Remember a few months ago when Leavitt died and you celebrated his most famous notion and I dissented? Aren't you now coming around to my way of thinking, that corporations reinventing themselves or seeing threats before the enemy soldiers storm ashore, is so damned difficult it's probably impossible?

My point was that it is incorrect to suppose that companies should always change their basic thinking and processes in order to react to radical new threats. If adaptation requires throwing away the residual value of their existing combination of people, processes, and assets, it may not be worth it. Specific situations require difficult case-by-case analysis and judgment, which is why we have managers instead of robots. But I stand by the claim that this tradeoff is central. It's not a very strong claim, because the tradeoff is fairly general and weak.

With respect to the IBM PC, the company may well have done the best it could. (Some would question the later decision to pull the independent PC division back within the bureaucracy, and many would question the later decision of 1986-7 to introduce the Microchannel Architecture which violated IBM's tradition of backward compatibility.) That doesn't contradict the point that IBM had to decide which of its assets were applicable to the new market and which ones weren't, and whether there was enough commonality between the PC business and its existing businesses for its assets and people to make a positive economic contribution there. I suspect, for instance, that if IBM had (incorrectly) concluded for some reason that its brand name would not transfer over to PCs, it would have pulled the plug on the whole venture.

My business experience with problems like the one described in Grant's post is that there is never one, single "correct framework for thinking about it". If there was, either the solution to the problem, or a methodology for arriving at a solution, would be obvious. In all the cases of which I have direct experience, neither of these was obvious, and reasonable people, all intelligent and long-experienced, disagreed about what to do.

When faced with the disruptive prospect of the PC, IBM tried 3 times to develop a PC operating system before arriving at a "solution" — first, using their existing software development division (too slow & cumbersome); second, using a skunks-works type independent software unit (not cohesive); and third, outsourcing the task to a little company called Microsoft. Only the third of these methods worked, in the sense of delivering an integrated, working PC O/S within a reasonable timeframe. On the other hand, outsourcing the O/S did great damage to the profits which IBM could subsequently extract from the growth of the PC market.

I am not sure that any perfect solution existed to this problem for IBM, either then or now (ie, with hindsight). I am very sure that there was no single "correct way" to think about the problem.

Obviously, "it depends" is the only intelligent answer here, but the correct framework for thinking about it is pretty clear. The economic contribution of the firm as an organization lies in its ability to get more value out of a combination of assets and people than they are worth separately (or if scattered and assimilated to other combinations). Absent this contribution, the best thing is to break up the band and let its parts and people migrate off to higher-value uses.

If a shift in demand or an innovative product destroys only some of that economic contribution, adaptation–changing how the organization deploys its people and assets and slightly changing the mix of same–may be a good idea if it doesn't take the firm into areas where its unique practices and combinations are poor at creating economic contribution. In other words, if the skills and processes that make Coke great at soda are not effective in selling fruit juice but still have residual value in carbonated beverages, the right move may well be to keep the organization focused on soda. Or if soda is becoming obsolete quickly, one could look (more speculatively) for entirely new markets to which Coke's capabilities could be applied.

The idea that Coke should be very aggressive in attacking the fruit juice category stems from an intuition that in fact the level of change or adaptation required isn't too high. In other words, the argument for Coke "adapting" to fruit juice growth by going into it is that Coke's existing assets, people, and practices are fairly well-suited to the new markets and require only minor modifications or additions. If there were no carryover of its existing capabilities to the new business, there's no reason for Coke rather than some outside firm to be the one to engage that market.

The idea that Company X should adapt to a threat by changing its people, its culture, its assets, its practices, and its product line raises the question of what sense we are really talking about adaptation at all. In that case, we would really have Company X', which has the same legal shell but is completely different from Company X in all substantive ways. The swap from X to X' is unlikely to be a good deal for owners, because the residual value of what X was doing uniquely well is lost while the new X' could have just as easily been formed from scratch out of resources available elsewhere.

How many big misses does Microsoft have to have before it gets it? As many as it takes to get Gates, Ballmer, et al. out the door. The problem's at the top. Sensing mechanisms are important but valuing the data being sensed is definitive.

I'm starting to wonder if it's possible for Boomer leaders to succeed in the heart of today's environment (those places where the dynamic churn is greatest). And, as a card-carrying member of that generation, I'll tell you it stings to consider such heresy. Here's something Chris Anderson of Wired Magazine said at Pop!Tech that got me to sit up straight: "I do whatever my intern tells me. If s/he tells me to run a story about X, I do, even if I don't get it." Sounds like a rare Boomer to me: one who believes he has something to learn from some Gen Y kid!

elegant way of rearranging the blue ocean picture. fully agree. it is a wide wide see out there (not everywhere a harbour for passengers, freight and sweet water).
also very much agree with your three step innovators innovation model. seen it in action several times and for a number of years already. every company that has a innovation lab works more or less exactly this way. i am sure the pharmaceutical industry works this way too.
still it does not prevent them from failing.

by nature every true innovation is a trip into unknown markets.
what you need is a good portfolio strategy… but you also need what the french call "fortune" – a daredevil attitude that challenges the stars to stand by you. commitment – decisiveness – leadership.
in order to succeed you need ships and crews that are build for success. you need the conquerors.
if they are not as successful as you hoped they would you will find it extremely difficult to unfocus these teams again and change course. speaking from experience i think it is virtually impossible. you will have to start by bringing in a whole new team . but the best thing will probably be to sink the whole venture – given you have this rich portfolio of other businesses that i adviced you to have.