And why "Great Firms" are so helpless to survive the impact.

I approached the majority of Test and Measurement (T&M) companies with my proposal for a portable GigaHertz DSO and a paper on the future of T&M in 1997/8. But it was only HP's T&M division who seriously discussed and considered my design, and they also showed me the courtesy to send a detailed letter explaining their rejection. At the time I got this letter, I had been reading the now famous research by Prof. Clayton Christensen, Harvard Business School: "The Innovator's Dilemma, When New Technologies Cause Great Firms to Fail". It soon became obvious to me that the letter was a <textbook response> right out of Cristensen's book. (In fact, it was better than the example given by Clayton.) The match was so perfect that I wrote another letter to the manager at HP who had been my contact. I recommended he should read "the book", and said that all T&M firms were playing musical chairs to the tune "Pop goes the weasel", and when the music stopped, most chairs would be gone. --- A year went by and HP announced the break-up, when my HP contact called and asked for another copy of my papers. I am very certain these papers went up the chain to Ned Barnholt, because Prof. Christensen was soon invited to speak to upper-management. My HP contact, however, did not know about this meeting, but he told me that a lot of people at Agilent had now read "the book", but that they found it very difficult to determine what was a <disruptive innovation>; and what was not. (That was then, now a "superb" paper, Picking the winners, by Girish Mhatre has been published in EETimes, Sept.002. It is a toolbox for identifying "disruptive-technologies", and specifically targets electronic developments for the coming years.)

This caused me to think again about Prof. C.M. Christensen's theories, and I began to look at it in a different way. --- Instead of asking, what new technology is "disruptive" and will make an industry fail? I ask, what <totally new technology>, (passing several criteria of a disruptive technology as defined on page XV) can still easily be adopted by the established industry? -------The simple answer was that; no mater how different or complex a new technology is, if the "business model" of the established firms was not disturbed, the industry would adapt and flourish. A good example are the companies making cameras, Nikon, Canon, Minolta, etc., all are successfully marketing digital cameras with a technology that is radically different from the century old chemical film process. (And even Kodak-film and Fujifilm are successful.)

To keep the "business model" (part of the <value system>) undamaged, the pricing structure of products must remain the same. (This is the case for digital cameras.) The chain of distribution, marketing with its profit margins and mark-ups, all must be left intact. New technologies only cause a disruption of an industry when they are the foundation of a radical change in the pricing structure. This unsophisticated view makes for a very simple criterion for the <disruptiveness> of a new technology. If one would have asked the mini-computer companies: "What are you manufacturing?" The answer would have been: "We are making <computing boxes> the size of large furniture which we are selling for $100,000 and up." When a new technology changed this price and size (the PC), they were dead! Or going even further back in time and asking the chiefs of the "dinosaurs organization" what are you manufacturing? They would have answered: "We are breeding large reptiles the size of houses, which bring in (consume) 1/2 tons of vegetation a day and scare the hell out of everybody else." When this changed, they were extinct. --- Did modern industry get any smarter?

Actually, there is more to recognizing or identifying <Disruptive Technology> than it just being "cheaper", as I tried to show in my short paper on the "Callicebus Monkey Club". Christensen writes in his latest paper, Managing the Disruption of Healthcare: ---- Nearly every one of the disruptive technologies reviewed in the The Innovator's Dilemma - including hydraulic excavators, steel minimills and small business accounting software - had the effect of enabling a larger population of less-skilled [and less wealthy] people to do things that historically had been in the domain of expensive specialists. In each of these examples, customers ultimately found themselves with products and services that were far more reliable, more convenient to use, and cost less, than what would have been available had these disruptive revolutions not occurred. Few of us would opt to return to the days of centralized mainframe computing, corporate copying centers or to telegraphy. Though they were simple and inadequate at the outset, the disruptive innovations that overturned their industries left us much better off - even though they invariably left in their wake the wrecks of the companies that were the industry's prior leaders. --- In fact, these disruptions have been a fundamental mechanism by which the quality of our lives has improved.

