Creative Construction
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Part I: Creating an Innovation Strategy
1 The organizational dilemma between exploitation and exploration was first highlighted by March, “Exploration in Organizational Learning.”
Chapter 1: Beginning the Journey
1 Parts of this chapter are adapted from my article “You Need an Innovation Strategy,” Harvard Business Review, June 2015, reprint R1506B.
2 I am grateful to my colleague Stefan Thomke of Harvard University for bringing this example to my attention.
3 “The Salad Is in the Bag,” Wall Street Journal, July 27, 2011, http://www.wsj.com/articles/SB10001424053111903999904576469973559258778.
4 William Abernathy and James Utterback, “Patterns of Industrial Innovation,” Technology Review 80, no. 7 (1978): 40–47; Abernathy and Clark, “Innovation”; Tushman and Anderson, “Technological Discontinuities and Organizational Environments”; Henderson and Clark, “Architectural Innovation”; Christensen, Innovator’s Dilemma; Pisano, “You Need an Innovation Strategy.”
5 “Audi on Demand, Frequently Asked Questions,” 2018, https://www.us.audiondemand.com/us/service/en_ondemand/nav/faq.html.
Chapter 2: Navigating the Route
1 Jack Nicas, “Google Reorganization Isn’t About Cutting Costs, Alphabet CFO Says,” Wall Street Journal, October 7, 2015, https://www.wsj.com/articles/google-reorganization-isnt-about-cutting-costs-alphabet-cfo-says-1444258203.
2 Corning’s strategy and capital allocation framework is described in the company’s 2016 annual report, https://investor.corning.com/investor-relations/our-strategy/our-corporate-strategy/strategy-and-capital-allocation-framework/default.aspx.
3 Data source: S&P Capital IQ, Intel, public company profile, Capital IQ, Inc., a division of Standard & Poor’s.
4 Data source: S&P Capital IQ, Microsoft, public company profile, Capital IQ, Inc., a division of Standard & Poor’s.
5 Data source: S&P Capital IQ, Apple, public company profile, Capital IQ, Inc., a division of Standard & Poor’s.
6 On the EMI CAT scanner case, see David J. Teece, “Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy,” Research Policy 15 (1986): 285–305.
7 comScore, “Share of Search Queries Handled by Leading U.S. Search Engine Providers as of January 2018,” accessed April 4, 2018, www.statista.com/statistics/267161/market-share-of-search-engines-in-the-united-states/.
8 Alphabet, “Google’s Ad Revenue from 2001 to 2017,” https://www.statista.com/statistics/266249/advertising-revenue-of-google/; GroupM, “Global Advertising Spending from 2010 to 2018 (in Billion U.S. Dollars),” accessed April 4, 2018, www.statista.com/statistics/236943/global-advertising-spending/.
9 Data source: S&P Capital IQ, Goodyear, public company profile, Capital IQ, Inc., a division of Standard & Poor’s.
10 The first authors to make this argument and demonstrate it through case work were William Abernathy, Kim Clark, and Alan Kantrow, Industrial Renaissance: Producing a Competitive Future for America (New York: Basic Books, 1983).
11 Mike Isaac and Michael de la Merced, “Dollar Shave Club Sells to Unilever for $1 Billion,” New York Times, July 20, 2016, https://www.nytimes.com/2016/07/20/business/dealbook/unilever-dollar-shave-club.html.
12 Christensen, Innovator’s Dilemma.
13 The concept of technological paradigms was first introduced by Giovanni Dosi, “Technological Paradigms and Trajectories: A Suggested Interpretation of the Determinants and Directions of Technical Change,” Research Policy 11, no. 3 (1982): 147–162; Thomas Kuhn, The Structure of Scientific Revolutions (Chicago: University of Chicago Press, 1962).
