First off, here’s ex-Pitney Bowes CEO Mike Critelli on how they faced disruptive innovations:

In 1999, two start-up companies challenged us with online postage solutions. My chief operating officer, Marc Breslawsky, and I were in a minority among the senior team in believing that these companies posed no threat to us. Many employees and high-level executives, one or two board members and many shareholders told me that the world had changed and that I was in danger of ignoring potentially disruptive innovation. The reason Marc and I turned out to be right is that we understood that disruptive technologies are successful only when they are superior to the older technology they replace and when they can be marketed profitably. Neither condition was met.

The blog post discusses how Critelli has consistently had a world view that differed from those around him, and how this made it hard for him to get his ideas across. Many of his examples are cases where he was ultimately right – and in particular, I think that his experiences in changing healthcare are admirable. However, in this case, he wasn’t visionary – he was just lucky (be sure to read Mike’s response to this in the comments!).

Those two conditions are not actually required for disruptive innovations to succeed – especially the first one. Those two conditions are what entrenched incumbents always say when they discount the threat that new challengers pose. As the many studies by Clayton Christenson, Scott Anthony and others show, disruptive innovations are usually technologically inferior when they are introduced. This is precisely why the large firms don’t react – because they correctly perceive that their technology is better. The disruptive innovations change by creating a new market based on different business models, and different value networks.

This misperception of the threat posed by new technologies is one of the reasons that it is often very difficult to introduce innovations within established firms. The fact that P-B’s stock price is now 1/3 what it was when those threats appeared in 1999 suggests that a little more innovation would have proven useful for them.

Here’s another example – Kodak. Simon Waldman has a really nice post on some of the issues that Kodak was grappling with around the same time that Pitney Bowes was thinking about online competitors. He says that they didn’t react to the threat posed by digital cameras because:

* They were distracted by a ferocious price war with Fuji in the late 90s

* They were petrified of cannibalising their film business with digital (further compounding the impact of the Fuji price war)

* They massively underestimated how quickly consumers would ditch film

* Decades of comparable success had made them fat and way, way too happy with themselves

A few months ago, I asked this question to my favourite Swedish PhD student, Christian Sandstrom who has made something of a speciality of creating fabulous Slideshare presentations on the changes in the photographic industry. He responded quickly, but I never posted it here. You can see his answer here.

Here’s the quick summary

* Over aggressive diversification left them burdened with debt and in a weak financial state for dealing with the Fuji price war.
* They put too much focus on ‘hybrid’ solutions – using digital as a way to sell print (eg the Photo CD system)

To me, this sounds a whole lot like the problem that George Siemens is describing in education – they were trapped by their underlying beliefs and ideology. Their fundamental belief was that film would retain its dominance. Digital photos were technologically inferior (especially when they were first introduced), so why would anyone switch from film? Digital cameras took the normal route for disruptive innovations – they found a niche that would value their strength – people that wanted to post pictures on the web. They didn’t care about the poor quality – pictures looked lousy on the web back then anyway. And being able to transfer a digital photo straight to your computer was much easier and much faster than taking a picture, getting it developed, and then scanning it.

Like Pitney-Bowes, Kodak didn’t provide a great environment for innovators back then. Change was being fought hard.

Here’s a third example, going on right now – news. Here’s Felix Salmon arguing that the physical system of producing newspapers is one of the things that is making their transition to digital extremely painful:

Spencer Ackerman uncovers a bit of the hidden point here: newspaper conventions have been built for physical newspapers, and can look silly in the age of the web — especially when the stories themselves appear, pretty much unchanged, on newspapers’ websites. It might make sense for the physical LA Times to run one big story about Afghanistan, but once that decision is made, no one is going to chop that one big story into three smaller ones for the website.

Once again, inertia within the existing system makes it highly resistent to change, as we’ve discussed quite a bit here.

I think that the big difference between the public and private sectors in innovation imperatives is not that the private sector has the profit motive, but rather that occasionally private firms go out of business. It’s not Schumpeter’s “carrot of spectacular reward” that motivates innovation, but the “stick of destitution”. Even with this difference, fighting the inertia within established systems is our fundamental problem – no matter which sector we’re in. It’s hard to get new ideas to spread. That’s our challenge. We’ll keep talking about ways to meet it.