In my paper "Software Defined Instruments" I predict that the introduction of System on Chip, SOC, will begin the disruption of the T&M industry. - (Interestingly, the SOC is the latest result of "Moore's Law", which is a measure of <sustaining innovations> not disruptive ones. What is happening here is that a sustaining-process reaches a critical mass and becomes disruptive, which is similar to the way political revolutions are developing.) Concerning System-on-Chip, Prof. Richard Newton, of U.C. Berkeley, declares; What a great time it is to be alive! The revolution underway today will, unbelievably, be even greater than what we've seen in the last twenty years. The next few years will see a rate of change that will dramatically impact on our lives, and even more so on the lives of our children.

The negative side of this is the Chinese curse: "May you live in interesting times"? And the T&M industry is being cursed, but how did they get into such a situation in the first place? Christensen writes: --- "Almost always, the leading companies in industries where this happens are so absorbed with "sustaining" innovations - the up-market innovations that enable them to address more sophisticated and profitable customers in the more demanding tiers of the market - that they miss the "disruptive" innovations piercing into the market from the low end." ------- This process is very much in evidence for the T&M industry. Besides their million dollar ATE products, a good examples is their bench-top "Flagship", the GigaHz DSO. A small company today, wanting to design for the growing communication (Internet) market, can't afford the necessary $30,000, 20-GigaHz Tek sampling scope or the $60,000, 4-GHz realtime DSO. Only the "Elite", the billion dollar firms, can participate in these new and very lucrative markets. The exclusive focus of leading T&M firms on only the "high profit", elite customers prevents them from developing <disruptive products>. --- Just imagine that one day hundreds of engineers from small companies gather in front of the Palace of Tektronix demanding economical tools for their work. When Tek's CEO ask his aide: "What do these peasants want?" He is told: "They say they have no bread". And he says: "well then, let them eat cake!" (Meaning, they can buy our $60,000 DSO at 3% discount.) ------ Christensen writes: Never in history have the leading companies in an industry led a disruptive revolution, They typically have not just ignored the potential disruption, they have actively worked to discredit and oppose them.

Clayton wrote to me: "Like you, I've been amazed at what limited impact good ideas can have. Despite the fact that lots of people at HP and Agilent have apparently read The Innovator's Dilemma and claim to believe the ideas, the number of them who have actually changed the way they manage development of new products and their associated markets is small. I guess understanding why individual knowledge [truth] is so powerless relative to the processes and values of organizations will be the next fruitful field of research." And in a paper from March-April 2000, "Meeting the Challenge of Disruptive Change", Clayton has this wonderful sentence about the established and successful "Great Firms":

"The very Capabilities that make their Organizations Effective also Define their Disabilities"

These "very capabilities" are their "processes and values", which have made them "great firms" originally. Their managers are now all "indoctrinated" with these, which is done by only promoting managers who have thoroughly embrace these values. If a person, after years of service, reaches upper-management level, these values have also become part of this person, because functioning within them and preserving them is seen as accomplishments by others and by him-or herself. And if we base our "self-esteem", our "self-worth" on our accomplishments (and most of us do), then what threatens these values is seen as a threat to oneself. That is why <disruptive innovations>, threatening a firm, are always perceived as "personal" threats, a danger to our "self-worth", because it requires a radical change of "our-values". Our reaction is as negative as being told by "some" doctor that we have a serious and potentially terminal disease. Our defense is psychological "denial", and we might reinforce this by getting a second opinion favorable to "our" believes from a "friendly" expert. This prevents early treatment, which Christensen's research has shown to be the only cure. ---- When a <disruptive innovations> strikes, management of old established organizations actually follows the known three stages of terminally ill people: 1) Denial, 2) Extreme anger, 3) Acceptance- (but not always). The difference is, compared to ill people, no one dies, and upper-management will activate their "golden parachute" arrangements at stage 3.

