The third principle, that markets that don't exist can't be analyzed, reminds managers that assessing the effects of disruptive technologies is often counter-intuitive to good management practice. Many companies require the development of a business case and a business plan for new products. This approach is generally very successful when applied to sustaining technological innovations, because the market is well-known; however, when companies apply this strategy to new, emerging markets resulting from disruptive technologies, they become paralyzed. They are seeking data on markets that do not yet exist. Christensen concludes that businesses can counteract this principle by planning for failure and taking a discovery-based planning approach to disruptive technologies. Managers should not plan on being right all the time and should view their initial strategy as a learning opportunity. As they gather data, managers must be prepared to make revisions to their business plans.
Capabilities and Disabilities
The fourth principle, that an organization's capabilities define its disabilities, is perhaps the most obvious statement of the difference of the disruptive technology environment. An organization's capabilities lie in its processes and its values, neither of which are as flexible, for example, as the skill sets of an organization. These organizational processes and values develop over time because they help make the company successful in a certain environment. Because these processes and values become ingrained and inflexible, they can impede success in the disruptive technology environment.
Technology Supply and Market Demand
The fifth principle, that technology supply may not equal market demand, illustrates that disruptive technologies do not meet the needs of mainstream markets at the outset (although they do eventually become competitive). Since the pace of technological change is so rapid, and because companies are always focused on developing a more superior product, companies quickly exceed their customer's product requirements. While aiming at the competitors in higher-performance, higher-margin markets, these companies create a vacuum at lower price points in the market into which companies with disruptive technology can enter.
Source: Lewis, 2001, p. 61.
This is an interesting approach to looking at how Exxon is doing business today and how it tends to respond to new forces in its market and potential market - which is to say the entire world. In this regard, Exxon's operations in some parts of the world have been "paralyzed" by terrorism (Dale, 2005) and coping with corruption in developing nations (Naresh, Spieler & Strassfeld, 2006), and remains "paralyzed" on the issue of global warming today (Livesey, 2002). In this aspect at least, Exxon has clearly been also been adversely affected by the capabilities and disabilities component of the disruptive innovation spectrum as it applies to its exploration throughout Asia (Hunter, 2004). For example, in response to increasingly vocal criticisms from many environmentalists, ExxonMobil has been backed into a desperate corporate corner on the issue of global warming, much like its experiences following the Exxon Valdez spill (Boyles, 2005). In that fiasco, Exxon "refused to take the critics seriously, and it suffered long-term for its mishandling of the Alaska oil spill in 1989.... Jurors said one reason for the high penalties was that the Alaska situation showed them that Exxon was a company that could not be trusted and deserved to be punished" (Smith, 2005, p. 22). Likewise, as a result of the environmental issues facing the company today, Exxon has been forced to adamantly maintain that there is no provable link between its exploration and production activities and ecological harms, either "presently manifested or anticipated" (Livesey, 2002, p. 1).
According to this author, "This [approach] uses a strategy by now made familiar in other cases where corporate products or production processes have been alleged to cause toxic effects (e.g., asbestos and tobacco). From the commercial perspective, therefore, any proposed change in business practices, which would impose costs, is unwarranted and said to threaten to 'harm' the 'health' of the economy (Livesey, 2002, p. 2). Because the company's entire existence relates to the very activities which are being cited as the cause of global warming, the company does not have any room to equivocate in its response but must continue to pursue its existing corporate strategy in the face of such criticisms: "ExxonMobil's argument here produces the conclusion that the problem is not global warming, but the wrong-headed, if not arrogant, views of climate scientists (and the misguided government representatives and public who trust them), 'who believe they can predict changes in climate decades from now'" (emphasis added) (Livesey, 2002, p. 117). The company has a number of influential scientists and politicians lined up on its side on this issue as well, but the final principle of disruptive innovation, "Technology Supply and Market Demand," suggests that it is likely that many SMEs can reap the benefits of Exxon's firmly entrenched position on global warming by identifying and marketing technologies that can help offset or eliminate the potential causes and adverse effects of global warming in the meantime.
Resource-Based View (RBV) of ExxonMobil.
The resource-based view of the firm has been cited as being particularly conducive to understanding strategic initiatives taken by companies in recent years (Silverman, 2002). According to this author, "The development of the resource-based view of the firm has led numerous scholars to prescribe that firms should focus on developing 'core competences' from which business- and product-level competitive advantage will naturally flow" (Silverman, 2002, p. 2). The nature of these core competences, though, as well as the methods by which organizations are able to exploit them remain unclear, and core competencies do not become readily discernible except through historic analyses; therefore, an improved understanding of how important attributes of technological resources fuel a company's decision to diversify (or to pursue an alternative mechanism of exploitation) would provide some valuable insights into the nature of resource-based rents and their differences across firms and industries (Silverman, 2002). According to Intagliata, Smallwood and Ulrich (2000), core competencies represent a critical aspect of leadership within any type of organization for at least five reasons, including the following:
They guide direction;
They are measurable;
Competencies can be learned;
They can distinguish and differentiate the organization; and,
They can help integrate management practices.
This aspect of Exxon can be viewed in terms of how it has helped the company use its resources to their maximum advantage, a process that as noted above is not as straightforward or concrete as many observers might think. In sum, Intagliata and his colleagues emphasize that like the vision provided by corporate leaders, this feature of strategy is reciprocal and requires constant fine-tuning to avoid complacency and missed opportunities for growth: "Competencies provide organizations with a way to define in behavioral terms what their leaders need to do to produce the results the organization desires and do so in a way that is consistent with and builds its culture. They should provide the 'North Star' by which leaders at all levels navigate in order to create synergy and produce more significant and consistent results" (2000, p. 12). Because core competencies must be quantifiable by definition, then, applying this analysis to Exxon suggests that the company's core competencies should be linked to positive outcomes that can be measured. For this purpose, Intagliata and his colleagues provide some useful metrics as show in Table 2 below.
Relationship between core competencies and key result areas.
Key Result Area
Changes in employees' knowledge and skill levels;
The extent to which the company's vision is shared among all employees;
Retention/turnover rates (voluntary and involuntary; low vs. high performers);
Employee satisfaction or commitment index;
Coaches and develops
Performance with target customers and market niches;
Customer retention and loyalty;
Differentiated value propositions and disciplined execution of market share vs. profitability trade-offs; and,
Strategically customizes the value proposition.
Builds customer commitment and intimacy;
Strategically customizes the value proposition;
Capital invested across business processes consistent with value proposition
Extent to which innovative management practices in one unit are shared across boundaries;
Time to introduce new products/service or take them global;
Integration of customers, suppliers, and vendors into business;
Performance management/compensation systems in line with delivery expectations
Builds a learning organization;
Builds speed and agility;
Supports collaboration and teamwork.
Measurement of growth overall and by product, geography, channel, customer, or leverage;
Distinction between work that creates advantage and transactional work that can be outsourced; and,
Analyst's understanding of company and its vision.
Holds self and others accountable;
Focuses on growth;
Financial understanding; and,
Stakeholder relationship building
Source: Intagliata et al., 2000, p. 12.
The effectiveness - and profitability -- of the company's existing strategies in applying its core competencies can be readily seen in one quantifiable aspect of their performance as reflected by its P/E ratio (this is the stock's market capitalization divided by its after-tax earnings over a 12-month period) as shown in…