The Innovator's Dilemma - Book Review

A friend recommended this book to me a few months back. I read it then but after the recent discussion about Dell, Acer and the netbook market decided to read it again. I also posted a review on Amazon.

The Innovator's Dilemma is a unique approach to understanding corporate failure. Christiansen's thesis is that well managed companies with all the best processes in place do fail. The failure is not due to inefficiency, bad management or bad processes but due to companies being responsible in terms of listening to their customers, investing in technologies that their customers' demand and rationally allocating resources to high-margin products. Christiansen argues that these investments are made on sustaining technologies as opposed to disruptive technologies. He reason's established sector leaders do this because the initial market for disruptive technologies is too small to justify the investment and sustain corporate growth. This provides new entrants with time and space to establish themselves in the emerging market and that when the performance of the disruptive technology intersects the needs placed on the traditional technologies in an industry, these disruptive technologies will start to take over from the traditional sector leaders. [Read Full Review]

I feel this book speaks directly to what is happening in the netbook market. Once again, this is not a prediction of the demise of Dell but netbooks are changing the way people percieve and view computers. The growth of this sector has obviously grown due to the economic crisis due to the low price of these devices but I still cannot help feeling that by not investing in these products, they are missing something. I may be wrong but this book (even the introduction) is a mirror of the current situation in this market and also surprisingly the rise of ARM processors.

So anyway rather than reading the review read the book and let me know what you think. It will be interesting.

Are PC Shipment Volumes Meaningful

Yesterday we wrote that Acer had taken the number 2 spot in terms of volume for PC shipments in Q3 this year (Acer Rises to No. 2 in Q3 2009 ). Tony Bradley comments on this data over at PC World:

The third quarter sales figures brought great news for the PC industry-- sales are up! Following declines in the first and second quarters, global sales of PC's are up 2 percent for the third quarter, seemingly signaling a light at the end of the recession and IT spending glut tunnel. However, the news isn't all good.

See, here's the thing about statistics and numbers: they say what you want them to say. Good news can be extracted by focusing on the total number of actual devices that were bought and sold during the quarter. However, that statistic does not tell the whole story.

Bradley's perspective is that the shipments are not a significant indicator of the health of the company or the industry. His thesis is that absolute volumes are not as important as say revenue or overall profit and that while the small marginal increase in sales and the growth of Acer is not unimportant. There are other issues that need to be addressed. When speaking about Dell, he quotes Michael Dell who said "If we [Dell] wanted [market share], we'd go and sell a whole bunch of netbooks." The point being that Dell are focusing on long term revenue growth, profitability and not looking at incremental market share as it changes each quarter (quarterly myopia is an obsession and has played its part in the economic downturn).

When reading his article a couple of things sprang to mind.

First, while I do agree with Bradly that it is good for companies to focus on "long-term strategy and profit" it is unfair to say (or imply) that Acer or the Taiwanese companies aren't doing that. Of course they are. Getting into the netbook game was a long term strategy for both Acer and Asus and right now they are reaping the rewards of their planning and the advantage they are gaining from their strategic foresight when they launched the netbooks a few years ago.

Second, what is is Dell's long term strategy? No doubt they have some plans but as we have commented here before some industry observers believe Dell's business model is struggling to survive . Admittedly I haven't kept up and a lot might have changed since 2008 when the article was first published, but still, have they managed to realign the organization and their entire business model to be able to drive growth?

Third, what about the share prices? YTD Acer's shares have climbed from NTD40 per share to NTD80 per share (that is a %100 climb) whereas Dell has gone from US$10.54 to US$15.43. Certainly Acer is seeing the reward for their growth strategies (and to think I was thinking of buying Acer at NTD25 way back when, DAMN!)

Fourth, netbooks are a disruptive technology. Both Acer and Asus are aware of this. In "The Innovator's Dilemma" Clayton Christensen has highlighted the way disruptive technologies can bring down market leaders very quickly if they do not invest in these technologies. Yes, right now Dell does have very strong relationships with businesses around the world, but when the push comes to the shove and the netbook computers are increasingly adopted by businesses accross the board, Dell won't be in the game.

To stress, I am not here suggesting that Dell will fail. The world of business is too uncertain for such radical proclamations. The point here is this: Dell can carry on running along the lines they are going but right now technology is moving towards flexible, mobile devices that can be easily moved around and connected anywhere. I dare suggest that although sitting and doing nothing may be a long term strategy, innovation right through the value chain, gaining new market share, and becoming dominant in new market spaces is a valuable long term strategy that will reap reawards later. The experience curve suggests that as Acer, Asus and the others continue to grow in the netbook space, their cost structures will decline and when and if Dell do decide to enter the market space, they will be blown away.

PC WORLD: PC Shipments on the Rise, But at What Cost?

Acer Rises to No. 2 in Q3 2009

In Acer Climbing to No. 2 we noted that IDC reported Acer was the second largest PC distributor behind HP with a market share of 18.5%. Today Reuters reports Acer has surpassed Dell in Q3 2009 as well. Reuters says:

Taiwan's Acer Inc (2353.TW) surpassed Dell Inc (DELL.O) to become the world's No. 2 PC maker in the third quarter as worldwide industry sales proved surprisingly strong, spurring hopes that demand is rebounding.

According to Reuters Acer now has a PC market share of 14% while HP leads with a market share of 20.2% and Dell at 8.4%. Are Dell in trouble? ASUS and Lenovo will be fighting for more market share and both those companies may start to attack Dell's position in the market. Only time will tell.

Reuters: Acer passes Dell as global PC shipments rise