Key Principle
Organizations possess three capability layers -- Resources, Processes, and Values (RPV) -- and a process that is a capability for one task is simultaneously a disability for a different task. Resources (people, cash, technology) are flexible and transportable. Processes (interaction patterns) are designed for consistency and inherently resist change. Values (prioritization criteria shaped by cost structure) determine what gets funded. Executives who assess only resources when staffing disruptive ventures set those ventures up for failure. (Chapter 7)
The corollary is stated as "a general law of organizational nature": organizations cannot disrupt themselves. Mainstream processes and values will absorb any disruptive unit that is reintegrated.
Why This Matters
The most common response to a disruptive opportunity is to assign the best people and assume they will figure it out. But people operate within processes and values they did not choose and cannot override. The RPV framework explains why "A players" from the mainstream business routinely fail at disruption -- their skills were forged in circumstances that no longer apply. Schools of experience converts this insight into a hiring method: identify the foreseeable problems the venture will face, list the experiences a manager would need, and compare against candidates' actual experience rather than their attributes or track records.
Without autonomous organizational units, the mainstream cost structure sets the bar for what counts as an attractive opportunity, and mainstream processes dictate how work gets done. The disruptive venture inevitably gets reshaped into a sustaining project.
Good Examples
- Schools of experience method: (1) Identify foreseeable problems the new venture will face. (2) List the experiences a manager would need to have wrestled with. (3) Compare against candidates' actual experience -- not attributes like "decisive" or "good communicator." This is circumstance-based theory applied to human capital. (Chapter 7)
- Cisco's acquisition strategy: When Cisco bought companies for their processes and values, it kept them independent and infused resources. When it bought resources, it integrated into the parent. This discipline preserved the capabilities Cisco was paying for. (Chapter 7)
- J&J's autonomous structure: By keeping acquired disruptive businesses as separate autonomous units, J&J preserved the processes and values that made those businesses disruptive in the first place.
Counterpoints
- Pandesic (Intel/SAP joint venture): Over $100M spent. Managers had stellar records in large global organizations but zero experience with emergent strategy discovery, new-channel building, or managing corporate parent expectations. Shut down February 2001 with minimal sales. Right resources, wrong processes and values. (Chapter 7)
- Woolworth's Woolco: After the discount unit was reintegrated into the parent, margins rose from 23% to 34% and inventory turns fell from 5x to 4x within one year. The mainstream organization's processes and values absorbed the disruptive unit. Woolco was subsequently closed. (Chapter 7)
- Merrill Lynch's Internet trading: Inevitably shaped as sustaining technology by the parent organization's values -- the online offering had to protect existing broker relationships and revenue streams rather than disrupt them. (Chapter 7)
- RHR International finding: Up to 40% of newly hired senior executives quit, underperform, or are fired within two years -- evidence that attribute-based hiring systematically fails. (Chapter 7)
Key Quotes
"A surprising number of innovations fail not because of some fatal technological flaw or because the market isn't ready. They fail because responsibility to build these businesses is given to managers or organizations whose capabilities aren't up to the task." -- Christensen & Raynor, Chapter 7
Rules of Thumb
- Assess ventures against all three RPV layers, not just resources (people and money).
- A process that is a capability for sustaining innovation is a disability for disruptive innovation -- do not transplant processes across contexts.
- Hire managers for the problems they have solved, not for the attributes they display or the track records they compiled in different circumstances.
- If a disruptive venture is reintegrated into the mainstream, expect the mainstream's processes and values to win within one budget cycle.
- For acquisitions: bought processes/values means keep independent; bought resources means integrate.
Related References
- Managing the Strategy Development Process - Emergent vs. deliberate strategy requires different managerial experience profiles
- Good Money and Bad Money - Corporate values (cost structure, growth thresholds) determine which ventures get funded
- Law of Conservation of Attractive Profits - Repositioning toward de-commoditizing stages requires organizational capabilities the parent may lack