14 There is an entire stream of literature on the concept of punctuated equilibrium, which demonstrates this point with extensive case study evidence. See, for example, Elaine Romanelli and Michael L. Tushman, “Organizational Transformation as Punctuated Equilibrium: An Empirical Test,” Academy of Management Journal 37, no. 5 (1994): 1141–1166; Kim Clark, The Interaction of Design Hierarchies and Market Concepts in Technological Evolution,” Research Policy 14, no. 5 (October 1985): 235–251; Daniel A. Levinthal, “The Slow Pace of Rapid Technological Change: Gradualism and Punctuation in Technological Change,” Industrial and Corporate Change 7, no. 2 (1998): 217–247.
15 M. Mitchel Waldrop, “More Than Moore,” Nature 530, no. 11 (February 2016): 145–147.
16 See, e.g., Tushman and Anderson, “Technological Discontinuities and Organizational Environments”; Henderson and Clark, “Architectural Innovation.”
17 Richard Levin, Alvin Klevorick, Richard Nelson, and Sidney Winter, “Appropriating the Returns from Industrial Research,” Brooking Papers on Economic Activity 3 (1987): 783–820; Teece, “Profiting from Innovation”; Gary Pisano and David Teece, “How to Capture Value from Innovation: Shaping Intellectual Property and Industry Architecture,” California Management Review 50, no. 1 (Fall 2007): 278–296.
18 Trefis Team, “Gigafactory Will Cost Tesla $5 Billion but Offers Significant Cost Reductions,” Forbes, March 11, 2014, https://www.forbes.com/sites/greatspeculations/2014/03/11/gigafactory-will-cost-tesla-5-billion-but-offers-significant-cost-reductions/.
19 Jan W. Rivkin, “Imitation of Complex Strategies,” Management Science 46, no. 6 (June 2000): 824–844; Jan W. Rivkin and Nicolaj Siggelkow, “Balancing Search and Stability: Interdependencies Among Elements of Organizational Design,” Management Science 49, no. 3 (March 2003): 290–311.
Chapter 3: Whatever Happened to Blockbuster?
1 Christensen, Innovator’s Dilemma.
2 Ellen Huet, “Uber Tests Taking Even More from Its Drivers with 30% Commission,” Forbes, May 18, 2015, www.forbes.com/sites/ellenhuet/2015/05/18/uber-new-uberx-tiered-commission-30-percent/#3bfaa1a643f6.
3 Theodore Schleifer, “Uber’s Latest Valuation: $72 Billion,” recode, February 2, 2018, https://www.recode.net/2018/2/9/16996834/uber-latest-valuation-72-billion-waymo-lawsuit-settlement.
4 Willy Shih and Stephen Kaufman, “Netflix in 2011,” Harvard Business Publishing, August 19, 2014.
5 Anthony Ramirez, “Blockbuster’s Investing Led to Merger,” New York Times, January 1, 1994, https://www.nytimes.com/1994/01/08/business/blockbuster-s-investing-led-to-merger.html; Joe Flint, “Blockbuster Will Pay Dividend Before Viacom Sheds Its Stake,” Wall Street Journal, June 21, 2004, https://www.wsj.com/articles/SB108756739175941492.
6 Shih and Kaufman, “Netflix in 2011.”
7 “Netflix Plans to Spend $6 Billion on New Shows, Blowing Away All but One of Its Rivals,” CNBC.com, October 17, 2016, https://www.cnbc.com/2016/10/17/netflixs-6-billion-content-budget-in-2017-makes-it-one-of-the-top-spenders.html.
8 Bastian Halecker, Rene Bickmann, Katherine Holzle, “Failed Business Model Innovation—A Theoretical and Practical Illumination on a Feared Phenomenon,” paper presented at the R&D Management Conference 2014, “Management of Applied R&D: Connecting High Valued Solutions with Future Markets,” Stuttgart, Germany, June 3–4, 2014.
9 There is a long literature on reasoning by analogy. See, for example, Dedre Gentner and Keith J. Holyoak, “Reasoning and Learning by Analogy: Introduction,” American Psychologist 52, no. 1 (1997): 32; Richard A. Posner, “Legal Reason: The Use of Analogy in Legal Argument,” Cornell Law Review 91 (2006): 761; and Giovanni Gavetti, Daniel A. Levinthal, and Jan W. Rivkin, “Strategy Making in Novel and Complex Worlds: The Power of Analogy,” Strategic Management Journal 26, no. 8 (2005): 691–712; Giovanni Gavetti and Jan W. Rivkin, “How Strategists Really Think,” Harvard Business Review 83, no. 4 (2005): 54–63.
