In 2004, researchers at Nokia, the world’s leading mobile phone company, presented a prototype of a new kind of mobile phone to the senior management. The phone, which connected to the Internet, had a large bright screen and was operated by fingers on a touch-screen. The researchers believed that the device would be a winner in the fast-growing Smartphone market. Senior management evaluated the proposal and decided that the risks of failure did not warrant the costs: Nokia did not pursue development of the phone.
In 2007, Apple introduced the iPhone with precisely the features that Nokia’s management had opted not to pursue.
By 2010, Nokia’s market share in Smartphones has been devastated. In the United States, its share of the Smartphone market has slipped from 35 percent in March 2002 to 8 percent in April 2010. Since 2007, Nokia shares have lost almost half their value. Even today the world is still waiting for Nokia’s response to the iPhone, as software errors have delayed shipments of its long-awaited N8 touch-screen phone.
Not surprisingly, Nokia’s CEO has recently been replaced—yet another CEO victim of disruptive innovation.
The most frightening thing about disruptive innovation—the phenomenon documented in Clayton Christensen's The Innovator's Dilemma (HBSP, 1997) in which market-leading companies in industry after industry have missed game-changing transformations—is that the mistakes are not the result of "bad" management. Instead, as Alan Murray has noted in the Wall Street Journal, the disasters have occurred because managers were following the dictates of "good" management. They studied their customers. They carefully researched the market and new technologies. They meticulously cultivated innovation. They stringently evaluated new development and weighed the cost of new investment against potential gains. And in the process, they missed disruptive innovations that opened up new customers and markets for alternative blockbuster products.
How can CEOs enable their firms to evolve beyond “good” traditional management and make them as adept at handling disruptive innovation as they have been at implementing disciplined execution? How can innovation become an organization-wide capability, a part of the firm’s DNA?
My suggestion is radical management. To learn more about it, go to:
Sources: This post draws on Kevin O’Brien’s, “Nokia’s New Chief Faces Culture of Complacency” in the New York Times, September 26, 2010 and Matthew Lynn’s “How Nokia Fell from Grace” in Bloomberg BusinessWeek, September 15, 2010. Alan Murrya’s article appeared in the WSJ on August 21, 2010.