When steamships were introduced they were rickety, prone to catching fire and had limited endurance. So they used to ply on the river routes. Not one of the dominant sailboat companies took them seriously at that time. Eventually, of course, steamboats replaced sailboats. However, it turns out that none of the sailboat companies made the transition.
Steamboats represented disruptive innovation. Clayton Christensen has argued that incumbent firms find it difficult to succeed with disruptive innovations. First they “ignore disruptive innovations, since they compare so badly with existing technologies or products, and the deceptively small market available for a disruptive innovation is often very small compared to the market for the established technology”.
Even if a disruptive innovation is recognized, existing businesses are often reluctant to take advantage of it, since it would involve competing with their existing (and more profitable) technological approach.
You can see this dynamic play out in detail in this well-written IEEE Spectrum’s cover story, How Bell Labs Missed the Microchip. It’s also a compelling story about Jack Morton, the force behind the success of transistors who failed to see the potential of integrated circuits.
You have to read this article at two levels. At one level, this is about a strong, intimidating leader who “could make incorrect decisions and remain unchallenged because of his aggressive style”. It’s a story about how decisive leadership can easily become a flaw rather than a virtue. Morton’s previous string of successes probably contributed to his sense of his own infallibility.
At another level this is a story about how successful organizations can’t cope with disruptive innovations. Here are a few extracts from the article that underline that point…
As former Bell Labs President Ian Ross once explained in an interview, the Labs focused on developing robust, discrete devices that would enjoy 40-year lifetimes in the Bell System, not integrated circuits. Indeed, the main customers for microchips were military procurement officers, who, especially after Sputnik, were willing to cough up more than US $100 a chip for this ultralightweight circuitry. But the telephone company had little need for such exotica. “The weight of the central switching stations was not a big concern at AT&T,” quipped Ross, who back in 1956 had himself fashioned a precursor of the microchip.
To the dismay of Gordon and others in his division, Morton squelched efforts at Bell Labs to pursue what the semiconductor industry began calling large-scale integration, or LSI, which yielded single silicon chips containing more than 1000 components. He even derided people working on LSI as “large-scale idiots,” said one colleague. Instead, he promoted the idea of hybrid technology incorporating smaller-scale microchips, which could be manufactured with higher yields, into “thin-film” circuits based on metals such as tantalum, in which resistors and capacitors could be etched more precisely than was possible in silicon. Morton championed this approach as the “right scale of integration,” or RSI—another favorite phrase of his.
Look around in your organization. You may spot your industry’s ‘microchips’ being squelched by the ‘transistor’ folks. Do share what you see (you can always comment anonymously!).
1820 Responses to “An Incumbent’s Struggle with Disruptive Innovation – The AT&T Microchip Story”