Figures and Tables xi

Foreword xiii

1 Why Incumbents Fail 1

Why Incumbents Fail to Innovate Unrelentingly 3

The Preeminence of Culture 7

Culture as a Primary Explanation 15

Basis for the Book 17

Conclusion 19

2 Willingness to Cannibalize Successful Products 23

Why Incumbents Are Reluctant to Cannibalize Products 24

Why Willingness to Cannibalize Is Important 28

Understanding Technological Evolution 33

Blinded to an Opportunity: Microsoft Keywords? 39

Crippled by Fear of Piracy: Sony MP3 Player 41

Decline of an Innovator: Eastman Kodak 45

A Cycle of Cannibalization: Gillette's Innovations in Wet Shaving 49

Late Move: HP Tablet 53

Conclusion 54

3 Embracing Risk 59

Sources of Risk: Innovation’s High Failure Rate 59

The Reflection Effect: Asymmetry in Perceived Risk 63

The Hot-Stove Effect: Learning from Failure 65

The Expectations Effect: Hope Versus Reality 68

Innovation’s Gain-Loss Function: Type 1 and 2 Errors 69

Case Histories 75

Gambling on an Embryonic Market: Toyota’s Prius 75

Gambling on Growth: Amazon.com 84

Gambling on Vision: Facebook 90

Gambling on Scale: Federal Express 103

Conclusion 106

4 Focusing on the Future 109

Why Future Focus Is Tough 111

Availability Bias 114

Paradigmatic Bias 116

Commitment Bias 119

Planning for the Future 121

Predicting and Managing Takeoff 122

Targeting Future Mass Markets 126

Predicting Technological Evolution 129

Analyzing Emergent Consumers 134

Conclusion 138

5 Incentives for Enterprise 141

Traditional Incentives: Winning Loyalty 142

Asymmetric Incentives: Turning Failure into Success 143

Making Incentives Work: Economics and Psychology of Incentives 148

Power of Incentives: IBM's Transformation 155

Incentives for Enterprise: Google 157

Incentives for Loyalty: General Motors 163

Incentives for Innovation: 3M 168

Structuring Team Incentives: IBM's Learning from Online Gamers 171

Conclusion 173

6 Fostering Internal Markets 177

Characteristics of Markets 181

Implementing Internal Markets 192

Managing Internal Markets 199

Conclusion 203

7 Empowering Innovation Champions 205

Luck Versus Innovation Champions 206

Characteristics of Champions 208

Testing Luck 210

Champions Versus Teams 212

Champions at the Top Versus the Bottom 214

Distributed Champions: Google’s "Young Turks" Program 216

Serial Champion: Roger Newton 218

Championing Mass Market of the Future: Tata Nano 222

Championing a Music Revolution: Apple iPod 227

Mobilizing an Organization for Innovation: Sony Walkman 231

Steps in Empowering Champions 235

Conclusion 236

8 Culture Versus Alternate Theories: Arguments and Evidence 237

Micro-Theories 238

Macro-Theories 250

Conclusion 260

Notes 263

Bibliography 289

Acknowledgments 307

The Author 309

Index 311