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"Active inertia" : a key-concept to understand corporate failures, including innovation-related failures ?

There are people you don't forget. I was lucky enough to have Don Sull as strategy professor for the two years of my MBA at London Business School ; he was obviously among the smart ones (he flew shortly after to Harvard Business School). In 1997, I heard him explain his "active inertia" concept. He expanded on it in his 2003 book "Revival of the fittest". What is it about ? It's the astonishing plain idea that a company can put its own existence at risk by pursuing harder recipes which previously brought success, while the environment has changed.

The Compaq history can be read that way :

In 1982, Rod Canion and two senior Texas Instruments executive have lunch together and draw on a napkin a personal computer with a handle. Disappointed by the Texas Instrument approach of the PC market, they hire other TI employees and start Compaq ; portability and superior quality are the motto of the new company. In 1983, Compaq beats the record for a one-year old company : a $111 million turnover ! In 1990, eight years after its beginning, Compaq has 10,000 employees, and a $3.6 billion turnover. In these years however, the PC is quickly becoming a commodity. In 1991, when five out of the eight largest American PC producers follow a low-cost strategy, Compaq hangs on to a strategy of innovation and superior technology. The company is incredibly active, all the more active that a price war is starting to erode its margins. But faced with major choices raised by its changing environment, the company is passive. Benjamin Rosen, Compaq's President, tries to save the company by replacing Rod Canion, the founder, with Eckhard Pfeiffer, but the history of Compaq will end in 2002 when the company is bought by Hewlett-Packard.

Innovation can be a trap if it's not aimed in the right direction. Keeping on selling very high quality and technologically innovative PCs with a unitary price difference sometimes beyond $2000 compared with a Dell equivalent, proved a fatal trap for Compaq.

The "active inertia" concept reminds us of the Clayton Christensen "innovator's dilemna". According to Christensen, the major trap regarding innovation is the focus on "incremental" innovations. Think of Kodak, stepping up its efforts on the historical picture technology at the time digital photography starts to grow ; the company is racing full-speed as the threat materializes. But it's going in the wrong direction, and from a strategic point of view, it's going nowhere.

Posted by Bernard Buisson on December 17, 2004 at 11:57 PM in Book reviews | Permalink


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