Feeding the Beast

10 November 2003

Last week’s update on Motorola’s pizza delivery innovation sparked an observation from Hank Chesbrough, at Berkeley’s Haas School. He says:

"Companies structure their innovations to fit into their existing business models.

The only reason wireless service providers are one of the customers for electronic pizza delivery is because these companies are also the biggest customers for Motorola’s core business in handsets. If Pepsi had developed an electronic pizza delivery system, the approach would have been quite different."

Motorola’s current operations serve as a primary filter for its new ideas. For pizza delivery, this resulted in a business design that was overly complex. Motorola’s (perhaps unconscious) focus was on the best innovation for the company rather than for the customer.

Most large companies follow Motorola’s approach to innovative products and systems. Hank calls this practice one of "feeding the beast" – looking for innovations that fit the company’s current business practices.

Some of my clients use the picture below to describe the process of feeding the beast. This particular Beast (made by a company called Banditchippers) takes in a wide variety of wood and delivers smaller, more uniform wood chips.

It’s a big machine which requires a lot of raw material, but only of a certain type. It can’t handle metal or plastic, for example.

There are many good reasons why large companies are constantly looking to feed the beast, searching for innovations and new products that fit into and extend their existing businesses. The approach makes economic sense – if a company can develop a new product that uses existing assets and channels, it can generate profitable growth.

There are two corollaries to this worthy goal:

Most companies will reject innovations that do not extend their existing businesses. The beast can only handle a limited range of contributions.
Any innovations they develop will build on the structure that currently exists within the company. The beast tends to homogenize its diverse inputs.

This approach has been prevalent for over a century. Consider a few examples, both historical and recent:

In 1877, shortly after receiving his patent for "improvements in Telegraphy," Alexander Graham Bell offered to sell it to Western Union for $100,000, roughly $1.7 million in today’s dollars.

Western Union declined the offer. It decided the telephone could not help to fundamentally bolster its lucrative long-distance data communications business line. The company felt that Bell’s telephone could not build on the well-developed structure, employing Morse Coders and Telegram Delivery Boys, that underlay its successful business.

In 1981, Exxon bought Reliance Electric, holder of the key patents for variable frequency drive motors. Exxon was initially excited by the opportunity presented by more energy efficient motors, but its existing businesses of refining and gas distribution were far removed from Reliance’s innovations in electric motors. Unable to exploit the market, Exxon sold the company back to its management in 1986 at a large loss. Today, variable frequency drives are a large market, and Reliance Electric is a part of Rockwell Automation.

As I write this, lead users are converting Microsoft’s Xbox game console into a fast, quiet, and inexpensive Linux computer (see picture below). Rather than recognizing the opportunity and launching a division to sell Linux computers, Microsoft is threatening legal action against these users.

In large companies, the market-facing four factor model for predicting innovation success has an inward-facing mirror. It’s not just about how easy or profitable it is for customers to use new products. It’s also about how easy and profitable it is for the managers, salespeople and researchers to fit these new products into their existing businesses.

An effective approach to innovation needs to recognize that a company’s employees are purchasers too. They have a set of motivators and barriers to change, just as external customers do.

They will want to feed innovations to the beast, which minimizes the amount of change required of the company to bring the innovation to market. In doing this, however, they have to recognize and counteract their natural bias towards launching a product or service that fits the corporate structure more than the customer’s needs.

More Information

Hank Chesbrough is at Berkeley’s Haas School: www.haas.berkeley.edu/faculty/chesbrough.html

Last week’s update on Motorola’s abortive attempt for electronic pizza delivery is here: http://www.biz-architect.com/electronic_pizza.htm

Clay Christensen, Scott Anthony, and Erik Roth provided the Western Union / Bell example in their unpublished manuscript Betting on Disruption.

For the Reliance Electric story, look here: http://www.control.com/1026176705/index_html. Here’s the homepage for Reliance Electric: www.reliance.com. Curiously, the company history doesn’t mention the 5 years of Exxon ownership of the company.

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