Now Microsoft falls victim to Innovators’ dilemma

Posted: May 9, 2013 in Corporations, Innovation, Technology
Tags: , , , , , , ,

The rumour mill has it that Microsoft is set for an embarrassing change in direction. When Windows 8 was announced, CEO Steve Ballmer called this a bet-the-company product. Well, the bet does not appear to have paid off.

The ‘FT’ drew a comparison with Coca Cola, when it announced Real Coke, only to reverse direction, after customers turned their noses up at the new drink.

Real Coke was a flop despite research showing that customers would prefer it.

But the analogy between Microsoft and Coca Cola is not precise. The drinks company changed because it thought it needed to progress, but it underestimated how unwilling customers are to change.

Microsoft, on the other hand, has to change. Innovation and potential disruptive technology demand it.

It is just that customers are conservative. Coca Cola found that they didn’t want to change drinks; Microsoft is finding that they don’t want to see such a dramatic change in their computer’s operating system.

This is classic innovators’ dilemma. See: Innovators’ dilemma Clayton M Christensen, who produced the study that we now credit with giving rise to the Innovators’ dilemma theory, found that most companies look to change their products, but it is their customers who stop them.

Take the disc drive industry, for example. The emergence of 5.25 inch disk drives for desktop computers changed everything. Many of the existing market leaders examined the new technology; some invested. However, they stopped short of embracing it; their customers used mini-computers and were not interested in “here today gone tomorrow” desktops.

By the time the desktop market was established, with 5.25 inch drives showing signs of dominance, it was too late. The new entrants, with their specialisation in the latest technology, held all the cards. The former heavyweights lost market share; many went out of business.

Microsoft is struggling to change because its customers won’t let it. As a result it is vulnerable to new disruptive technology. Microsoft has been here before, when DOS was heading towards the end of its natural life. But back then the company dealt with the challenge differently.

To tell the story, rewind the clock back to 1987. The company had a massive dilemma. It had enjoyed a good run, thanks to DOS, but the world was ready for change. The industry was alive with competitors – many much larger than Microsoft – wanting a slice of the action. Eric Beinhocker tells the story well in his book: ‘The Origin of Wealth’.

These days we just assume Microsoft chose to ditch DOS and develop Windows. But it wasn’t as simple as that. It appears that Windows evolved, and a by-product of its development was the failure of most aspects of the Microsoft plan.

In fact, before Windows won through, Microsoft put more resources into beefing up DOS. It entered into a relationship with IBM for the development of OS/2; it held discussions with third parties for products aimed at the Unix market; it bought a big stake in a seller of Unix systems; created software for the Apple market; and, of course, invested in Windows.

At the time, the company was lambasted in the press for being inconsistent – for having no strategy. In reality, it was just opening itself up to internal gales of creative destruction.

And now back to 2013, it seems Microsoft has forgotten the lesson of DOS. Instead of experimenting, it bet the company.

Windows 8 was not a bad idea, but it was a mistake to rely so heavily on this one idea.

© Investment & Business News 2013

  1. olivierlehe says:

    Very good post. For Microsoft and Windows this is true. We have also to add one important element: the technology. Currently the mobile technology allowing to have a computer, a tablet, with good performance, with very good autonomy, slim laptop, with high capacity for less than 800 dollars is not there. This is also a big problem for Microsoft. We have to wish that Windows 9 will be done with all lessons of the Windows 8 mistakes. Last think which is not easy, Microsoft had to release last year Windows. No choice for many reasons. 2014 will be very interesting year…

  2. Doug Scott says:

    The analysis has several odd points:

    1. The 5,25 inch diskette was introduced by IBM and adapted for personal computers. Its advantage for IBM was that it could be posted with upgrades to the Operating System and microprograms within the hardware. Personal computers at the time only had casettes, so the success of the floppy disk was much more convenient.

    2. Microsoft joined IBM in developing OS/s but were appalled at IBM’s sclerotic development process, and rapidly built an alternative which it called Windows. Indeed it did play with Unix (a version they called Xenix) until Windows 3 emerged as a viable OS; then Microsoft launched an expensive publicity blitz, skewering OS/2 by changing compatibility mode several times, forcing IBM to keep issuing updates to try to keep in step. Microsoft were much more nimble than IBM (the quality suffered appallingly, but first to the market wins most times) and it locked the hardware vendors in to restrictive agreements (subsequently removed by the Justice Department with the Consent Decree). Microsoft were vicious competitors in those days.

    Now Microsoft has become IBM in terms of sclerosis, and cannot change rapidly. It’s faced with Linux/Android upstarts and other competitors, and as you correctly point out, has bet the farm on a single product. This is normal within computer systems design – the attempt to standardize across disparate offerings whose differences prohibit a common approach. The User Interface, although hugely significant for the user, doesn’t form a huge part of the development costs, yet Microsoft have compromised the entire desktop in order to provide touchscreens, when desktops work best with keyboards. Silly.

    Their technical guys are good enough to pull back and redo the design, but it will take a year or two.

  3. Have to agree with you here there should realistically been a surface tablet + phone with the curent layout that people generally are happy with, helping the ease of a windows 8 system into the market while also capturing some of the younger Apple audience like they obviously intended, The desktop should have seen a transitional update to 7+ but not yet 8, creatures of habit, Windows customers have had years of familiarity and attachment to the desktop, with the new windows 8 I’ve seen people scratching their head trying to turn off their PC a realistic essential tool

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