The ‘Motorcycle’ Innovator’s Dilemma
In his business classic, “The Innovator’s Dilemma”, Clayton Christensen identifies that the reasons well managed organizations fail managing disruptive innovations. Ironically, those reason are the same reasons organizations are successful managing sustaining innovations. Christensen explains, “paradigms of sound management are useless – even counterproductive, in many instances – when dealing with disruptive technology.” Honda’s entry into the motorcycle industry in the United States is used as a primary example to demonstrate disruptive technology principles in Christensen’s book that help the reader understand the principles of and how to manage disruptive technologies.
Honda’s Big Mistake and Little Miracle
Honda brought three employees to Los Angeles in 1959 to set up shop and compete against Harley Davidson. They started distributing the “Honda Dream with similar features to the Harley”. Like other well operated companies, Honda researched the US market, listened to what customers wanted and executed well. The well researched strategy failed to meet management expectations even though 500 new Honda dealers embraced the idea. Honda needed a disruptive technology to enter a market dominated by Harley.
As Honda discovered their disruptive technology, the smaller, off-road capable Supercub; business erupted with unpredictable and unplanned new growth. Christensen states, “Products based on disruptive technologies are typically cheaper, simpler, smaller, and, frequently, more convenient to use.” He goes on to explain that, “Small off-road motorcycles introduced in North America and Europe by Honda, Kawasaki and Yamaha were disruptive technologies relative to the powerful, over-the-road cycles made by Harley-Davidson and BMW.” Japanese workers brought little Cub motorcycles for personal use and realized that they were a blast to ride in the foothills of southern California. This little miracle was the beginning of the launch of a little motorcycle that would totally disrupt the Harley dominated motorcycle market. Honda had a disruptive technology, now they needed to find customers.
When Listening To Dealers (Your Customers) is Bad
Honda’s dealer network did not embrace the new little Supercub. “Once the small-bike strategy was formally adopted, the team found that securing dealers for the Supercub was an even more vexing challenge than it had been for its big bikes.” As Honda management had assumed previously, their dealer network felt like they needed something that would compete with Harley, and to the dealers, the Supercub was a inferior product.
Listening to customers in an established value network works for launching new sustaining innovations. Researched based forecasting, listening to customers, established manufacturing processes and go to market strategies that are used to successfully launch sustaining products does not work to manage disruptive products. Christensen proves that “…paradigms of sound management (like listening to customers) are useless-even counterproductive, in many instances-when dealing with disruptive technology.”
It’s a good thing Honda didn’t listen to their dealer network that rejected the Supercub. The emerging small motorcycle market had to be launched in a totally different and less significant distribution channel for the motorcycle world, a small group of sporting goods stores.
Dealers are Barriers to Disruptive Technology
Honda’s customers (their dealers), became a barrier to disruptive technology because they were focused on taking share in the existing motorcycle market of large, over-the-road bikes. These dealers had processes and cost structures that required price points with certain margins. Established customers do not recognize the potential of disruptive products because “…when they initially emerge, neither manufacturers nor customers know how or why the products will be used, and hence do not know what specific features or the product will and will not ultimately be valued”
Honda’s entry and creation of the off-road motorcycle business would have been stopped if they had not sought an alternative distribution network by selling to Sporting Goods stores. Christensen teaches, “…the successful entrants find a new market that values the technology.” The little off-road capable motorcycles started a revolution that grew the American motorcycle market to 5 million sold per year by 1975.
The business models of Harley dealers were aligned with Harley’s established high end motorcycle business. The Harley dealer network became a barrier to Harley Davidson entering the disruptive off road motorcycle market. Christensen noted “…a primary cause of Harley’s failure to establish a strong presence in the small-bike value network was the opposition of its dealer network. Their profit margins were far greater on high-end bikes, and many of them felt the small machines compromised Harley-Davidson’s image with their core customers.” Even today, more than 50 years after the launch of the Supercub, Harley Davidson has zero market share in the off-road motorcycle market. The dealers were the barrier because they told Harley no, and Harley listened.
The Dilemma Resolved
Managing disruptive technology is counter-intuitive to to great organizational management. Christensen observed, “successful companies populated by good managers have a genuinely hard time doing what does not fit their model for how to make money.” Honda had a break through because they resolved that dilemma. Honda’s example shows that disruptive technology should be pursued as a learning and discovery pursuit instead of the traditional execution principles used for sustaining innovations. Honda employees discovered and learned by riding them and watching how their friends responded to them which became the beginning of an emerging market.
Being prepared to fail and not give up during the learning process is key. Christensen reveals that managers must first understand these conflicts, then create a context where the market size, organizational size and values and cost structures are aligned with a smaller emerging market just as Harley missed out on and Honda ultimately succeeded in resolving. – Jared Burt