Publishing’s ‘Fourth Wave’ Through Professor Christensen’s Lens
The Seybold Report • Analyzing Publishing Technologies
June 2004| By Chris Lynn
New book explains how incumbent companies fail to deal with disruptive technologies.
The Seybold organization coined the term “the fourth wave” to describe the advent of desktop publishing back in the 1980s. The fourth wave swept away the third wave of computerized typesetters, which, in turn, had replaced electro-mechanical typesetters and hand-set type. But while the term was useful shorthand, it shed no light on the dynamics of the industry that the disruptive technologies of the Mac, Laserwriter and Postscript so dramatically altered.
Harvard Professor Clayton M. Christensen’s recent book, “The Innovator’s Solution: Creating and Sustaining Successful Growth,” co-authored with Michael E. Raynor (Harvard Business School Press, 2003) provides a theory for how incumbent companies, however well-run they are, inevitably fail to deal adequately with disruptive technologies. The book expands on theses set out in Christensen’s earlier book, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” (Harvard Business School Press, 1997), and adds suggestions for how large companies can try to ride a new wave instead of being crushed by it.
Christensen distinguishes between two types of innovation, contrasting sustaining innovations that provide better performance to demanding, high-end customers with disruptive innovations that typically provide poorer performance than conventional products but offer other benefits, such as lower cost, greater ease of use and more convenience.
Disruptive innovations cannot compete for high-end customers. Instead, they compete against non-consumption or they define a new low end to the traditional market. This is why established companies initially fail to see the disruptive technology as a threat. They view it as either attractive of taking the least-profitable end of their market. When they eventually do recognize the threat, their initial reaction is to try to make their technology good enough to serve their existing customers in order to protect their franchise.
This is often a struggle, but the crucial failure is that the established companies then try to sell their new technology to the same customer base through the same channels, using the same business processes as in the past. They miss the point that the usurpers are disrupting the entire business model, not just the product technology.
Christensen illustrates his thesis with examples from a variety of industries – disk drives, steel, cardiology, photocopiers, and motorcycles, to name a few. However, he omits an excellent illustration of his theory as it played itself out from the mid-80’s: the effect of desktop publishing tools on the typesetting and color electronic prepress market. Back then, you’ll recall, the four main suppliers of color scanners and electronic page composition (EPC) systems were Crosfield, Scitex, Hall and Dainippon Screen. Drum scanners then cost up to $150,000 and EPC systems twice that. They were operated by skilled craftsmen in dedicated service organizations who produced four-color separations. The systems themselves required highly integrated, proprietary architectures to achieve the productivity and quality that customers demanded.
The advent of modular architecture in publishing systems changed the playing field. The high-end vendors (and as a marketing manager at Crosfield, I was one of them) publicly scoffed at the poor color quality and low productivity of systems based on a MacLLfx and Linotype L300 imagesetter, while working out strategies to co-opt the new technology into better, faster solutions for their core customer base.
But we could not move fast enough. We were not the deer in the headlights, but rather dinosaurs whose weight was too great to run through the swamps before the advancing glaciers. Everything about our business model argued against success in the new world of modular systems, low cost and “good enough” color: our 70% gross margins; the large investment in manufacturing plants, along with an equally large investment in an international direct-sales and service operation; our procurement systems, everything.
We are not blind to this. We did a benchmark study of the CAD industry, which had gone through the same traumatic and profit-destroying transition from proprietary architectures to unbundled software sold via third-party integrators a few years before. But the scope of the change required, particularly as it immediately imperiled profitability, was too great.
This is the dilemma captured so well by Christensen. His suggested solution is to set up a parallel operation based on the disruptive technology. All the prepress vendors attempted something like this: Crosfield bought a Mac-based design software company called Lightspeed and another called Dicomed from the slide-making industry. Scitex bought a Finnish design software company called Unda and Screen bought Island Graphics. But the vendors generally did not follow Christensen’s key advice, which is to let the new venture operate autonomously, with its own P&L, processes and channels, and let it compete anywhere, even in the same business as the parent. In Crosfield’s case, the imposition of a cost structure that was based on high-margin, six-figure products onto low-margin, five-figure products killed the business.
We know how the story ended. What remains of Crosfield is now a much smaller entity called FujiFilm Electronic Imaging; Hell merged with Linotype and then was sold to Heidelberg; Scitex’s prepress operations were sold to Creo. Of the four, only Dainippon Screen, supported through the transition by its non-prepress divisions, remains independent.
So much for ancient history. What does Christensen’s theory tell us about the current state of the publishing industry? The first thing he says is that disruptive technologies are hard to discern in their early stages. The first large-format inkjet printers from Iris and others were slow and unreliable, and did not set the conventional proofing system vendors quaking. But piezo-electric print heads got better and cheaper, and Epson and other vendors’ offerings have made a disruptive entry from the low end. This changed the debate over whether screen dots are essential on a contract proof and set a new price point that made Crosmalin and Matchprint businesses unattractive.
Digital cameras are currently making color scanners obsolete, and image-rendering systems such as Adobe Graphic Server can be used to crop, size and color-correct images for publishing templates automatically. The “lights-out” prepress and print fulfillment facility is almost here. Corporate customers will access page templates for marketing collateral over the Web, select copy and graphics according to target demographics, create personalized PDFs from customer data in a CRM system and print, bind and ship with virtually no human intervention.
Electronic paper and light-emitting polymers are likely to disrupt all aspects of the ink-on-paper supply chain, as digital printing is already doing. (Flint Ink announced last year that it is moving into conductive inks to prepare for this disruption.) Heidelberg, as other commentators have already remarked in these pages, has astonishingly decided that it will no longer invest in the disruptive printing technologies it embraced at Drupa 2000.
Christensen would say that this is a strategic error, caused by the company’s failure to follow another of his counter-intuitive precepts: When an incumbent company invests in a disruptive technology business, it should be patient for growth, but impatient for profits. This is the inverse of the conventional wisdom, but it is vital for success. Impatience for growth forces the new venture to compete for the current customer base because that is the market the company knows how to serve. But the right targets for a disruptive technology are non-consumers, and entering a new market will take time. Hence the need to be patient for growth.
The new venture must not be an indefinite drain on corporate resources, however, or it will be killed off when the core business turns down. Therefore, management should be impatient for profits. Heidelberg got this exactly the wrong way round, and, having invested too heavily in digital, it bailed out when the sheet-fed business stalled.
Conclusion
“The Innovator’s Dilemma” and “The Innovator’s Solution” will give anyone who has lived through publishing’s fourth wave – and almost anyone with an interest in technology and strategy – several “a-hah” moments. If you are responsible for your company’s strategy and direction, these books should be required reading for your team. TSR
Chris Lynn is a principal of Hillam Technology Partners, a consulting firm specializing in technologies for process improvement in marketing and publishing. He is based in Atlanta and can be reached at chris@hillamtech.com.