The Innovator's Solution

Can you identify this quote? "The history of the disk-drive industry shows that the established firms ... have well-developed systems for killing ideas that their customers don't want. As a result, these companies find it ... difficult to invest adequate resources in disruptive technologies -- lower-margin opportunities that their customers don't want -- until their customers want them. And by then it is too late."

This passage comes from the opening paragraphs of The Innovator's Dilemma, a 1997 book by Harvard Business School professor Clayton M. Christensen that has become a modern-management classic. Whether you make cars or cornflakes, you've almost certainly been exposed to Christensen's central argument: Well-run industry leaders are constantly at risk of being outdone by innovative newcomers.

But in the disk-drive industry, which prompted Christensen's research, a lot has changed recently. Far from finding itself surpassed by creative challengers, Seagate Technology, the leading disk-drive manufacturer of the 1980s, has recovered from setbacks in a big way. It has reestablished itself as the industry leader; it's beating smaller, supposedly more nimble rivals in getting new drives to market. By the end of the fourth quarter of 2001, Seagate's profit margins had climbed tenfold from the depressed levels of the previous year, while shipments surged to a record 14.6 million drives.

Most striking, Seagate has seen much of its growth from smaller, cheaper drives that are going into the likes of Microsoft's Xbox, the heavily promoted new video-game console. And, at least according to Christensen's theory, that's not supposed to happen. To crack such markets, Seagate has had to get rid of many of the high-performance features that help it sell to big-time computer makers such as Dell, Compaq, and Hewlett-Packard. It needed (at least briefly) to stop listening to its best customers so that it could instead pay attention to raw new markets.

So how does Seagate create innovation now? And what can companies that are competing in less frantic industries learn about serious innovation from the leading innovator in disk drives?

Seagate's answers began with a new management team that took charge in 1998, after company founder Alan Shugart departed. New CEO Stephen J. Luczo came from an investment-banking background. Luczo's president and COO at Seagate, Bill Watkins, had worked for several rival drive makers. They agreed that Seagate had become too insular, too slow, and too departmentalized.

As Luczo explains, "If you want to change results, first you need to create a new culture." Here are five crucial ways that Seagate's CEO and his leadership team have infused this Scotts Valley, California company with a fresh approach to the future.

Get new ideas from your customers' customers. Seagate traditionally gathered the majority of its market intelligence from its top-20 corporate customers, which included nearly all of the leaders in the personal-computer or server markets. That's good, but it isn't good enough, says Brian Dexheimer, Seagate's executive vice president for worldwide sales, marketing, and customer service.

"As much as I admire our top clients, if I'm not doing anything but listening to their opinions, I'm going to be led down the primrose path," Dexheimer says. "We have to get past their horizons and understand their consumers' preferences so well that we'll never be surprised by a sudden turn in the market. Take something like the potential for usage characteristics of MP3 players. Our traditional desktop customers aren't going to be able to tell us a whole lot about that. We'd be better off gathering a dozen 19-year-olds at a college campus and asking them, 'What would you do with this sort of device?' "

The end-user intelligence that comes back can be a lot hazier and harder to sort out than a nice two-hour PowerPoint presentation by an existing big account, Dexheimer says. But he doesn't mind. "We go into these exercises figuring that 90% of what comes back won't have anything to do with the type of devices we build," he says. "But there will always be that 10% that means the difference between success and failure."

Consequently, outreach programs are flourishing at Seagate. The company typically looks for free-spirited engineers and salespeople and pairs them in two-person teams to gather consumer intelligence. In the old days, such scouting might have been done entirely by sales or marketing specialists. Adding engineers makes each outing more productive, Dexheimer says. "This way we're thinking right from the start about what would be involved in making a new product."

Force your research team to think five years ahead. At many big companies, it's all too easy to let research initiatives fall into one of two categories: safe bets -- incremental improvements that could help the next product cycle -- or long shots for the distant future, with no clear path out of the lab or even a timeline for completion. And hardly anything happens between those two extremes.