EMR Online

John D. Trudel
The Trudel Group

This time, we'll discuss business models. "What does that have to do with technology and innovation?" you ask. My reply is this: "More than you can imagine."

For many years, I wrote a column titled "Tales from a Skunk Works," a subject steeped in engineering legend and history. It's a topic that engineers love, but companies hate. Most large firms tend to stamp out disruptive innovation, however productive.

Innovation is messy. It involves things like attempting the impossible, confronting uncertainty, and even (perish the thought) failing - sometimes repeatedly. Edison's light bulb changed the world, but his first 1000 prototypes were failures. Failure is career limiting for managers.

Kelly Johnson ran Lockheed's famous skunk works. One of his successes was America's first jet fighter, the P-80. A friend of mine flew serial number 8. He said it was so treacherous that, much later, he thought people were insane to propose jet airliners.

The problem was that you needed a computer between the throttle and the engine so that it wouldn't do ugly things, like flameout just when you desperately needed more power. Later, after such devices were perfected, the P-80 became docile. It changed from a pilot killer into a trainer, the T -33.

Engineering managers should read Kelly's book [1]. To his death, he regretted that he couldn't get his methods adopted elsewhere. His handpicked protégé, Ben Rich, faced monumental obstacles trying to continue Kelly's traditions at the firm. Rich's book reads like a tour in purgatory [2]. This is despite heroic technical successes like the stealth fighter.

That, oddly enough, leads us back to business models. It's clear that only two business models are working well today: high innovation or high clout. The world has turned into battles between the insurgents and the incumbents.

If you are a high-clout company, one that dominates its markets, it's easy to make money. Conversely, if you are a high-innovation company - like the dot corns or the typical Silicon Valley new venture - you can snatch markets from the big guys, have fun, and prosper.

The insurgents have been doing well. More than ever before, clever people can use technology to trump clout. That is great news for those who bail out of big firms and get "a piece of the action." Getting rich is more fun than emulating Sisyphus by trying to innovate, while following the rules and not upsetting the status quo [3].

Indeed, new ventures are the American dream. Our Constitution (article one, section 8) changed the world by granting citizens the right to own property of the mind.

Unfortunately, disruptive innovation is upsetting to those who run ponderous behemoths and need to generate next quarter's profits. A new genre of business books discusses this, including Clayton M. Christensen's best-selling Innovator's Dilemma.

Business conflict now goes far beyond the lab or the market; it is also political, legal, and legislative. The incumbents do well there due to their deep pockets. Japan, IBM, and Microsoft led lobbying to change economic policy through patent law. The telcos have bills in Congress to make DSL service a local monopoly, and the RIAA has been litigating furiously to block Internet music distribution and the production of MP3 players. Some world trade experts say that global commerce will soon be controlled by no more than 20 megafirms [4].

But maybe not. Sometimes wolf packs can pull down larger, stronger adversaries. Companies have joined together to sue AOL to keep "instant messaging" open. WTO meetings spawn protests, concerns mount over the state of the patent office, and Bill Gates probably regrets that he got so many high-tech managers to dislike and fear him more than the government.

Whichever group prevails, it is clear that the middle of the road has become a killing ground. Firms in the middle need to either get clout (though alliances, mergers, and acquisitions), innovate well, or do both. Guess what? That's hard. After a firm has dumber down into the "cheaper-faster" business model, it is almost impossible.

Endnotes
[1] C.L. Johnson and M. Smith, More Than My Share of It All. Washington, D.D>: Smithsonian Press 1985 (This fascinating book is now unfortunately out of print)
[2] B.R. Rich and L. Janos, Skunk Works, Back Ray Books, 1994
[3] In Greek Myth, Sisyphus was cursed by the Gods to spend eternity rolling a huge boulder up a hill. Just as he reached the top, it would roll back and he would have to start anew.
[4] G. Baragwanath, "Millennium challenges and opportunities: Global Trends," presented at the Institute of Management Consultants, Toronto, Canada, April 2000. Baragwanath is Associate Managing Director, Asia-Pacifica Africa Region, Deloitte and Touch Consulting Group.

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