10 See in particular, Gavetti, Levinthal, and Rivkin, “Strategy Making in Novel and Complex Worlds.”
11 Daniel Schorn, “The Brain Behind Netflix: Lesley Stahl Profiles Company Founder Reed Hastings,” 60 Minutes, December 1, 2006, https://www.cbsnews.com/news/the-brain-behind-netflix/.
12 “EasyJet Annual Report 2016,” http://corporate.easyjet.com/~/media/Files/E/Easyjet/pdf/investors/result-ce
nter-investor/annual-report-2016.pdf.
13 “EasyJet Annual Report 2016”; “Occupancy Rates,” European Environment Agency, April 19, 2016, https://www.eea.europa.eu/publications/ENVISSUENo12/page029.html.
14 Tom Padwell, Pascal Courty, and Michael Jacobides, “easyCar (B),” London Business School case study, May 2003.
15 Padwell, Courty, and Jacobides, “easyCar (B),” 1.
16 “Model,” Wikipedia, https://en.wikipedia.org/wiki/Model.
17 Rivkin, “Imitation of Complex Strategies.”
18 “Alphabet (GOOG),” February 23, 2018, https://ycharts.com/companies/GOOG/market_cap.
19 See for instance Henry Chesbrough, Open Innovation: The New Imperative for Creating and Profiting from Technology (Boston: Harvard Business School Press, 2006).
20 Andrea Ovans, “Can You Patent Your Business Model?” Harvard Business Review, July/August 2000, https://hbr.org/2000/07/can-you-patent-your-business-model.
21 Gene Quinn, “Patenting Business Methods and Software Still Requires Concrete and Tangible Descriptions,” IP Watchdog, August 29, 2015, www.ipwatchdog.com/2015/08/29/patenting-business-methods-and-software/id=54576/; Miku Mehta and Laura Moskowitz, “Business Method Patents in the United States: A Judicial History & Prosecution Practice,” Sughrue Mion, PLLC, 2004.
22 Felix Gillette, “The Rise and Inglorious Fall of MySpace,” Bloomberg BusinessWeek, June 22, 2011, https://bloomberg.com/news/articles/2011-06-22/the-rise-and-inglorious-fall-of-myspace; Pete Cashmore, “MySpace, America’s Number One,” Mashable.com, July 11, 2006, https://mashable.com/2006/07/11/myspace-americas-number-one/#lIaCagigG5qq.
23 Nicholas Jackson, “As MySpace Sells for $35 Million, a History of the Network’s Valuation,” Atlantic, June 29, 2011, https://www.theatlantic.com/technology/archive/2011/06/as-myspace-sells-for-35-million-a-history-of-the-networks-valuation/241224/.
24 Rani Molla, “Closing the Books on Microsoft’s Windows Phone,” July 17, 2017, recode, www.recode.net/2017/7/17/15984222/microsoft-windows-phone-mobile-operating-system-android-iphone-ios.
25 Robert Huckman, Gary Pisano, and Liz Kind, “Amazon Web Services,” Harvard Business Publishing, case no. 609-048, February 3, 2012.
Chapter 4: Is the Party Really Over?
1 Liu Chuanzhi, “The Man Who Bought IBM,” Fortune, December 27, 2004, http://archive.fortune.com/magazines/fortune/fortune_archive/2004/12/27/8217968/index.htm.
2 Timothy Green, “IBMs New Mainframe Is a Security Powerhouse,” Motley Fool, July 17, 2017, https://www.fool.com/investing/2017/07/17/ibms-new-mainframe-is-a-security-powerhouse.aspx.
3 Dan Strohl, “Ford, Edison and the Cheap EV That Almost Was,” Wired, https://www.wired.com/2010/06/henry-ford-thomas-edison-ev/.
4 Strohl, “Ford, Edison and the Cheap EV That Almost Was.”
5 “Another Wonder of the Age on the Threshold,” Proquest Historical Newspapers, The Wall Street Journal (1889–1922), April 24, 1917.
