran, started FedEx in 1971 and has been CEO for nearly its whole history. The billionaire was preparing to hand over the reins, but he extended his stay after two top executives, including his heir apparent, abruptly left.

That has left Mr. Smith, who remains one of FedEx’s biggest shareholders, to revamp the business. He started with divorcing Amazon.

For years, Amazon has been building up its logistics operations to handle more deliveries itself. The online retailing giant added tractor-trailers, hundreds of sorting centers and dozens of cargo planes to carry millions of its packages. It now delivers nearly half its orders, compared with less than 15% in 2017, according to estimates from research firm Rakuten Intelligence.

In February [2019], Amazon noted in its annual report that it views companies in “transportation and logistics services” among its rivals.

“They had never done that before that day,” Mr. Smith said. “So we took it seriously.”

For the full story, see:

Paul Ziobro. “FedEx Chief Reinvents Firm He Founded.” The Wall Street Journal (Friday, October 18, 2019): A1 & A9.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the story has the date Oct. 17, 2019, and has the title “Fred Smith Created FedEx. Now He Has to Reinvent It.”)

Clayton Christensen Wrongly Predicted Bombardier Would Disrupt Boeing

Clayton Christensen and co-authors predicted in Seeing What’s Next that Bombardier was well-positioned to use disruptive innovation to leapfrog Boeing and Airbus.

(p. B8) Mitsubishi Heavy Industries Ltd. said it would acquire Bombardier Inc.’s regional-jet business for $550 million in a transaction that puts the companies on different paths in the aviation sector.

The deal unveiled Tuesday [June 25, 2019] marks the Canadian company’s exit from the commercial passenger-aircraft business following failed bets that it could compete with Airbus SE and Boeing Co. in the 100-seat single-aisle plane category.

Bombardier has restructured its aviation division over the past two years, highlighted by its joint venture with Airbus that put the European plane maker in charge of the production and sales of the 110- to 130-seat planes that the Montreal company had originally conceived as the CSeries. Those jets are now rebranded as the Airbus A220.

For the full story, see:

Vieira, Paul. “Bombardier to Sell Jet Unit.” The Wall Street Journal (Wednesday, June 26, 2019): B8.

(Note: bracketed date added.)

(Note: the online version of the story has the same date June 25, 2019, and has the title “Mitsubishi to Acquire Bombardier’s Regional Jet Unit for $550 Million.”)

The Christensen book mentioned above, is:

Christensen, Clayton M., Scott D. Anthony, and Erik A. Roth. Seeing What’s Next: Using Theories of Innovation to Predict Industry Change. Boston, MA: Harvard Business School Press, 2004.

iPhone Made Internet “Almost Ubiquitous”

(p. B3) By essentially compressing a powerful, networked computer into a pocket-size device and making it easy to use, Steve Jobs made the internet almost ubiquitous and fundamentally altered decades-old consumer habits in areas like music and books. What’s more, the functionality packed into the iPhone made it a digital Swiss Army knife, supplanting existing tools from email to calendar to maps to calculators.

. . .

Along the way, smartphones disrupted communication. By offering faster, easier ways to communicate—text, photo, video and social networks—“the iPhone destroyed the phone call,” says Joshua Gans, professor at the University of Toronto and author of the book, “The Disruption Dilemma.” “It’s funny we even call it a phone.”

For the full story, see:

Betsy Morris. “What the iPhone Wrought.” The Wall Street Journal (Saturday, June 24, 2017): B3.

(Note: ellipsis added.)

(Note: the online version of the story has the date June 23, 2017, and the title “From Music to Maps, How Apple’s iPhone Changed Business.”)

The Gans book mentioned above, is:

Gans, Joshua. The Disruption Dilemma. Cambridge, MA: The MIT Press, 2016.

Venture Capital Can Force Startups to Grow Too Fast

(p. 8) . . . for every unicorn, there are countless other start-ups that grew too fast, burned through investors’ money and died — possibly unnecessarily. Start-up business plans are designed for the rosiest possible outcome, and the money intensifies both successes and failures. Social media is littered with tales of companies that withered under the pressure of hypergrowth, were crushed by so-called “toxic V.C.s” or were forced to raise too much venture capital — something known as the “foie gras effect.”

Now a counter movement, led by entrepreneurs who are jaded by the traditional playbook, is rejecting that model. While still a small part of the start-up community, these founders have become more vocal in the last year as they connect venture capitalists’ insatiable appetite for growth to the tech industry’s myriad crises.

. . .

. . . founders have decided the expectations that come with accepting venture capital aren’t worth it. Venture investing is a high-stakes game in which companies are typically either wild successes or near total failures.

“Big problems have occurred when you have founders who have unwillingly or unknowingly signed on for an outcome they didn’t know they were signing on for,” said Josh Kopelman, a venture investor at First Round Capital, an early backer of Uber, Warby Parker and Ring.

. . .

But people like Sandra Oh Lin, the chief executive of KiwiCo, a seller of children’s activity kits, say that more money isn’t necessary. Ms. Oh Lin raised a little over $10 million in venture funding between 2012 and 2014, but she is now rebuffing offers of more just as her company has hit on a product people want — the very moment when investors would love to pour more gas on the fire. KiwiCo is profitable and had nearly $100 million in sales in 2018, a 65 percent increase over the prior year, Ms. Oh Lin said.

“We are aggressive about growth, but we are not a company that chases growth at all costs,” Ms. Oh Lin said. “We want to build a company that lasts.” Continue reading “Venture Capital Can Force Startups to Grow Too Fast”