The_Innovators_Dilemma__Clayton

go public based upon a hot initial product is that whereas their initial success was grounded in
resources—the founding group of engineers—they fail to create processes that can create a sequence of
hot products.
An example of such flame out is the story of Avid Technology, a producer of digital editing systems
for television. Avid’s technology removed tedium from the video editing process. Customers loved it,
and on the back of its star product, Avid stock rose from $16 at its 1993 IPO to $49 in mid-1995.
However, the strains of being a one-trick pony soon surfaced as Avid was faced with a saturated
market, rising inventories and receivables, and increased competition. Customers loved the product, but
Avid’s lack of effective processes to consistently develop new products and to control quality, delivery,
and service ultimately tripped the company and sent its stock back down.
In contrast, at highly successful firms such as McKinsey and Company, the processes and values have
become so powerful that it almost doesn’t matter which people get assigned to which project teams.
Hundreds of new MBAs join the firm every year, and almost as many leave. But the company is able to
crank out high-quality work year after year because its core capabilities are rooted in its processes and
values rather than in its resources. I sense, however, that these capabilities of McKinsey also constitute
its disabilities. The rigorously analytical, data-driven processes that help it create value for its clients in
existing, relatively stable markets render it much less capable of building a strong client base among
the rapidly growing companies in dynamic technology markets.
In the formative stages of a company’s processes and values, the actions and attitudes of the company’s
founder have a profound impact. The founder often has strong opinions about the way employees ought
to work together to reach decisions and get things done. Founders similarly impose their views of what
the organization’s priorities need to be. If the founder’s methods are flawed, of course, the company
will likely fail. But if those methods are useful, employees will collectively experience for themselves
the validity of the founder’s problem-solving methodologies and criteria for decision-making. As they
successfully use those methods of working together to address recurrent tasks, processes become
defined. Likewise, if the company becomes financially successful by prioritizing various uses of its
resources according to criteria that reflect the founder’s priorities, the company’s values begin to
coalesce.
As successful companies mature, employees gradually come to assume that the priorities they have
learned to accept, and the ways of doing things and methods of making decisions that they have
employed so successfully, are the right way to work. Once members of the organization begin to adopt
ways of working and criteria for making decisions by assumption, rather than by conscious decision,
then those processes and values come to constitute the organization’s culture. 7 As companies grow
from a few employees to hundreds and thousands, the challenge of getting all employees to agree on
what needs to be done and how it should be done so that the right jobs are done repeatedly and
consistently can be daunting for even the best managers. Culture is a powerful management tool in
these situations. Culture enables employees to act autonomously and causes them to act consistently.
Hence, the location of the most powerful factors that define the capabilities and disabilities of
organizations migrates over time —from resources toward visible, conscious processes and values, and
then toward culture. As long as the organization continues to face the same sorts of problems that its
processes and values were designed to address, managing the organization is relatively straightforward.
But because these factors also define what an organization cannot do, they constitute disabilities when
the problems facing the company change. When the organization’s capabilities reside primarily in its
people, changing to address new problems is relatively simple. But when the capabilities have come to
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