Need to revive the economy? Shift your focus to disruptive innovation!

In case you haven't heard, one of the companies that did well in 2008 was Rolls-Royce.  Yes, they did!  And yes, the same company who wasn't doing so well not so long ago.  What did they do differently?

What Rolls-Royce did was to focus back on their core competency - pursuing technical advances and keeping close with their airline customers.  To quote Winston Churchill who said would like to see finance "less proud and industry more content", this is another reminder that a lot of Silicon Valley companies must refocus back on technology, and not just offering more attractive "deals" to their customers instead.

The thought of refocusing technology then translates into focusing on disruptive innovation.  In his book, Innovator's Dilemma, Clayton Christensen (Harvard Business School) writes that sustaining innovation (the opposite of disruptive innovation) ends up providing more technology to the high end users than what they are willing to pay for.  When the disruptive innovation comes, it provides a new set of less demanding users with less technology but at a state of the art.  There are lots of examples for this (PC vs. iPhones, etc.).  To combat the disruptive innovation, companies with sustaining innovation resort to financial packages to incentivize the less demanding users to stay with the incumbent (sustaining) technology.  

I get the feeling that this has been occurring a lot in Silicon Valley.  Instead of focusing on real (disruptive) innovation, the focus has been on ways to innovate the purchase process.  I saw that first hand at Cadence where a new number of deal structures were used on a regular basis.  In my last quarters there, the sales account review meetings had a different air about them.  In those meetings, the room was filled by finance and legal personnel, rather than field or solution engineers.  More than 75% of the discussion in those meetings was on contract restructuring and revenue recognition rules, than technology and sales (i.e. actually selling something) strategy.

As we have it, Cadence is now refocusing on technology and innovation.  That is the right move.  The key question is how to stay away from the temptations of "financial innovation".