Resource Dependence Strategy for Disruption
Harness the force of customer control by embedding disruptive projects where they matter
Resource dependence theory holds that companies' freedom of action is fundamentally limited by the entities that provide their resources: primarily customers and investors. Well-managed companies develop excellent systems for identifying and killing ideas that their customers do not want. These systems constitute a profound organizational capability for sustaining innovation but an equally profound disability for disruptive innovation. The people and processes that make a company successful are the very ones that ensure disruptive projects receive inadequate resources.
Christensen's research reveals that this is not simply a matter of executive decision-making. Even when senior managers commit to pursuing a disruptive technology, the thousands of day-to-day resource allocation decisions made by middle managers, engineers, and salespeople systematically divert resources away from disruptive projects and toward sustaining ones. These employees are not being insubordinate; they are rationally pursuing what they correctly understand to be in the company's best interest within its current value network.
The solution is not to fight the force of resource dependence but to harness it. By creating an autonomous organization whose customers actually need the disruptive technology, managers can make resource dependence work for them. The autonomous organization must be genuinely independent, with its own cost structure, its own customers, its own profit-and-loss responsibility, and its own decision-making processes. When the survival of this organization depends on the disruptive technology's success, the force of resource dependence ensures it receives the attention and resources it needs.
- Customers effectively control resource allocation in well-run companies through the rational behavior of employees seeking profit and career advancement
- Even when senior management commits resources to a disruptive project, the organization's people will systematically starve it if mainstream customers do not want the output
- The only reliable way to ensure a disruptive project gets adequate resources is to embed it in an organization whose customers need the disruptive technology
- Fighting resource dependence by trying to force the mainstream organization to pursue disruption is possible but extraordinarily costly and rare
- Acknowledge the power of resource dependenceAccept that your organization's resource allocation process will systematically favor sustaining innovations over disruptive ones, regardless of executive mandates. This is not a flaw but a feature of well-managed companies.Pro tipTrack where your engineers and salespeople actually spend their time versus where management says they should. The gap reveals resource dependence in action.
- Create a genuinely autonomous organizationSpin out an independent company or create an autonomous business unit to commercialize the disruptive technology. It must have its own P&L, its own customers, its own cost structure, and its own executive team. A skunkworks within the mainstream organization is insufficient.Pro tipThe autonomous organization must be small enough that small wins from the disruptive market generate genuine excitement and career opportunity for its peopleWarningHalf measures fail. DEC tried four times to enter the personal computer market from within its mainstream organization, and failed four times. IBM succeeded by creating a fully autonomous PC division in Florida.
- Embed the organization in the right value networkEnsure the autonomous organization is dependent for its survival on customers who actually need the disruptive technology. These customers must be different from the mainstream company's customers. The autonomous organization's resource allocation process will then naturally channel resources toward the disruptive opportunity.WarningDo not tether the autonomous organization's performance to the parent company's margin requirements. Its economics must match the emerging market's economics.
- Maintain ownership while granting independenceRetain significant ownership of the autonomous organization so the parent company benefits from its success. But resist the temptation to integrate it back into the mainstream organization prematurely.Pro tipQuantum retained 80 percent ownership of Plus Development Corporation while giving it complete operational independence. When Quantum's mainstream 8-inch business declined, Plus's executives and products became the new Quantum.WarningIBM's subsequent decision to link its PC division more closely to its mainstream organization was an important factor in IBM's difficulties maintaining PC market share.
Quantum, a leading 8-inch drive maker, was losing ground as 5.25-inch drives invaded its market. Several employees saw an opportunity for a thin 3.5-inch drive for desktop computers. Rather than let them leave, Quantum financed and retained 80 percent ownership of a spin-out called Plus Development Corporation, set up in separate facilities with its own executive staff and complete functional capabilities.
Both variety store chains recognized the threat of discount retailing. Kresge created Kmart as an autonomous discount chain with its own management, real estate strategy, and cost structure. Woolworth launched Woolco as a division within its mainstream organization, holding it to the same margin standards and sharing management attention with the core variety store business.
Christensen found powerful evidence for resource dependence theory in the disk drive industry. At Seagate, engineers developed working 3.5-inch drive prototypes but the organization shelved the project because mainstream desktop PC customers wanted larger-capacity 5.25-inch drives. At Control Data, engineers assigned to the 8-inch drive kept getting pulled off to fix problems with 14-inch drives for more important customers. The only firms that succeeded with disruptive technologies were those that set up independent organizations: Quantum's Plus Development Corporation and Control Data's Oklahoma City facility. The one exception, Micropolis, required the CEO's full-time personal attention for eighteen exhausting months.