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Established firms need the courage to disrupt

Perhaps the most daunting challenge for executives is responding to an emerging technology or new product that could disrupt their core business. Failure to ride the innovation wave can spell the end of a once-formidable franchise. Witness the slow deaths of Polaroid Corp. (the old one) and Digital Equipment Corp.

Responding successfully requires a delicate transition. Companies must embrace an innovation even if it's not ready for prime time. Or they must tap a less profitable low-end market that eventually could erode their more profitable high-end market. And they must nurture the technology that will be their future while focusing on the technology that is their here and now. In effect, they must cannibalize their own business -- before someone else does.

"It's a real trick," said Clayton M. Christensen, professor of business administration at Harvard Business School, who coined the phrase "disruptive technology" in the late 1990s. "Very few companies have done it. Because the new game begins before the old game ends."

Christensen was among the first to recognize the growth paradox in his 1997 book "The Innovator's Dilemma." That book explored the factors that prevent established companies from initiating disruptive change. Corporate executives tend to cater to their fastest-growth businesses and best customers when times are good, and go searching for new businesses and customers when the good times are gone. But by then it may be too late, if they've failed to spot a disruptive technology rearing its head.

Christensen has written a follow-up, "The Innovator's Solution," published Thursday by Harvard Business School Press. The book, co-authored with Michael E. Raynor, a director at Deloitte Research, is intended as an answer to the question Christensen posed six years ago: How can business leaders create sustainable growth for their companies at a time of continuous change and innovation?

Christensen and Raynor set out to demystify innovation so that established companies can capitalize on changes and deliberately create disruptions.

Among the tactics they recommend:

* Target only customers and markets that are unappealing to established competitors.

* Pursue customers at the low end of a market or, even better, "nonconsumers" who don't even use a product.

* Help customers find simpler, more cost-effective solutions, rather than inventing new problems for them to solve.

* Be impatient for profits, but patient for growth.

* Work on new ways to keep your company growing while it is still robust .

"A dearth of good ideas is rarely the core problem" for established companies, Christensen and Raynor write. "Potentially innovative new ideas seem inexorably to be recast into attempts to make existing customers still happier. We believe that many of the ideas that emerge from this packaging and shaping process as me-too innovations could just as readily be shaped into business plans that create truly disruptive growth."

Not everyone believes established companies can easily turn themselves into disrupters. The venture capital industry invests in start-ups because they have the best track record in catching the innovation wave and riding it to rapid growth. When established companies retrench in slow times, their research and development budgets are often the first to be squeezed, notes Jon G. Auerbach, a principal at Highland Capital Partners in Lexington.

"Innovation is something which is driven mainly through start-ups," Auerbach said, because there "the system of motivation and rewards is perfectly attuned for innovation. It's very hard to get that environment at established companies."

Nonetheless, more companies are trying to understand the dynamics of destructive innovation and what it takes. Christensen cites several examples: Eastman Kodak Co. investing in digital cameras, Microsoft Corp. in database software, and Teradyne Inc. in low-end microcontrol testers.

Christensen thinks more companies can learn to run their businesses and reinvent themselves at the same time, and the economy will be more efficient as a result. But that doesn't mean entrenched market leaders won't be blindsided at times or that start-ups will disappear. "There are far more ideas than there are established companies," he said.

Robert Weisman can be reached at weisman@globe.com.

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