6 “Electric Vehicles Increase,” Proquest Historical Newspapers, The Wall Street Journal (1889–1922), July 17, 1917.
7 “This Day in History: August 17,” History.com, accessed April 4, 2018, https://www.history.com/this-day-in-history/charles-kettering-receives-patent-for-electric-self-starter.
8 “Model T Facts,” History.com, accessed April 4, 2018, https://www.history.com/topics/model-t.
9 Between 1900 and 1910, annual US field crude oil production tripled from 63,621,000 barrels to 183,171,000, passing 1 billion barrels in 1929. US Energy Information Administration, US Department of Energy, “U.S. Field Oil Production,” Washington, DC, https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS1&f=A.
10 Forney Museum of Transportation, “1916 Detroit Electric Opera Coupe,” accessed January 2018, http://www.forneymuseum.org/FE_Detroit_Electric.html.
11 Chinhui Juhn, Aimee Chin, and Peter Thompson, “Technical Change and the Wage Structure During the Second Industrial Revolution: Evidence from the Merchant Marine, 1865–1912,” no. 2004-03, 2004, NBER working paper no. 10728, https://www.nber.org/papers/w10728, 5–7.
12 Bosch, “Gasoline Direct Injection: Key Technology for Greater Efficiency and Dynamics,” accessed April 4, 2018, http://www.bosch.co.jp/tms2015/en/products/pdf/Bosch_di_folder.pdf; Daniel Snow, “Extraordinary Efficiency Growth in Response to New Technology Entries: The Carburetor’s Last Gasp,” Academy of Management Proceedings, no. 1 (2004): 9–11.
13 Tony Long, “May 2, 1952: First Commercial Jet Flies from London to Johannesburg,” Wired, April 2, 2012, https://www.wired.com/2012/05/may-2-1952-first-commercial-jet-flies-from-london-to-johannesburg/.
14 IDC, “Shipment Forecast of Tablets, Laptops and Desktop PCs Worldwide from 2010 to 2022 (in Million Units),” accessed April 3, 2018, www.statista.com/statistics/272595/global-shipments-forecast-for-tablets-laptops-and-desktop-pcs/.
15 IDC, “Shipment Forecast.”
16 World Bank, “Number of Bank Branches for United States,” Federal Reserve Bank of St. Louis, accessed February 23, 2018, https://fred.stlouisfed.org/series/DDAI02USA643NWDB.
17 Pew Research Center, “State of the News Media 2016,” June 2016, http://www.journalism.org/2016/06/15/newspapers-fact-sheet/.
18 Juan Alcacer, Tarun Khanna, and Christine Snively, “The Rise and Fall of Nokia,” Harvard Business School, case no. 714428, January 2014.
19 The remaining share was held by Microsoft (2.9 percent) and RIM (3 percent). See https://www.statista.com/statistics/266136/global-market-share-held-by-smartphone-operating-systems/.
20 Based on the CDC’s biannual National Health Interview Survey of approximately 20,000 US households: “Landline Phones Are a Dying Breed,” Statista, https://infographic.statista.com/normal/chartoftheday_2072_Landline_phones_in_the_United_States_n.jpg.
21 Gary Pisano, David Collis, and Peter Botticelli, “Intel Corporation: 1968–1997,” Harvard Business School, case no. 797-137, May 1997.
22 Collis and Pisano, “Intel Corporation.”
23 Ron Adner and Daniel C. Snow, “Old Technology Responses to New Technology Threats: Demand Heterogeneity and Technology Retreats,” Industrial and Corporate Change 19, no. 5 (2010): 1655–1675.
24 Willy Shih, “The Real Lessons of Kodak’s Decline,” Sloan Management Review, Summer 2016, 11–13.
25 Shih’s account is also consistent with the work of external observers. See, for example, Giovanni Gavetti, Rebecca Henderson, and Simona Giorgi, “Kodak and the Digital Revolution (A),” Harvard Business School, case no. 705-448.
