Has Apple Solved the Innovator’s Dilemma?

June 15, 2012 § 1 Comment

Last October, along with many other tributes to the late Apple co-founder, James Allworth claimed that Steve Jobs Solved the Innovator’s Dilemma. His explanation is that Apple avoids the traditional pitfalls that stifle innovation because:

Apple hasn’t optimized its organization to maximize profit. Instead, it has made the creation of value for customers its priority.

This analysis echoes what Steve Denning calls Radical Management, which sees the purpose of a business as providing Customer Delight rather than short-sightedly maximizing shareholder value.

To support his thesis, James cites Apple’s unusual attitude towards:

Profit: “there’s only one person Apple with responsibility for a profit and loss. The CFO.”
People: “It didn’t matter how great you were, if you couldn’t deliver to that mission — you were out.”
Products: “Tim Cook, on the iPad disrupting the Mac business: ‘Yes, I think there is some cannibalization… the iPad team works on making their product the best. Same with the Mac team.’ It’s almost unheard of to be able to manage disruption like this.”

While these are clearly key contributors to Apple’s disruptive success, the only show that Apple has so far avoided the Innovator’s Dilemma. Clay Christensen himself, author of the Innovator’s Dilemma and self-appointed “Jewish Mother” to the business world, still publicly worries whether Apple has truly found a sustainable solution to that problem.

So has Apple solved the Innovator’s Dilemma, or not? How could we know?

Part of the difficulty, of course, is that Apple is notoriously secretive about its internal business processes. However, the larger problem — which this question highlights — is that we don’t have a robust organizational theory of business. We have entire industries devoted to making mostly useless predictions about stock prices, yet nobody seems to make testable predictions about organizational behavior. Lacking a theory, we only have data — which as Clay reminds us only helps make decisions about the past, not the future.

The problem with the above claims is that they aren’t very specific about which customers and what value to create for them, which is where most innovators stumble. To help fill that gap, here are a few possible theories about why Apple has or hasn’t solved the dilemma, and suggestions for how we can test those theories.

1. Targeting Non-Consumption

One of the key insights of disruption theory is that sustaining innovations focus on serving the “best” customers, and eventually overshoot the market. This creates an “overhang” which disruptive innovators can use to enter the market, using non-consumers as beach-heads.

Apple, on the hand, has often ignored their “best” customers in order to shift their products down-market towards non-consumers:

One possibility is that Apple may have solved the Innovator’s Dilemma by explicitly orienting their product strategy around Targeting Non-Consumption (TNC). The TNC view is that the secret to Apple’s success is that they continually focus on producing technology “for the rest of us.” This hypothesis is bolstered by Apple’s strategy of selling previous-generation iPhones and iPads at lower price points. If this trend continues, perhaps incorporating new form factors, there won’t be any non-consumption for competitors to exploit.

A good test of this is in the developing world. A 7″ Android tablet developed in India, the Aakash (aka Ubislate), sells commercially for $60. The TNC hypothesis predicts that either:

Aakash-type tablets never become financially self-sufficient
Apple will respond with a sufficiently low-priced tablet to deflate that demand

2. Producing Art

An alternative to the TNC hypothesis is that Apple’s product strategy is driven by the desire to Produce Art (PA) rather than profit. This explains Apple’s disruptive success as a fortunate side-effect of a desire to build beautiful things.

There is some evidence for PA in that Apple has occasionally built beautiful products that were commercial failures. The most notable examples are:

Then again, two examples over 20 years isn’t very conclusive, especially with the most recent over a decade ago.

We may have an opportunity to test this with 7″ tablets, which Steve Jobs famously said were “dead on arrival.” In contrast to the optimistic TNC predictions, PA predicts that Apple will not introduce a 7″ tablet because the are “too small for a pleasant touchscreen experience.”

Of course, it is possible that either:

7″ tablets truly are dead on arrival, and thus will never post a serious disruptive threat to Apple
Apple will figure out a way to create a “pleasant touchscreen experience” that does fit between the iPhone and iPad

That is, the only way we can prove TNC and disprove PA is if Apple is forced to ship a 7″ iPad that is not up to its usual standards (or perhaps just margins) for competitive reasons. Conversely, if the universe conspires with Apple so that TNC and PA are always mutually satisfied in markets that matter to them, we will never be able to tell the difference. 😦

3. Telling The Truth

Our third hypothesis is that the secret of Apple’s success has nothing to do with product strategy, but everything to do with corporate culture. While it is true that the synchronized failure of entire industries is not due to an explicit conspiracy to fail, it may well be due to groupthink preventing executives from recognizing truths that would hurt their salary.

If Ken Segall is right, one of Apple’s Insanely Simple values is simply Telling The Truth (TTT). Perhaps the way Apple values art and targets customers isn’t enough to solve the Innovator’s Dilemma. Maybe the real secret of Apple’s success is that only their executives are forced to grapple with painful trends that are obvious to outside observers and low-level employees.

This is a difficult hypothesis to test, since the truth is only obvious in hindsight. Many times Apple has seemed out of touch with reality when they were merely ahead of the curve. If TTT is working, it will tend to look a like to TNC or PA, so it is hard to prove in the positive sense.

One failure mode to look for is when certain issues and ideas start to gain traction in the outside world and there is no response from Apple. Apple famously takes its time to respond to things other might consider urgent crises (e.g., Antennagate). However, its CEOs also make a point of personally responding to emails from frustrated customers. If a major corporate issues surfaces in the Apple press, and Apple persists in ignoring it over multiple months, we may suspect TTT has broken down.

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The goal of these theories is not to make correct predictions, but testable ones. These are an (admittedly crude) attempt at articulating concrete theories of why Apple will (or will not) respond successfully to disruptive competitive threads. I hope you will use them as a starting point for both collecting data and generating alternative theories. The hope is that over time we can develop better theories and more accurate data. The ultimate goal is to know how any company — not just Apple — can avoid the Innovator’s Dilemma.

Tagged: apple, clay christensen, maximizing shareholder value, technology

§ One Response to Has Apple Solved the Innovator’s Dilemma?

Can Startup Thinking Solve the Innovator’s Dilemma? « iHack, therefore iBlog says:

July 11, 2012 at 12:30 pm

[…] I discussed theories about how and whether Apple has solved the Innovator’s Dilemma, I neglected to mention my favorite […]

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