Is this really a complete answer? As Christensen noted, future research needs to be done on this phenomenon. What struck me as significant though, was the fact that in all six letters I received from leading persons of the industry, product cost was totally ignored. Two letters were from T&M firms and four from our trade press. Another six T&M firms did not answer at all, concerning my proposal for a GigaHertz DSO, their flagship, at a cost 10 times lower than their own products. While it is understandable that OEM's do not even want to think of <Market Cannibalization>, several firms I approached owned no part of the $1.2 Billion scope-market; and why do the Editor's-in-Chief of our trade press show the same reaction? When one industry goes down, to be replaced by another providing the same services, advertising revenues are also replaced by the new industry. So why is there such a universal rejection or denial of the possibility that the minicomputer story can repeat? - Counter arguments in the letters were mainly of technical nature such as: PC-Cards are too flimsy for reliable probe connectors, etc.. In the letter from HP (Agilent) I was told that, "what their customers really wanted was a real-time instrument such as their new "Logic-Dart". [The $1000 Logic-Dart was a complete market failure, and quietly put to rest just 8 month later.] Concerning the state of the industry, it was "explained" to me that they were rapidly adopting "disruptive" technologies and I was "informed" that the major T&M firms were acquiring smaller companies with "new expertise", to stay current.

Since several of these "leading authorities" claim to have read "The Book"; the letters are "astounding", because not one of them would have passed even a 101-beginners test in Christensen's class. No new technology mentioned was <disruptive> and the acquired small firms all have the same <value-network-system>. This is also true for Tek's acquisition (Gage), mentioned by Stan Runyon, (first Web page) and also that "Agilent has a lot more going for it than just test equipment", is plainly false. (Two other major divisions have been losing $40 million a quarter and Agilent is restructuring and will lay-off 650 people.) --- What's going on here? Industry leaders cannot possibly have a low IQ; are we dealing with what Joseph Campbell called "the only unpardonable sin", inadvertence, of not being quite awake, not conscious? --- Yes, and this happens when our "culture", our <value system> is involved, with which we are "indoctrinated" (brain-washed) by living inside the culture with constant social interactions. A "company-culture" is basically established in the same way; every great firm maintains a constant interaction with their customers as input to their culture, and this will blind them to approaching disruptive innovation. And why is our trade-press blinded? Because the industry is their customer! They are "insiders". - [Thinking, "inside-the-box" is universal.]

An important part of a culture is to know the <value of things>. (The "values" in the markets) How much does it cost to get a good car, a house etc., (good test equipment)? To safely navigate through life (or to run our business) we need to learn these <thing-values>, and when they change our life (or business) becomes uncertain and not safe anymore. Interestingly, we get upset regardless if these changes are up or down, because both could <disrupt> our life. But these <value of things> are not absolute, life's learning has established them, they are nothing more than a habit or a faith and any <disruptive technology> can totally change them. The same is true for the pricing structure and profit margins of a company, but management considers these "sacred" elements of their Business Model. This was made clear to me this year by two of the largest second-tier T&M companies (each about $100 million in sales,) who showed an interest in acquiring my GigaHertz DSO design. Both intended to incorporate it, as key-element, in Test-systems of their own, to sell for more than $15,000. And I turned them down! (Only the 4 major T&M firms are "horizontally" orientated, all of the secondary firm are "Vertical" companies doing specialized systems for customers. They are basically niche-market companies.)

For all practical purpose, the <value system> of a firm is treated as if it were a religion. Antony Jay, in his book, Management and Machiavelli, An Inquiry into Politics of Corporate Life writes: << Corporations which would never go to the extremes of hymn singing and emotional personal testimony may yet contain much stronger religious feeling and observances than is apparent from the outside. One reason why this is necessary is to fight heresy. Nearly all corporations operate on certain working beliefs, which cannot be proven, which is another name for faith. (He gives several examples); and all corporations, whether they are aware of it or not, have a number of such basic assumptions on which their success is founded. If these assumptions start to be questioned, then the roots of the corporation are threatened; and a group of young executives who started to act on different assumptions could destroy the whole concern. ... In corporation religions [value systems] as in others, the heretic must be cast out, not because of the probability that he is wrong but because the possibility that he is right. >>

Is it really all that bad? It depends on your perspective, which, is all about of where you stand, as a known photographer once said. For instants, if your company is somewhat interested in instrumentation, but you do not own any of the $1.2 billion DSO market, there is Opportunity. You could make and market my PC Card DSO design with no competition from the "big guys", because their <value system> paralyzes them, they are helpless, and in 18 month you will own half the market. Which would be about $200 million, --- why only that little? Think about it. --GO TO FUNNY PAGE --- or- Back to Index