26 Shih, “Real Lessons of Kodak’s Decline,” 11.
27 Michael Porter, Competitive Strategy (New York: The Free Press, 1980).
28 A comprehensive study in 2016 of fifty-one US newspapers from 2007 to 2015 shows that revenues from online readership have not increased enough to offset declines in print revenue. As the authors describe it, “The result of newspaper firms’ transitions from print to online is, in the business sense, ‘exchanging analog dollars for digital dimes.’” Brad Dick, “Spending Analog Dollars to Get Digital Pennies,” TV Technology, January 14, 2009, http://www.tvtechnology.com/default.aspx?tabid=204&entryid=1097), cited in Chyi Hsiang Iris and Ori Teneboim, “Reality Check: Multiplatform Newspaper Readership in the United States, 2007–2015,” Journalism Practice (July 2016): 1–22, http://www.tandfonline.com/doi/full/10.1080/17512786.2016.1208056.
29 Data source: S&P Capital IQ, Walmart, public company profile, Capital IQ, Inc., a division of Standard & Poor’s.
30 Amazon, “2016 Annual Report,” http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_AMZN_2016.pdf.
31 James Temperton, “Uber’s 2016 Losses to Top $3bn According to Leaked Financials,” Wired, December 20, 2016, http://www.wired.co.uk/article/uber-finances-losses-driverless-cars.
32 Biz Carson, “Lyft Promises Not to Lose More Than $600 Million a Year,” Business Insider, April 14, 2016, http://www.businessinsider.com/lyft-promises-investors-to-cap-losses-2016-4.
&n
bsp; 33 Shih, “Real Lessons of Kodak’s Decline.”
34 Erwin Danneels, “Trying to Become a Different Type of Company: Dynamic Capability at Smith Corona,” Strategic Management Journal 32, no. 1 (2011): 1–31; Mary Tripsas, “Technology, Identity, and Inertia Through the Lens of ‘The Digital Photography Company,’” Organization Science 20, no. 2 (2009): 443.
35 Albert J. Churella, From Steam to Diesel (Princeton, NJ: Princeton University Press, 1998), 65–66.
Chapter 5: Venturing Outside Your Home Court
1 This section of the chapter draws from my case study on Honda Aircraft Corporation. Gary Pisano and Jesse Shulman, “Flying into the Future: Honda Aircraft Corporation,” Harvard Business School, case no. 9-618-012.
2 Ashley Burns, “HondaJet Is Most Delivered Jet in First Half of 2017,” Flying, August 17, 2017, https://www.flyingmag.com/hondajet-is-most-delivered-light-jet-2017s-first-half.
3 This section draws from information contained in “Du Pont Kevlar® Aramid Industrial Fiber,” Harvard Business School, case no. 391-146, written by David A. Hounshell, Marvin Bower Fellow, and Richard S. Rosenbloom, and later abridged by Clayton Christensen and published as “DuPont Kevlar Aramid Industrial Fiber (Abridged),” Harvard Business School, case no. 9-698-079. Information is also drawn from Laura Hayes, “Tough Fiber: DuPont Difficulties Selling Kevlar Show Hurdles of Innovation,” Wall Street Journal, September 29, 1987, 1.
4 “Going Up?” Site Selection, September 2011, https://siteselection.com/onlineInsider/Going-Up.cfm.
5 See Christensen, Innovator’s Dilemma.
6 On this issue, see Clark, “Interaction of Design Hierarchies and Market Concepts.”
7 Jordan Ellenberg, How Not to Be Wrong: The Power of Mathematical Thinking (New York: Penguin, 2015).
8 See for example, Christian R. Østergaard, Bram Timmermans, Kari Kristinsson, “Does a Different View Create Something New? The Effect of Employee Diversity on Innovation,” Research Policy 40, no. 3 (2011): 500–509, https://doi.org/10.1016/j.respol.2010.11.004; Claudio Dell’Era and Roberto Verganti, “Collaborative Strategies in Design-Intensive Industries: Knowledge Diversity and Innovation,” Long Range Planning 43, no. 1 (2010): 123–141, https://doi.org/10.1016/j.lrp.2009.10.006.