The recent dumping of the HP TouchPad and WebOS platform is a classic example of the effect of disruptive innovation as coined by Clayton Christensen. As discussed in this HBR post, the failure of HP in the mobile device market was sealed back in 2001 when, failing to recognise the mobile market as disruptive innovation, they tried to use classic growth strategies to target this emerging market.
HP acquired Compaq, then tried to create new mobile devices using its existing technology, including adaptations of it existing OS platform. So, true to form in a disruptive environment, one of the giants of the IT world failed dismally in this emerging market, and ten years later have exited the market all together.
Christensen's model of disruptive innovation categorically explains how large companies like HP can fail so dismally in disruptive environments, so I won't go into that too far here. What I am interested in however, is whether HP should have seen this coming, or as Horace Dediu says, was it unforeseeable?
The issue of predictability in disruptive innovations is central to our evaluations of leadership because if these kinds of innovations are predictable, then we should be holding leaders accountable for their failures to navigate them effectively. Conversely of course, we should be lauding those who navigate these difficult waters well and repeatedly, rather than calling it luck.
So, could HP have seen it coming? Firstly, The Innovator's Dilemma was first published in 1997, then in paperback in 2000. So it is reasonable to assume that leaders in an innovative company like HP would have read it by 2001, so let's proceed on the assumption that they had. So assuming knowledge of the disruptive innovation process, could leaders at HP have been expected to identify that mobile devices could be a disruptive innovation?
The key components of disruptive technologies are:
1. They usually utilise technology that is actually worse than market leading technology at the time (eg. slower computers) based on the existing market value chain.
2. They introduce a fundamentally new value proposition that is not valued by existing customers (eg. portability).
3. The emerging market for the innovation is small - too small to be of interest to large firms.
Clearly, with hindsight it is easy to say that mobile devices could have been identified as a disruptive technology, and certainly when assessed against this criteria, the iPod was identifiably disruptive. However, is it fair to say that leaders should have been able to see the future potential and identify it as a disruptive technology, and respond appropriately? In 2001, I suggest not. For Apple, the iPod could easily be seen as a revolutionary innovation in competition with portable CD players, rather than a disruptive innovation. iPods offered music listeners a smaller, more portable device with greater storage capacity and meant that the listener did not need to carry CDs with them. These value propositions were clearly of value to customers in the existing music player market.
Apple was also able to leverage its understanding of the personal computer user and apply it to music players. Apple's core business has long been about having a strong understanding of the personal user market, in fact it was Apple's focus on personal users that allowed it to ride the disruptive innovation train to greatness in the 1980s. Apple has always focussed on personal user experience as its core value proposition.
HP on the other hand, comes from a background of servicing business and science markets, beginning with the production of specialised electronic test equipment for industry and agriculture, through to scientific calculators and then bringing small computers into office environments. This experience did not include the same focus on the user experience as a core value proposition. Rather, HP's focus was on assisting workers to more efficiently get their work done. In this market, the focus was on value for money and processing power.
Although mobile devices clearly had value for business environments (as evidenced by the rise of Blackberry), it would be difficult to foresee the evolution of the iPod from this business minded perspective. The orientation of a business towards its customers fundametally drives the types of innovations that are considered in the first place, let alone the ones that reach production stage. Apple fundamentally understood its customers to be people. People who had needs, wants and desires that spanned from the personal to the professional. HP viewed its customers as businesses and workers - organisations and people with a job to do. Apple was nicely placed to adapt to the converging nature of technology because it could see the benefits for people both personally and professionally. HP on the other hand were focussed on the professional without regard for the personal.
Apple's focus on customer experience was not only helpful in identifying the disruptive innovation opportunities, but absolutely fundamental to creating those opportunities. Despite the fact that other companies had mobile devices long before Apple, and even arguably had greater expertise in the development of mobile harware and software, no-one was in a better position to create the mobile device revolution. Apple's focus on customer experience allows it to bring ideas together easily - if it is good for people, then it is good for Apple. This may seem simple, but it is fundamentally different to the approach that other companies take.
Because Apple starts and ends with customer experience, it has kept hold of expertise across all areas of the design process, from software and operating systems, to hardware, even including retailing and support. And more importantly, Apple always aims for these separate areas to work together seamlessly for the user. By keeping control of all aspects of the design process and having a dogmatic focus on customer experience, Apple was perfectly placed to identify the mobile device potential and then to execute it flawlessly, despite having zero previous experience in telephony devices.
When looked at from this perspective, it is not surprising that Apple users can border on zealotry. After all, Apple's whole philosophy is about making products that people love to use. So, back to disruptive innovation and HP. HP were in no position to do well in the mobile device environment in 2001. Not because they lacked the technical expertise, but because they lacked the understanding of this fundamentally different customer. And this is the essence of disruptive innovation - its about new types of customers. A company that is fundamentally aligned to serving business needs was never going to be well placed to develop products that served individual needs.
So is Apple likely to be displaced in the next round of disruptive innovation? Unlikely. Apple's focus on the individual should serve it well long into the future. People are unlikely to tire of a company that serves them up products they love. And keeping the focus on customer experience provides a brilliant platform for innovating around the changing needs of individuals. Individuals are mutifaceted and Apple has proven capable of serving the multiple needs of individuals who have a personal and a professional life, and want tools that can serve them in both worlds. As long as Apple maintains its focus on customer experience, and defines its customer in holistic terms it will remain hard to beat.
